Q3 2019 Earnings Call

Ladies and gentlemen, thank you for standing by welcome to the Eli Lilly Q3, 2019 earnings call.

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Eli Lilly Q3 2019 earnings call. At this time, all participant lines are in a listen-only mode. Later, there will be an opportunity for your questions, and instructions will be given at that time. If you should require assistance, please press star, then zero.

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At this time all participant lines are they listen only mode. Later, there will be an opportunity for your questions instructions will be given at that time. If you should require assistance. Please press Star then zero as a reminder, this conference call is being recorded I'd now like to turn the conference over to the Vice President Investor Relations given her. Please go ahead.

Operator: As a reminder, this conference call is being recorded. I'd now like to turn the call over to the Vice President of Investor Relations, Kevin Hearn. Please go ahead. Thank you. Good morning.

Thank you good morning, Thanks for joining us for you when companies Q3 2019 earnings call.

Kevin Hearn: Thanks for joining us for Eli Lilly and Company's Q3 2019 earnings call. I'm Kevin Hearn, Vice President of Investor Relations. Joining me on today's call are Dave Ricks, Lilly's Chairman and CEO, Josh Smiley, our Chief Financial Officer, Dr. Dan Skovronsky, President of Lilly Research Laboratories, Anne White, president of Lilly Oncology, Enrique Quintero, president of Lilly Diabetes and Lilly USA, Patrik Jonsson, president of Lilly Biomedicines, and Mike Mason, incoming president of Lilly Diabetes

I haven't heard vice president of Investor Relations.

Joining me on today's call, our Dave Ricks, Lilly's, Chairman and CEO , Josh Smiley, our Chief Financial Officer, Dr. Danskin, Roski President of Lilly Research laboratories.

And white President of Lilly oncology.

Enrique Conterno, President I believe diabetes and really USA.

<unk> President of Lilly Bio medicines, and Mike Mason incoming president of Lilly diabetes.

We're also joined by came back in Mike's a part of the Investor Relations team.

Kevin Hearn: We're also joined by Kim Macco and Mike Sipar of the Investor Relations team. During this conference call, we anticipate making projections and forward-looking statements based on our current expectations. Our actual results could differ materially due to a number of factors, including those listed on slide 3 and those outlined in our latest forms 10-K, 10-Q, and any 8-Ks filed with the Securities and Exchange Commission. The information we provide about our products and pipeline is for the benefit of the investment community. It is not intended to be promotional and is not sufficient for prescribing decisions. As we transition to our prepared remarks, a reminder that our commentary will focus on non-GAAP financial measures, which exclude the financial contribution from ELANCO during 2018 and 2019, and present earnings per share as though the full disposition via the exchange offer was complete on January 1, 2018. Now, I'll turn the call over to Dave for a summary of our Q3 results.

During this conference call, we anticipate making projections and forward looking statements based on our current expectations. Our actual results could differ materially due to a number of factors, including those listed on slide three and there was outlined in our latest forms 10-K, 10-Q, and any eight case filed with the securities and exchange coming.

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The information, we provide about our products and pipeline is for the benefit of the investment community. It is not intended to be promotional and is not sufficient for prescribing decisions.

As we transition to our prepared remarks reminder, that our commentary will focus on non-GAAP financial measures, which exclude the financial contribution from Elanco during 2018, and 29 team and present earnings per share as though the full disposition via the exchange offer was complete on January 1st 2018.

Now I'll turn the call over to Dave for a summary of our Q3 results show.

Dave Ricks: Thanks, Kevin. Q3 was another strong quarter for Lilly as we continue to deliver robust results and execute on our strategy, which is launching new medicines, advancing our pipeline, and driving productivity. Revenue grew 3% this quarter or 4% in constant currency, driven entirely by robust volume growth from our new products and international operations. Volume contributed 8 percentage points of growth, despite sizable headwinds from the loss of exclusivity for Cialis in the U.S. and the withdrawal of Lartruva. Excluding Cialis and Lartruvo, volume growth was an impressive 16%.

Two or three with another strong quarter for Lilly as we continue to deliver a robust results and execute on our strategy, which is launching new medicines advancing our pipeline and driving productivity.

Revenue grew 3% this quarter were 4% in constant currency driven entirely by robust volume growth from our new products and international operations.

Volume contributed 8%.

Eight percentage points of growth despite sizable headwinds from the loss of exclusivity for see Alice in the U.S. and the withdrawal of Lartruvo.

Excluding Seattle with Sandler true, though volume growth was an impressive 16%.

Our newest medicines continues to be the engine of revenue growth and account for 44% of revenue this quarter.

Dave Ricks: Our newest medicines continue to be the engine of revenue growth and account for 44% of revenue this quarter. We made good progress in productivity in Q3, as our non-GAAP operating margin was 28.6%, keeping us on track to meet our 2019 and 2020 Operating Margin Goals. Compared to last year's quarter, operating margin was essentially flat, reflecting lower gross margin offset by prudent management of our operating expenses.

We made good progress in productivity in Q3 is our non-GAAP operating margin was 28.6%.

He keeping is on track to meet our 2019 and 2020 operating margin goals.

Compared to last quarter last year's quarter operating margin was essentially flat, reflecting lower gross margin offset by prudent management of our operating expenses.

We achieved milestones on several pipeline assets since our last earnings call.

Dave Ricks: We achieved milestones on several pipeline assets since our last earnings call, including the FDA approval of RayVal for the acute treatment of migraines with or without aura in adults. The European Commission's approval to expand Trulicity's label to include results from the Rewind Cardiovascular Outcomes Study, presentation of registration phase 2 data for selprocatinib in non-small cell lung cancer and thyroid cancer, and presentation of overall survival data for Verzenio in metastatic breast cancer. TULPS also made impressive progress with its development program this quarter, with the FDA approval of radiographic axial spondyloarthritis, or AXSPA, along with its submission in Europe. Submission of our non-radiographic axial spondyloarthritis in the U.S. and Europe, which represents a first-in-class opportunity in this indication, and positive results from a head-to-head study in psoriasis versus gazelkiumab and IL-23 antibodies

Including the FDA approval of re though for the acute treatment of migraine.

With or without aura in adults.

The European Commission approval to expand Trulicity is label to include results from the rewind cardiovascular outcome study.

The presentation of registration phase two data for self we're cutting them in non small cell lung cancer and thyroid cancers.

And the <unk> presentation of overall survival data over zinio in metastatic breast cancer.

Talk also made impressive progress with its development program this quarter.

With the FDA approval of radiographic Axiall sponsor <unk>, spagnolo arthritis, or exmar, along with it submission in Europe .

Submission of our non radiographic Axiall spondylitis bobl arthritis in the U.S. and Europe , which represents a first in class opportunity in this indication.

In positive results from a head to head study in psoriasis versus gets out came out and I all 23 antibody.

We remain focused on creating long term value for shareholders as we allocate capital seeking external innovation that will enhance future growth prospects well at the same time, we returned nearly $1.2 billion to shareholders this quarter via share repurchase and the dividend.

Dave Ricks: We remain focused on creating long-term value for shareholders as we allocate capital, seeking external innovation that will enhance future growth prospects, while at the same time, we return nearly $1.2 billion to shareholders this quarter via share repurchase and the dividend. Moving on to slide five, you'll see more detail on key events since our last earnings call in July. I would like to highlight today's announcements regarding leadership changes, and I want to congratulate and thank my longtime colleague Enrique Quintero for his significant contributions to Lilly. He's done an outstanding job leading Lilly Diabetes over the past decade, really reestablishing our company as a leader in diabetes care with the broadest and fastest growing portfolio of medicines in the industry. Enrique, Lilly would not be in the strong position it is today without your Your energy, optimism, and thirst for excellence will be missed.

Moving on to slide five you'll see more detail on key events since our last earnings call in July .

I'd like to highlight today's announcements regarding leadership changes and I want to congratulate and thank my longtime colleague Enrique conterno or significant contributions to Lily.

We get done an outstanding job, leading Lilly diabetes over the past decade.

Really reestablishing our company as a leader in diabetes care with the broadest and fastest growing portfolio of medicines in the industry.

Enrique Lilly will would not be in the strong position. It is today without your leadership your energy optimism and thirst for excellence will be mess.

Dave Ricks: I would also like to welcome Mike Mason as he assumes leadership for our Diabetes Business Unit. Mike is a 30-year veteran with deep expertise and significant experience in our diabetes business. Mike's a patient focus leader with a track record of delivering results for Lilly and for patients in the U.S. and Canada. Under Mike's leadership, Lilly successfully launched both Jardians and Trulicity in the U.S., becoming the diabetes market volume leader during his tenure. Since July 2018, Mike has led our connected care and insulin commercial and development organizations working to leverage technology to enhance insulin delivery and improve the user experience. Importantly, he has also led Lilly's efforts in building the most comprehensive suite of insulin affordability solutions in the U.S., including the Lilly Diabetes Solution Center to support people in need of less expensive alternatives for their medicines. Mike, it's great to have you join our senior leadership team. And now, I'll turn the call over to Josh to review our Q3 results and provide an update on financial guidance for 2019.

I'd also like to welcome Mike Mason as he assumes leadership for our diabetes business unit, Mike has a 30 year veteran with deep expertise and significant experience in our diabetes business makes a patient focused leader with a track record of delivering results for Lilly and for patients in the U.S. in Canada.

Under Mike's leadership Lilly successfully launched both Jardiance and Trulicity in the U.S., becoming the diabetes market volume leader during his tenure.

Since July 2018, Mike has led our connected care and insulin commercial and development organizations working to leverage technology to enhance insulin delivery and improve the user experience.

Importantly, he has also led Louise Lilly's efforts in building the most comprehensive suite of insulin affordability solutions in the U.S.

Putting the Lilly diabetes solution center to support people in need of less expensive alternatives for their medicine [noise].

Mike It's great heavy join our senior leadership team and.

And now I'll turn the call over to Josh to review, our Q3 results and provide an update on financial guidance for 2019.

Josh Smiley: Thanks Dave and good morning everyone. Slide 6 summarizes our presentation of gap results and non-gap measures. And slide seven provides a summary of our gap results. Looking at the non-GAAP measures on slide 8, you'll see revenue increase 3% or 4% in constant currency. Growth Margin as a Percent of Revenue declined 60 basis points to 79.6%. Excluding the impact of FX on international inventory sold, gross margin as a percent of revenue was 78.9%. On this same basis, our Gross Margin Percent declined approximately 140 basis points compared to Q3 2018, driven by the unfavorable impact of product mix due to Cialis and the negative impact of price on revenue, partially offset by manufacturing efficiency. Total operating expense grew 2% this quarter.

Thanks, Dave and good morning, everyone on slide six summarizes our presentation of GAAP results in non-GAAP measures and slide seven provides a summary of our GAAP results.

Looking at the non-GAAP measures on slide eight you'll see revenue increased 3% or 4% in constant currency.

Gross margin as a percent of revenue declined 60 basis points, 79.6%.

Excluding the impact of FX on international inventory sold gross margin as a percent of revenue was 78.9%.

On the same basis, our gross margin percent declined approximately 140 basis points compared to Q3 2018, driven by the unfavorable impact of product mix due to see Alice and the negative impact of price on revenue, partially offset by manufacturing efficiencies.

Total operating expense grew 2% this quarter marketing selling and administrative expenses declined 3% as our ongoing cost containment measures and lower litigation charges versus last year, what partially offset by increased investment behind recent launches consistent with our long term strategy.

Josh Smiley: Marketing, selling, and administrative expenses declined 3% as our ongoing cost containment measures and lower litigation charges versus last year were partially offset by increased investment behind recent launches, consistent with our long-term strategy. R&D expense increased 8%, reflecting higher development expenses for late-stage assets, including Delport-Catnib and Terzepatai. Total operating income increased 3% compared to Q3 2018 as sales growth outpaced expense growth, driving operating income as a percent of revenue to 28.6% for the quarter. As our recent launches continue to drive revenue growth and headwinds from Cialis and Laertubo sunset in 2020, we expect additional operating margin expansion and bottom-line growth. We are on track and committed to achieving our full-year operating margin guidance of approximately 28%, as well as our 2020 target of 31%.

R&D expense increased 8%, reflecting higher development expenses for late stage assets, including cell forgotten have enters appetite.

Total operating income increased 3% compared to Q3 2018, I sales growth outpaced expense growth driving operating income as a percent of revenue at 28.6% for the quarter.

As a result launches continue to drive revenue growth and headwinds from sea Allison Lartruvo Sunset in 2020, we expect additional operating margin expansion and bottom line growth.

We're on track and committed to achieving our full year operating margin guidance of approximately 28% as well as our 2020 target of 31%.

Other income and expense was expense of $25 million this quarter compared to expense of $2 million in Q3, 2018, driven by higher net interest expense, primarily due to the Loxo acquisition, partially offset by investment gains.

Josh Smiley: Other income and expense was $25 million this quarter compared to $2 million in Q3 2018, driven by higher net interest expense, primarily due to the LOCSO acquisition partially offset by investment. Our tax rate for the quarter was 11.7%, which is a decrease of 320 basis points compared with the same quarter last year, driven primarily by a net discrete tax benefit related to the settlement of certain tax matters.

Our tax rate for the quarter was 11.7%, which is a decrease of 320 basis points compared with the same quarter last year, driven primarily by net discrete tax benefit related to the settlement of certain tax matters.

Josh Smiley: At the bottom line, net income increased 5% while earnings per share increased 10% due to a reduction in shares outstanding from share repurchase. In summary, in Q3, we again drove volume-based revenue growth and made progress on our productivity goals. In addition to continued solid execution, the third quarter also featured impressive performance outside the U.S. as revenue grew 10% in constant currency, driven by 12% volume growth. Examples of our ability to launch with excellence as Mgality and Vaccini are off to a strong start.

At the bottom line net income increased 5% while earnings per share increased 10% due to reduction in shares outstanding from share repurchases.

In summary in Q3, we again drove volume based revenue growth and made progress on our productivity goals.

Addition to continued solid execution third quarter also featured impressive performance outside the U.S. as revenue grew 10% in constant currency driven by 12% volume growth.

Examples of our ability to launch with excellent them Galatea index Feeney are off the strong starts the approval of the first medicine in the new class to treat acute migraine submissions of new indications for our key growth brands in multiple geographies and important clinical data at major medical meetings from early.

Josh Smiley: The approval of the first medicine in a new class to treat acute migraine, submissions of new indications for our key growth brands in multiple geographies, and important clinical data at major medical meetings from our late phase portfolio. Moving to slide 9, it outlines these non-GAAP measures for September year-to-date, while slide 10 provides a reconciliation between reported and non-GAAP EPS. You will find additional details on these adjustments on slides 24 and 25.

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Moving to slide nine it outlines these non-GAAP measures for September year to date.

While slide 10 provides a reconciliation between reported and non-GAAP , Yes, you will find additional details on these adjustments on slides 24 and 25.

Moving to slide 11, let's review the effective price rate in volume on revenue growth.

Josh Smiley: Moving to slide 11, let's review the effect of price and volume on revenue growth. As mentioned earlier, worldwide revenue grew 4% in constant currency, driven by volume growth of 8%, partially offset by price. However, foreign exchange reduced revenue growth by one percentage point this quarter.

As mentioned earlier worldwide revenue grew 4% in constant currency driven by volume growth of 8%, partially offset by price.

Foreign exchange reduced revenue growth by one percentage point this quarter.

For the 16th straight quarter, we delivered worldwide revenue growth despite major headwinds from patent expirations.

Josh Smiley: For the 16th straight quarter, we delivered worldwide revenue growth despite major headwinds from patent expiration. However, U.S. revenue was flat compared to the third quarter of 2018. Volume growth of 5% was led by our newer products, Trulicity, TAL, Stemgality, Jardians, Fresenio, and Basiglar. Excluding Cialis and Lartruva, volume grew nearly 17%. Consistent with our 2019 financial guidance and in line with Q1 and Q2 results, U.S. prices declined 5%. This quarter's decline was impacted by approximately three percentage points driven by the net of high... We anticipate approximately $200 million of impact for the year, and our actual results are consistent with this projection. However, we are seeing the donut hole impact more concentrated in Q2 and Q3 than in prior years and expect a smaller impact in Q4.

You asked revenue was flat compared to third quarter of 2018 volume growth of 5% was led by our newer products Trulicity tall them Galatea yardi answers any own baisiwala, excluding see Allison Lartruvo volume grew nearly 17%.

Consistent with our 2019 financial guidance and inline with Q1 in Q2 results U.S. price declined 5%.

This quarter's decline was impacted by approximately three percentage points driven by the net.

Segments offset by modest list price increases and over two percentage points through increased funding obligations during the donut hole phase of Medicare plans.

We anticipated approximately $200 million of impact for the year. Our actual results are consistent with his proven projection. However, we are seeing that donut hole impact more concentrated in Q2 in Q3 than prior years and expect a smaller impact in Q4.

As our largest product a trulicity of course had a significant impact on the U.S. portfolios price decline Trulicity is robust U.S. volume growth of 42% was consistent with first half trends and was partially offset by unfavorable pricing dynamics in the quarter, including.

Josh Smiley: As our largest product, Trulicity, of course, had a significant impact on the U.S. portfolio's price decline. Trulicity's robust U.S. volume growth of 42% was consistent with first-half trends and was partially offset by unfavorable pricing dynamics in the quarter, including excessive growth for net price segments driven by the excess winds we had in 2018 and the increased volume associated with these winds throughout this year; increased funding obligations during the coverage gap in Medicare, rate harmonization due to payer consolidation, and adjustments to our overall estimates for rebates and discount liabilities across various segments Combined, these factors had a negative impact on price in the quarter of approximately 20 percentage points.

Disproportionate Gordon net price segments, driven by the access wins, we had in 2018 and be increased volume associated with these wins throughout this year.

Increased funding obligations during the coverage gap in Medicare.

Great harmonization due to payer consolidation and adjustments to our overall estimates for rebates and discount liabilities across various segments.

Buying these factors had a negative impact on price in the quarter of approximately 20 percentage points. We excluded these items trulicity price declined roughly 5% versus Q3 2018.

Josh Smiley: If we exclude these items, Trulicity's price declined roughly 5% versus Q3 2018. While we don't typically give forward-looking, product-level guidance and don't intend to change that practice, I do want to provide some perspective on Trulicity over the coming quarter. We expect the Q3 negative factors to moderate substantially going forward as impacts from the donut hole diminish in Q4 and then will be in the base for next year's comparison. Similarly, as we have driven rapid volume growth in government segments, including the VA and DOD, between Q4 of last year and this quarter, we expect these segments to, going forward, grow more in line with overall sales. Finally, rate harmonization due to payer consolidation is now fully reflected in the base going forward. However, given the absolute size of the Trulicity rebate and discount liability, we'll continue to see quarterly adjustments to that liability. But, as we have seen historically, these are difficult to predict and can be both positive and negative.

Well, we don't typically give forward looking product level guidance and don't intend to change that practice I do want to provide some perspective on trulicity over the coming quarters.

We expect the Q3 negative factors to moderate substantially going forward as impacts from the donut hole diminish in Q4, and then we'll be in the base for next year's comparisons. Similarly, as we have dripping driven rabbit volume growth in government segments, including the VA Indio. The between Q4 last year in this quarter. We expect these segments that going forward.

I would grow more in line with overall sales.

Finally rate harmonization due to payer consolidation is now fully reflected in the base going forward.

Given the absolute size of the Trulicity rebate and discount liability won't continue to see quarterly adjustments to that liability, but as we have seen historically these are difficult to predict it can be both positive and negative.

So taking these factors into account, we think treeless. These underlying U.S. net price decline of roughly 5% in Q3 is more representative of what we expect to see in subsequent quarters with excellent access for two listening across all payers segments and anticipate that continuing in 2020.

Josh Smiley: So, taking these factors into account, we think Trulicity's underlying U.S. net price decline of roughly 5% in Q3 is more representative of what we expect to see in subsequent quarters. We have excellent access to Trulicity across all payer segments and anticipate that continuing in 2021. Moving to Europe, revenue grew 8%, excluding FX, driven by 9% volume growth, partially offset by the negative effect of price. Volume growth was led by Felicity, Illumiant, and Talt. In Japan, revenue growth of 6% excluding FX was driven by volume, with Verzenio, Saramza, Trulicity, Olympta, and Illumiant as key contributors to the growth. We were negatively impacted by purchasing patterns in Q3 in Japan by approximately 4 percentage points, which we expect to largely recover in Q4. Revenue in the rest of the world increased 15%, excluding FX, led by 33% growth in China.

Moving to your revenue grew 8%, excluding FX driven by 9% volume growth, partially offset by the negative effect of price.

Volume growth was led by complicity alumina and tall.

In Japan revenue growth of 6%, excluding FX was driven by volume with versus any O surrounds that trulicity Olympia and illuminate as key contributors to the growth.

We were negatively impacted by purchasing patterns in Q3 in Japan by approximately four percentage points, which we expect to largely recover in Q4.

Revenue in the rest of the world increased 15%, excluding FX led by 33% growth in China.

The same information for our September year to date results is at the bottom of the slide.

Josh Smiley: The same information for our September year-to-date results is at the bottom of the slide. As shown on slide 12, our key growth products were once again the engine of our worldwide volume growth. These products drove 15.4 percentage points of volume growth this quarter, reinforcing our confidence in achieving our 2020 revenue goals. Brands that have experienced loss of exclusivity provided a drag of 700 basis points, driven primarily by Cialis. As expected, we have seen a rapid erosion of Cialis sales following the entry of generics into the U.S. market at the end of September last year, so we expect this impact to begin to normalize in Q4 of this year. Slide 13 highlights the contributions of our key growth products. In total, these brands generated over $2.4 billion in revenue this quarter, making up 44% of total revenue.

As shown on slide 12, our key growth products were once again the engine of our worldwide volume growth. These products drove 15.4 percentage points of volume growth this quarter reinforcing our confidence in achieving our 2020 revenue goal.

Brands that have experienced loss of exclusivity provided a drag of 700 basis points driven primarily by sea Alice.

As expected we've seen a rapid erosion of see outlets sales following that entry of generics in the U.S. market at the end of September last year. So we expect that impact could begin to normalize in Q4 this year.

Slide 13 highlights the contributions of our key growth products in total these brands generated over $2.4 billion in revenue this quarter, making up 44% of total revenue.

Q3 sales of growth products were impacted by inventory burn in the quarter of approximately 17 $70 million with U.S. trulicity, comprising approximately $40 million that total.

Josh Smiley: Q3 sales of growth products were impacted by inventory burn in the quarter of approximately $70 million, with U.S. trilicity comprising approximately $40 million of that total. However, our diverse commercial portfolio of new medicines continues to drive growth and is well positioned in large and growing therapeutic areas. Within diabetes, Trulicity and Jardians continue market leadership in the GLP-1 and SGLT-2 classes, respectively. In immunology, TALS continues to perform well in psoriasis, and new indications in rheumatology present opportunities for additional growth in pain. MGALITY continues its impressive uptake, exiting Q3 with a market-leading 46% share of the market for new-to-brand prescriptions in the U.S.

Our diverse commercial important portfolio of new medicines continues to drive growth and is well positioned in large and growing therapeutic area.

Within diabetes, Trulicity and Jardiance continue market leadership in the GLP, one and SDLP two classes respectively.

In immunology calls continues to perform well in psoriasis and new indications in rheumatology present opportunities for additional growth.

In pain and galley continues its impressive uptake exiting Q3 with a market leading 46% share of market for new to brand prescriptions in the U.S. within oncology surrounds the growth has accelerated over the past year. We're excited for the newly released overall survival data to drive additional use a present here.

Josh Smiley: Within oncology, SRAM's growth has accelerated over the past year, and we're excited for the newly released overall survival data to drive additional use of Bresenium. Finally, I would like to highlight our newest launch product, Nasally Administered Glucagon, which is sold under the trade name Baximi. Baximi is an important new option for the treatment of severe hypoglycemia, and unlike existing rescue therapies, it does not require reconstitution to administer. This is a significant improvement in user experience and exemplifies the type of innovation we strive to deliver to patients. The commercial uptake in the U.S. has been strong, as Baksimi already has 33% of new-to-brand prescriptions. We believe this product has the potential to grow the overall glucagon market. Slide 14 shows the year-over-year change in select lines of our income statement. Focusing on our non-GAAP results, foreign exchange rates had a net modest negative impact on revenue and a modest positive impact on gross margin, operating expenses, operating income, and EPS.

Finally, I would like to highlight our newest launch product nasally administered Google, which is sold under the trade name vaccine vaccine is an important new option for the treatment of severe hypoglycemia and unlike existing rescue therapy does not require re constitution to administer.

This is a significant improvement and user experience and exemplifies the type of innovation, we strive to deliver to patients.

The commercial uptake in the U.S. has been strong as back Simi already has 33% of new to brand prescriptions and we believe this product has the potential to grow the overall Lukas gone Mark.

Slide 14 shows a year over year change in select lines of our income statement.

Focusing on our non-GAAP results foreign exchange rates had a net modest negative impact on revenue and a modest positive impact on gross margin operating expenses operating income and deep yes.

On slide 15, we provide an update on capital allocation.

Josh Smiley: On slide 15, we provide an update on capital allocation. Aligned with our strategic priorities between our business development activities, capital expenditures, and internal investment in R&D, we invested over $11 billion in the first nine months of the year to drive our future growth. Additionally, we have returned nearly $6 billion to shareholders via dividend and share repurchase.

And with our strategic priorities between our business development activities capital expenditures in internal investment in R&D, we invested over $11 billion in the first nine months of the year to drive our future growth.

Additionally, we have returned nearly $6 billion to shareholders via dividends and share repurchases.

We continue to prioritize investment in the pipeline through both internal and external sources.

Josh Smiley: We continue to prioritize investment in the pipeline through both internal and external sources. Turning to our 2019 financial guidance on slide 16, you will see that we've updated our non-GAAP guidance to reflect an increase in our bottom line results for the year. Specifically, we're updating the range for other income and deductions to $50 million of income to an expense of $100 million, reflecting year-to-date gains in our equity portfolio. We are decreasing our tax rate from a range of 13% to 14% to 12% to 13% to reflect the net discrete tax benefit in the third quarter, and we are raising our non-GAAP earnings per share range to $5.75 per share to $5.85 per share, On a reported basis, the tax rate is expected to be in the range of 13 to 14 percent, and earnings per share for 2019 is now expected to be in the range of $8.59 to $8.69 per share.

Turning to our 2019 financial guidance on Slide 16, you will see that we've updated our non-GAAP guidance to reflect an increase in our bottom line results for the year. Specifically, we are updating the range for other income and deductions to $50 million of income to an expensive a $100 million, reflecting year to date gains in our equity portfolio.

We are decreasing our tax rate from a range of 13% to 14% to 12% to 13% to reflect the net discrete tax benefit in the third quarter and we're raising our non-GAAP earnings per share range to $5.75 per share to $5, an 85 cents per share, reflecting those two items as our operating performer.

Patients remain on track with our prior full year guidance.

On a reported basis the tax rate is expected to be in the range of 13% to 14% and earnings per share for 2019 is now expected to be in the range of $8.59 to $8.69 per share.

We continue to progress towards our 2019 guidance and remain committed to delivering on our 2020 goal.

Dan Skovronsky: We continue to progress towards our 2019 guidance and remain committed to delivering on our 2020 goal. Now, I'll turn the call over to Dan to highlight our progress on R&D. Thanks, Josh.

Now I'll turn the call over to Dan to highlight our progress on R&D. Thanks, Josh.

Slide 17 show select pipeline opportunities as of October 20 seconds positive movements since our last earnings call. It includes the previously mentioned to FDIC approvals for re file and FDA approval for new indication for Tal European Commission approval for Trulicity Rewind and the submission of tops for non radiographic Axiall spondylitis arthritis.

Dan Skovronsky: Slide 17 shows select pipeline opportunities as of October 22nd. Positive movement since our last earnings call includes the previously mentioned FDA approvals for RayVal and FDA approval for a new indication for TALTS, the European Commission approval for Trulicity Rewind, and the submission of TALTS for non-radiographic axial spondyloarthritis, and the U.S. submission of ultra-rapid lights probe for type 1 and type 2 diabetes.

The U.S. submission of ultra rapid lights pro for type, one and type two diabetes.

The U.S. submission of courthouse appear for uses a Tao pet imaging agent and Alzheimer's.

Initiation of phase three testing Premier Kisan mapping crohns disease.

And the initiation of phase one or two assets.

In addition to the positive milestones we delivered this quarter. We also announced disappointing results from the phase three Sequoia trial of Pega Deccan in patients with metastatic pancreatic cancer.

Dan Skovronsky: The U.S. submission of flortalcipir for use as a tau PET imaging agent in Alzheimer's. Initiation of Phase 3 testing for Mirakizumab and Crohn's disease, and the initiation of Phase 1 for 2S. In addition to the positive milestones we delivered this quarter, we also announced disappointing results from the phase 3 Sequoia trial of pegylodecacan in patients with metastatic pancreatic cancer. Pegilodecan plus Folfox failed to show a benefit in overall survival compared to Folfox alone in this difficult-to-treat and deadly cancer. While this is a disappointing outcome for patients, we continue to move forward with Pegilodecan in lung and renal cancer, which we've always viewed as the key indication. Moving to slide 18, since the last earnings call, we made progress on a number of key events.

Hi, guys, Deccan plus smallpox failed to show benefit and overall survival compared to FOLFOX alone in this difficult to treat and deadly cancer.

Well this is a disappointing outcome for patients we continue to move forward with pega deck in long and renal cancer, which we've always viewed as the key indications.

Moving to slide 18, since the last earnings call. We made progress on the number of key events. In addition to the previously highlighted approvals and submissions Cyramza has been submitted for first line EG fr positive non small cell lung cancer in the U.S.

As Dave mentioned in his opening remarks to third quarter was an exciting one for oncology portfolio as we shared promising registrational data for supper catnip at World lung and ESMO, which showed impressive objective response rates and durability of response data.

Dan Skovronsky: In addition to the previously highlighted approvals and submissions, CyRAMSA has been submitted for first-line EGFR-positive non-small cell lung cancer in the U.S. As Dave mentioned in his opening remarks, the third quarter was an exciting one for our oncology portfolio, as we shared promising registrational data for cell percatenib at World Lung and Esmo that showed impressive objective response rates and durability of response data, along with low treatment- We're excited about the opportunity for this first-in-class and potentially best-in-class RAD inhibitor to help patients with cancer. These are the kind of results we were hoping for when we planned the LOXO acquisition, and we are extremely pleased with the progress of LOXO since then.

Along with low treatment related discontinuation rates across red fusion positive non small cell lung cancer Red mutant mentioned, Larry thyroid cancer, and Red fusion positive I read cancer.

We're excited about the opportunity for this first in class and potentially best in class Ret inhibitor to help patients with cancer.

These are the kind of results we were hoping for when we plan to Loxo acquisition and we are extremely pleased with the progress at Loxo sense that.

We were also pleased to show the results of the monarch two study at ESMO showing numbers any opposable investment delivered the largest median survival benefit to date in this setting extending survival by 9.4 months.

We also announced that tell the demonstrated superiority versus true via in total skin clearance at 12 weeks for people living with moderate to severe plaque psoriasis and met all major secondary endpoints.

Dan Skovronsky: We were also pleased to share the results of the MONARCH2 study at ESMO, showing that Virginia Possible Vestrant delivered the largest median survival benefit to date in this setting, extending survival by 9.4 months. We also announced that TELFS demonstrated superiority versus TRMFYA in total skin clearance at 12 weeks for people living with moderate to severe plaque psoriasis and met all major secondary endpoints, and Illumiant had a positive readout in atopic dermatitis in the third of five studies which will support its global submission. It continues to be a busy and productive year for our pipeline. Moving to slide 19.

And to illuminate had a positive readout in atopic dermatitis in the third of five studies, which will support its global submissions.

It continues to be a busy and productive year our pipeline.

Moving to slide 19 last quarter, we highlighted select phase two opportunities this quarter, we'd like to highlight select phase one molecules from our portfolio.

As we continue to accelerate our internal discovery and development engine by year end, we expected to have delivered more phase one initiation is in a single year than we have in any other year. This decade.

Importantly, these new phase one entries represent a mix of internal discoveries from our own labs as well as external innovation that we have brought in through business development.

We selected several phase one molecule to highlight today.

Let me start with another molecule from the Loxo oncology acquisition, the BTK inhibitor Loxo, three or five which is a next generation non covalent reversible BTK inhibitor that does not depend on interacting with assisting 41 resident.

Dan Skovronsky: Last quarter, we highlighted select phase two opportunities. This quarter, we'd like to highlight select phase one molecules from our portfolio. As we continue to accelerate our internal discovery and development engine, by year end, we expect to have delivered more phase one initiations in a single year than we have in any other year of this decade. Importantly, these new phase one entries represent a mix of internal discoveries from our own labs, as well as external innovation that we have brought in through business development.

We started dosing patients in a phase one two study earlier this year in patients with previously treated chronic lymphocytic leukemia, small lymphocytic lymphoma or non Hodgkin lymphomas.

The unmet need in this space continues to grow. So this is more patients are treated with chronic with current BTK inhibitors, more and more patients become resistant or intolerant to therapy.

Dan Skovronsky: We selected several phase one molecules to highlight today. Let me start with another molecule from the LOXO oncology acquisition, the BTK inhibitor LOXO-305, which is a next generation non-covalent reversible BTK inhibitor that does not depend on interacting with the cysteine-481 residue. We started dosing patients in a Phase 1-2 study earlier this year in patients with previously treated chronic lymphocytic leukemia, small lymphocytic lymphoma, or non-Hodgkin's lymphoma. The unmet need in this space continues to grow. Since as more patients are treated with chronic BTK inhibitors, more and more patients become resistant or intolerant to therapy, Glaxo 305 was built to be potent, selective, and have well-behaved human pharmacology. Should these attributes present in the clinic as we hope, LOXO 305 could be an important new therapy for these patients. As we announced in September, we plan to present data from the trial later this year.

Loxo three or five was built to be potent selective and have well behaved human pharmacology.

Should these attributes present in the clinic as we hope loxo three or five could be an important new therapy for these patients.

As we announced in September we plan to present data from the trial. Later this year you will be a typical early clinical presentation from a dose escalation trial, including safety PK and any efficacy assessments that have been conducted.

In neuro degeneration last quarter, we initiated with our collaborator AC immune phase one study in healthy volunteers for small molecule Tao aggregation inhibitor, while still early in development. We're excited about this program and also about the target aggregated tale.

Of course aggregated towel along with amyloid plaque comprised of two pathological hallmarks of Alzheimer's disease.

Accordingly, we remain excited about our two phase two programs aimed at disease modification in Alzheimer's disease.

Yeah, good tenant map, which is our anti aggregated tower antibody and now, especially to Nanomabs. Our Nthreepg antibody, which is also in a phase two trial designed to test efficacy in it carefully selected population.

Dan Skovronsky: It will be a typical early clinical presentation from a dose escalation trial, including safety, PK, and any efficacy assessments that have been conducted. In neurodegeneration, last quarter, we initiated, with our collaborator, AC Immune, a phase one study in healthy volunteers for a small molecule tau aggregation inhibitor. While still early in development, we're excited about this program and also about the target, aggregated tau. Of course, aggregated tau, along with amyloid plaque, comprise the two pathological hallmarks of Alzheimer's disease.

Both of these programs are now fully enrolled with the Nanomabs clearing an important interim futility analysis and we look forward to the final read outs for these trials in 2021.

Moving to pain earlier this year, we acquired the rights to a novel small molecule some out of Staten receptor type for agonist. That's currently in phase one as a potential non opioid treatment for chronic pain.

The clinical hypothesis here is that the known analgesic effects of some out of Stan are mostly mediated by assets tier four which is found in the dorsal route ganglia, a selective agonist for STR for good therefore haven't analgesic effect without per wholesome Madison adverse effects.

Dan Skovronsky: Accordingly, we remain excited about our two Phase 2 programs aimed at disease modification in Alzheimer's disease. Zagatenumab, which is our anti-aggregated tau antibody, and now especially Denenumab, our N3PG antibody, which is also in a phase 2 trial designed to test efficacy in a carefully selected population. Both of these programs are now fully enrolled, with DNNMAB clearing an important interim futility analysis, and we look forward to the final readouts for these trials in 2021. Moving on to pain.

We look forward to the internal read out next year to inform the potential progression of phase to.

Pain has the number one reason people go to physicians and if you look at the opioid crisis, there's still significant unmet medical need.

Theres more work to do here and I'm excited we're a leader in this space with a number of interesting mechanisms now being tested in patients by Lilly.

Turning now to immunology Weve three novel checkpoint antagonist in phase one with first in class potential BTI agonist antibody CD 200, our agonist antibody and our PD. One agonist antibody. These are all immune resolution agents when instead of dampening down immune system with chronic immunosuppression we're trying.

Dan Skovronsky: Earlier this year, we acquired the rights to a novel small molecule somatostatin receptor type four agonist that's currently in phase one as a potential non-opioid treatment for chronic pain. The clinical hypothesis here is that the known analgesic effects of somatostatin are mostly mediated by SSTR4, which is found in the dorsal root ganglia. A selective agonist for SSTR4 could therefore have an analgesic effect without peripheral somatostatin adverse effects. We look forward to the internal readout next year to inform the potential progression of Phase 2. Pain is the number one reason people go to physicians.

Potentially reset the immune system. These checkpoints exploit insights from immuno oncology, but they work in a different direction as a checkpoint agonists put the brakes on the immune system.

Retail a is a novel checkpoint receptor that negatively regulates activation of Pete of be.

PDC and T cells agonism of this pathway has the potential to provide a first in class treatment and our BTI agonist antibodies currently being studied in phase one b and Lucas.

Dan Skovronsky: If you look at the opioid crisis, there's still significant unmet medical need. There's more work to do here, and I'm excited we're a leader in this space with a number of interesting mechanisms now being tested in patients by Lilly. Turning now to immunology, we have three novel checkpoint agonists in phase one with first-in-class potential, BTLA agonist antibody, CD200R agonist antibody, and our PD1 agonist antibody. These are all immune resolution agents, where instead of dampening down the immune system with chronic immunosuppression, we're trying to potentially reset the immune system. These checkpoints exploit insights from immuno-oncology, but they It's a checkpoint agonist, but that breaks the immune system. BTLA is a novel checkpoint receptor that negatively regulates the activation of B, PDC, and T-cells. Agonism of this pathway has the potential to provide a first-in-class treatment, and our BTLA agonist antibody is currently being studied in phase 1B in lupus. CD200 is a key immune checkpoint that functions on both innate and adaptive immune systems on many cell types involved in autoimmune skin disorders.

CD 200 is a key immune checkpoint the functions on both innate and adaptive immune system on many cell types involved in autoimmune skin disorders RCD 200, our agonist antibody is in a phase one trial in both healthy volunteers as well as in a topic dermatitis patients.

Finally, we know that treatment of cancers with PD, one inhibitors leads to a variety of autoimmune conditions, it's hypothesize that a PD one agonist well suppress activation expansion besides leading the treatment of auto immune diseases. Our PD one agonist antibody is currently in phase one.

Each of these three opportunities represents novel Biology, which we are among the first to explore with the potential for each to move into phase two next year.

We also have an aisle to conjugate license from Nexstar therapeutics, which preferentially stimulates expansion of regulatory T cells. This potentially first in class opportunity is currently being studied in phase one be in lupus patients.

With phase one data and data in healthy volunteers presented at EULAR earlier this year.

Which show the aisle to conjugate could achieve robust expansion of T. Rex.

Additional phase one studies in psoriasis and atopic dermatitis have been posted to clinical trials dot Gov and are expected to start up before the end of the year.

Dan Skovronsky: Our CD200R agonist antibody is in a phase 1 trial in both healthy volunteers as well as in atopic dermatitis patients. Finally, we know that treatment of cancers with PD-1 inhibitors leads to a variety of autoimmune conditions. It's hypothesized that a PD-1 agonist will suppress the activation expansion of lymphocytes, leading to treatment of autoimmune diseases. Our PD-1 agonist antibody is currently in phase one. Each of these three opportunities represents novel biology, which we are among the first to explore, with the potential for each to move into phase two next year. We also have an IL-2 conjugate licensed from Nectar Therapeutics, which preferentially stimulates the expansion of regulatory T-cells. This potentially first-in-class opportunity is currently being studied in Phase 1B in lupus patients with Phase 1 data and healthy volunteers presented at ULAR earlier this year, which showed the IL-2 conjugate could achieve robust expansion of Tregs.

We expect to move to phase II with this molecule in 2020.

Finally, I'd like to highlight two exciting diabetes programs.

Our next generation injectable Anchorage, and GE IP GLP Glucagons try agonist or Gee, we're testing the hypothesis that adding glucagon to GE IP GLP, we'll have more metabolic activity and stimulate additional weight loss.

The initial phase one study.

Study the safety of a single injection and healthy participants and we're now studying multiple doses, including dose titration. We expect this program to enter phase two by late 2020 or early 2021.

Just like the hurdle for teachers appetite to enter phase three was a meaningful improvement over trulicity. The bar here will be a step change overtures appetite itself.

Additionally, our commitment to oral increments has continued to increase as we advance programs through development, we seek to approve upon administration or efficacy.

Our first oral increment pro program, which we license from Chugai last year's a small molecule non peptide agonistic GLP one that entered phase one earlier this year.

Dan Skovronsky: Additional Phase 1 studies in psoriasis and atopic dermatitis have been posted to clinicaltrials.gov and are expected to start before the end of the year. We expect to move to Phase 2 with this molecule in 2020. Finally, I'd like to highlight two exciting diabetes programs. With our next generation injectable incretin GIP-GLP-glucagon triagonist, or GGG, we're testing the hypothesis that adding glucagon to GIP-GLP will have more metabolic activity and stimulate additional weight loss.

Our initial focus will be on PK with the expectation I mean should be meaningfully better than a peptide.

As well as the PD response, which we should see even in phase one.

This molecule could enter phase two in early 2021.

In addition to this approach we're also pursuing dual GE IP and GLP, one receptor agonist peptides for oral delivery.

These programs, which are designed to give tours appetite like efficacy with a once a day oral peptide administration are also progressing preclinically and should enter phase one next year.

Dan Skovronsky: The initial phase one study studied the safety of a single injection in healthy participants, and we're now studying multiple doses, including dose titration. We expect this program to enter Phase 2 by late 2020 or early 2021. Just like the hurdle for terzapatide to enter phase three was a meaningful improvement over trulicity, the bar here will be a step change over terzapatide. Additionally, our commitment to oral inquisitions has continued to increase.

We look forward to tracking the progress of these assets over the coming years and will share additional pipeline updates on our next earnings call.

Now I turn the call back over to Dave for some closing remarks, thanks, Dan before we go to Q in a let me briefly some of the progress we've made in the third quarter.

We delivered robust volume growth of 8% driven by our key growth products.

And an impressive performance outside the U.S.

We continue to demonstrate our launch capabilities and have a diverse portfolio of commercial products to drive future growth.

Dan Skovronsky: As we advance programs through development, we seek to improve upon administration or efficacy. For example, our first oral incretin program, which we licensed from ChewGuy last year, is a small molecule non-peptide agonist, GLP-1, that entered phase one earlier this year. Our initial focus will be on PK, with the expectation that it should be meaningfully better than a peptide, as well as the PD response, which we should see even in phase one. This molecule could enter phase two in early 2021. In addition to this approach, we're also pursuing dual GIP and GLP-1 receptor agonist peptides for oral delivery. These programs, which are designed to give terzapatide-like efficacy with once-a-day oral peptide administration, are also progressing preclinically and should enter phase one next year. We look forward to tracking the progress of these assets over the coming years, and we'll share additional pipeline updates on our next earnings call. Now, I turn the call back over to Dave for some closing remarks.

We advanced our productivity agenda controlling operating expenses, while investing behind key commercial growth drivers and our late stage pipeline.

In addition, we made important progress toward our margin goals as the operating margin improved 60 basis points versus Q2, 2019% to 28.6%.

We made important pipeline progress, including the initiation of a new phase three program with Mira Kisan map in Crohns disease.

Sharing new Registrational data for aluminum tolls present, neo and separate catnip.

Submitting new indications for tolson ceramics.

And receiving positive regulatory actions Perrigo and Trulicity.

Finally, we returned nearly $600 million to shareholders via the dividend and completed $600 million of share repurchase as well.

We're proud of our strong business performance and excited about the opportunities ahead for the company.

There there has never been more inspiring time to be working on discovering new medicines and patients in health care providers are waiting the next wave of innovation.

Dave Ricks: Before we go to Q&A, let me briefly sum up the progress we've made in the third quarter. We delivered robust volume growth of 80% driven by our key growth products and an impressive performance outside the U.S. We continue to demonstrate our launch capabilities and have a diverse portfolio of commercial products to drive future growth. We advanced our productivity agenda, controlling operating expenses while investing in key commercial growth drivers and our late stage pipeline. In addition, we've made important progress toward our margin goals, as the operating margin improved 60 basis points versus Q2 2019 to 28.6%. We made important pipeline progress, including the initiation of a new phase two program with muricizumab in Crohn's disease, and shared new registrational data for Illumia, TULPS, Resinio, and Sulfurcatinib.

We have grown through the headwinds of CLS and Lartruvo.

And we expect our strong business performance to continue driven by our newest products and our relative lack of patent exposure ahead and of course are the work of our scientists who continue to redefine what is possible for patients suffering from serious diseases.

Looking ahead, we are focused on a strong finish to 2019 as we prepare for next year.

This concludes our prepared remarks, and now I'll turn the call over to Kevin to moderate the QNX session.

Thanks, Dave.

We'd like to take questions from as many colors as possible. So we ask that you limit your questions to two or to a single question with two parts.

Leah please provide instructions for the Q and a session and then we're ready for the first caller certainly ladies and gentlemen, if you would like to ask a question. Please press Star then one on your telephone keypad, you will hear a tolling acknowledging your request you may remove yourself from this Q at any time by pressing the pound key our first question is from line of Chris Shaw.

Dave Ricks: Submitting new indications for TALS and SRAMSA and receiving positive regulatory actions for RAVEL and TRUBLICITY. Finally, we returned nearly $600 million to shareholders via the dividend and completed $600 million of share repurchase as well. We are proud of our strong business performance and excited about the opportunities ahead for the company. There has never been a more inspiring time to be working on discovering new medicines, and patients and healthcare providers are awaiting the next wave of innovation. We have grown through the headwinds of Cialis and Lartruvo, and we expect our strong business performance to continue, driven by our newest products and a relative lack of patent exposure ahead. And, of course, by the work of our scientists who continue to redefine what is possible for patients suffering from serious diseases. Looking ahead, we are focused on a strong finish to 2019 as we prepare for next year. This concludes our prepared remarks, and now I'll turn the call over to Kevin to moderate the Q&A session.

With Jpmorgan. Please go ahead.

Great. Thanks, very much further questions just just to hear I guess first broader 2020 pricing question.

You are seeing mid single digit price erosion with the U.S. portfolio. This year is that a reasonable dynamic it's expected in 2024, we see some of these pressures start to ease as we get passed the donut hole fill in some of these kind of onetime items with trulicity that that you mentioned.

My second question was just elaborating a little bit more on Trulicity in terms of access and price dynamics in 2020, the pricing commentary in the prepared remarks is very helpful. I guess, what the approval, though of oral Semih are you seeing a more difficult payer environment here than the past or any signs that payers are more aggressively managing would GLP one category. Thanks very much.

Operator: Thanks Dave. We'd like to take questions from as many callers as possible. So we ask that you limit your questions to two or to a single question with two parts. Leah, please provide the instructions for the Q&A session, and then we're ready for the first caller. Ladies and gentlemen, if you would like to ask a question, please press star, then 1 on your telephone keypad. You will hear a tone acknowledging your request. You may remove yourself from this queue at any time by pressing the pound key.

Thanks, Chris will go to Josh for the overall 2020 pricing and then two Enrique for your second question more specifically on Trulicity.

Thanks, Chris I think as we look into 2020, you just going back to the guidance that we gave in December of last year. He knows that we were planning for you sort of low single digit net price erosion across the portfolio for the period.

Of 19, and 20, I think thats, what we see right now we are going to see variability in the quarters. As you mentioned that we've got donut hole and other things that are particularly I think acute in Q3 of this year, but I think the net now as we look in and project into 2020, I think the you know sort of low.

Operator: Our first question is from the line of Chris Schott with J.P. Morgan. Please go ahead. Great. Thanks very much for the questions. There are just two here.

Chris Schott: I guess first, the broader 2020 pricing question. You're seeing mid-single-digit price erosion with the U.S. portfolio this year. Is that a reasonable dynamic to expect in 2020, or will we see some of these pressures start to ease as we get past the donut hole fill and some of these kind of one-time items with trulicity that you mentioned? And my second question was just elaborating a little bit more on trulicity in terms of access and price dynamics in 2020. The pricing commentary in the prepared remarks is very helpful. I guess with the approval, though, of oral SEMA, are you seeing a more difficult payer environment here than in the past, or any signs that payers are more aggressively managing the GLP-1 category? Thanks very much.

A single digit price decline is probably a fair place to be that's very consistent with how we thought about 2020 goals and our productivity agenda and otherwise.

Thanks, Josh Enrique.

So Chris when it comes to turn it to be coverage, we have a unprecedented access we are.

Right now in the mid Ninetys from a coverage perspective.

This is outstanding and we are projecting dive into next year any too early for us to be able to say exactly.

How the discussion so oral semih ongoing with payers of course, when they're more.

Basically get further into some of those discussions.

Thanks, Enrique and Chris Thanks for the question next caller please.

Josh Smiley: Thanks, Chris. We'll go to Josh for the overall 2020 pricing and then to Enrique for your second question, more specifically on Trulicity. Thanks, Chris. I think as we look into 2020, just going back to the guidance that we gave in December of last year, you know, so we were planning for, you know, sort of low, single-digit net price erosion across the portfolio for the period of 19 and 20. I think that's what we see right now. We are going to see variability in the quarters, as you mentioned, we've got the donut hole and other things that are particularly, I think, acute in Q3 of this year. But I think the net, as we look and project into 2020, I think the, you know, sort of low, single-digit price decline is probably a fair place to be. And that's very consistent with how we thought about the 2020 goals and our productivity agenda and otherwise. Thanks Josh. Enrique?

And the next caller is from Omar Rhofade with Evercore. Please go ahead.

Hi, Thanks, so much for taking my question.

I don't know how to ask my first one but I'll ask anyway, given all the renewed interest my questions on the eighth for trial and I know, you're using a super high doses Solanezumab tracked over 240 weeks. So my question is this.

Since this trial was fully enrolled about couple of years ago, what have we learned to date from any interim analyses that have been conducted.

And I asked because almost every patient. This trial is twice a week 76 follow up. Thank you for any color on that and then secondly on blip enters appetite franchise broadly my question is.

What's the median duration on therapy, a real world on Trulicity currently and I ask about it relative to the 20 tetration being employed in phase three and I'm. Also curious is there any observations to date from blinded bases in the ongoing titration regimen. Thank you very much.

Enrique Quintero: So, Chris, when it comes to literacy coverage, we have unprecedented access. We are right now in the mid-90s from a coverage perspective, which is outstanding, and we are projecting that into next year. It is too early for us to be able to say exactly how the discussions of oral SEMA are going with payers. Of course, we'll learn more, as they basically get further into some of those discussions.

Thanks tumor we'll go to Dan for the the solar question and then Enrique to talk about what we're seeing today with the duration for Trulicity.

Thanks.

Or for your question on so it doesn't have an a. for trial of course is this is a trial of Solanezumab as you pointed out a fourx higher doses tested in the original phase three studies.

Enrique Quintero: Thanks, Enrique, and Chris, thanks for the question. Next caller, please. And the next caller is from Umar Rafat with Evercore. Please go ahead.

But what's really interesting about this trials that were testing it in a symptomatic elderly individuals who don't have a diagnosis Alzheimer's but do have.

Umar Rafat: Hi, thanks so much for taking my question. I don't know how to ask my first one, but I'll ask anyways, given all the renewed interest. My question is about the A4 trial, and I know you're using a super high dose of solanizumab tracked over 240 weeks. So my question is this, since this trial was fully enrolled about a couple years ago, what have we learned to date from any interim analyses that have been conducted? And I ask because almost every patient in this trial has passed the week 76 follow-up. Thank you for any more color on that.

Amyloid plaque in their brain its a four year treatment that's plans and so we'll get data on this trial in mid 2022.

So we just have to wait patiently for for those results to see.

So it can have efficacy in this very early population.

Thanks, Dan Enrique.

So the.

With me when we look at.

For the city.

Dan Skovronsky: And then secondly, on GLIP and the terzepatide franchise broadly, my question is, what's the median duration on therapy, real world on trilicity currently? And I asked about it relative to the 20 week titration being employed in phase three. And I'm also curious, are there any observations to date from blinded bases in the ongoing titration regimen? Thank you very much. Thanks, Umer.

Appearance we.

We and I think we started this before we we tend to see better in appearance with Trulicity done with other product one of the things that we measure is.

Refill rates. So we measure the second refilled raid the fourth refill rates basically thats still have better.

Then the GLP one class you tend to have been or the hearings that answer but also better adherence.

Enrique Quintero: We'll go to Dan for the SOLA question and then Enrique to talk about what we're seeing today with duration for Trulicity. Thanks, Umer, for your question on solanezumab in the A4 trial. Of course, this is a trial of solanezumab, as you pointed out, at a 4x higher dose than was tested in the original phase 3 studies. But what's really interesting about this trial is that we're testing it in asymptomatic elderly individuals who don't have a diagnosis of Alzheimer's but do have amyloid plaque in their brains. It's a four-year treatment that's planned, and so we'll get data on this trial in mid-2022. So we just have to wait patiently for those results to see if solan can have efficacy in this very early population. Thanks Dan. Enrique?

Arles, which you sometimes.

Difficult to believe but it's a value proposition is that.

Simplicity now it is.

It's a complication. It's a complicated question when we look at medium duration of therapy, because we do know so many patients or in the first feel earning their second Phil across all of the diabetes therapy, just to give you a saddened by the Hartsville. We're basically trulicity is basically in the sixties, what we basically see though.

Our recent that have states.

After the first year, we tend to lose about a third of those patients every year going forward. After that so that gives you a certain sense. So what is the adherence. So truly suggests you're thinking about modeling purpose.

Enrique Quintero: So, um, the, um, When we look at trlicity adherence, we, and I think we shared this before, we tend to see better adherence with trlicity than with other products. One of the things that we measure is refill rates, so we measure the second refill rate, the fourth refill rate. It's a complicated question when we look at the medium duration of therapy because we do lose so many patients in the first field and in the second field across all of the diabetes treatments. Just to give you a sense, by the fourth field, we are basically in the sixth field. What we basically see, though, is for patients that have stayed after the first year, we tend to lose about a third of those patients every year going forward after that. So that gives you a certain sense of what Trelicit's adherence is as you're thinking about modeling this.

Thanks, Enrique anywhere thanks for the questions next caller. Please next is the line of Terence Flynn with Goldman Sachs. Please go ahead.

Hi, Thanks for taking the questions maybe two for me just wondering your latest thoughts on the ongoing policy discussions in DC.

Potential outcomes in impact to your business and then as we think about him go all the for 2020 now you don't give product level guidance, but you've been focused on the second phase of growth year on to the primary care market any update on the progress there as well as the initial European launch. Thank you.

Great. Thanks tariffs will go to Dave for the policy question and then Patrick on him Gallery in 2020.

Yeah, I wish I could provide a.

Clear answer on the probable outcome and other policy debates in Washington, I think it's really unclear other than we probably know that the house Bill.

Enrique Quintero: Thanks, Enrique and Umar. Thanks for the questions. Next caller, please. Next is the line of Terence Flynn with Goldman Sachs. Please go ahead.

Well, we'll probably pass the house completely on partisan lines and then we'll see from there. There are of course, a number of initiatives in the various sent a committees that the industry is for Lilly certainly for is the version of those came together and past both chambers.

Terence Flynn: Hi, thanks for taking the questions. Maybe two for me. Just wondering your latest thoughts on the ongoing policy discussions in D.C., potential outcomes, and impact on your business. And then, as we think about MGALITY for 2020, no, you don't give product-level guidance.

General that would be I think a modest positive for us.

We see reformed part D is an important discussion that should happen, providing an out of pocket cap to seniors as a important benefit and any changes that can positively adapt.

Terence Flynn: So I'll give you a few more minutes, but you've been focused on the second phase of growth into the primary care market.

Terence Flynn: So any update on the progress there as well as the initial European launch? Thank you.

The donut hole math and other pieces of the benefit which we're talking about even on this call are helpful for products that are more commonly used for conditions like diabetes. So.

Dave Ricks: Great, thanks Terence. We'll go to Dave for the policy question and then Patrik on MGALADY in 2020.

Dave Ricks: Yeah, I wish I could provide a clear answer on the probable outcome of the policy debates in Washington. I think it's really unclear.

We track that closely we're very engaged in this whole discussion of course, you know probably given the the impairment in Washington, The most probably thing is or isn't really legislation happening for some time, but.

Dave Ricks: Other than that, we probably know that the House bill will probably pass the House completely on partisan lines, and then we'll see from there. There are, of course, a number of initiatives in the various Senate committees that the industry supports and Lilly is certainly for. If a version of those came together and passed both chambers, in general, that would be, I think, a modest positive for us. We see reform to Part D as an important discussion that should happen. Providing an out-of-pocket cap to seniors is an important benefit, and any changes that can possibly adapt the donor home math and other pieces of the benefit, which we're talking about even on this call, are helpful for products that are more commonly used for conditions like diabetes.

We you know it's important to note to investors were were promoting changes in particular, the part D benefit and affordability measures that can impact the.

Pocket book of the pharmacy counter without throwing out the baby with the bathwater wholesale change to the the U.S. system, which obviously be hugely damaging to the business.

Thanks, Dave Patrick.

Think about a much we are very fees would be overall performance of in galaxy and that we actually became the leader and then Opex in Q3 and wed be in that book more than 10 consecutive weeks right now on wells for closing the gap in dogs. So that's also told a lot acts.

When we look up on the access to him Galaxy, It's a best in class access with more than 90% today in the U.S. and we're making steady progress in terms of that claims paid and with today at three three fall off of the claims being paid and we're making steady progress in that regard it as well we still believe it's very early days, what I'm Gotta D., we know Atlanta.

Dave Ricks: So, you know, we track that closely. We're very engaged in this whole discussion. Of course, you know, probably given the environment in Washington, the most probable thing is there isn't really any legislation happening for some time. But, you know, it's important to note to investors we're promoting changes, in particular the Part D benefit and affordability measures that can impact the pocketbook at the pharmacy counter without throwing out the baby with the bathwater and wholesale change to the U.S. system, which would obviously be hugely damaging to the business Thanks, Dave.

Ladies and the use of 6 million at MTV Elizabeth will prevent in Threeq and own a female and those are being treated today and he had to date, we have approximately 100000 patients treated with him Gotta D.. So we see a tremendous opportunity also moving forward and also the prescriber base IMMU as I stated limit Dave's only 15% of our customers.

Regularly prescribers of them got ideas I think about seeing especially the opportunity. We will see we're also excited about the opportunity outside of us a migraine, it's not that.

Dave Ricks: Thanks Dave. Patrik?

Patrik Jonsson: Well, thank you very much. We are very pleased with the overall performance of Immigality, and we actually became the leader in NRX in Q3, and we've been at that for more than 10 consecutive weeks right now, and we're also closing the gap in terms of total RX. When we look at access to EMGALITY, it's a best-in-class access with more than 90% today in the U.S., and we are making steady progress in terms of the claims paid. We're today at three-fourths of the claims being paid, and we're making steady progress in that regard as well. We still believe it's very early days for EMGALITY.

At U.S. phenomenon, we had thought the medium patients suffering from migraine any you and 9 million in Japan, and the only 2 million of those up suite at any you and 300000 in Japan. It stayed very early days and we have just received the regulatory approval from European Medical agency, and we are in pricing and reimbursement discussion on accounting to counter basis.

We believe at the opportunity for them Gotta DSP goes outside the U.S.

Thanks, Patrick and Terrence. Thanks for your questions next caller. Please next this line of Geoff Meacham with Bank of America. Please go ahead.

Hey, guys. Good morning. Thanks. So the question I just have a couple of Josh on the M&A side are there opportunities.

For more cost savings looking forward beyond what you guys have talked about post the Elanco study I'm, just trying to get a sense for where the Threeq you trends can be extrapolated and then Patrick another one on the migraine side. So I know obviously early in the rebel launch, but can you leverage the access you just mentioned with them gallery to health benefit Revell Im just trying to get a sense for that.

Patrik Jonsson: We know that we have a population in the U.S. of 6 million eligible for preventive treatment, and only 3 million of those are being treated today. Here today, we have approximately 100,000 patients treated with EMGALITY, so we see a tremendous opportunity also moving forward. And also, the prescriber base in the U.S. is still limited, so only 15% of our customers are regular prescribers of EMGALITY, so I think that signals very clearly the opportunity we foresee. We're also excited about the opportunity outside of the U.S. Because migraine is not a U.S. phenomenon. We have 30 million patients suffering from migraine in the EU and 9 million in Japan, and only 2 million of those are treated in the EU and 300,000 in Japan.

Commercial synergies look in the 2020 and and with the CJR apiece space be little bit more crowded how is the pricing environment and so far thank you.

Great. Thanks, Jeff So good at just for SDN and Patrick on the migrants okay. Thanks, Jeff welcome back.

S. DNA, Yeah, I think if you look at what we see in Q3, and what we've been talking about relative to our productivity goals for 2020.

We're pretty comfortable with the absolute level of investment we have behind our new launches.

Even if you look at the last few vaccine me, which I mentioned on the prepared comments and re Reval. For example, we're putting those into existing infrastructure is and will get we'll get good leverage there. So we'll continue to invest behind our our key launches, but I think the absolute levels SGN, a with our ongoing productivity.

Patrik Jonsson: It's still very early days, and we have just received regulatory approval from the European Medical Agency, and we are in price and reimbursement discussions on a country-to-country basis, but we believe that the opportunity for EMGALITY is big even outside the U.S. Thanks, Patrick. And Terence, thanks for your questions. Next caller, please. Next is the line from Geoff Meacham with Bank of America. Please go ahead. Hey guys, good morning. Thanks for the question. I just have a couple. Josh, on the SG&A side, are there opportunities?

It's to get more out of you know each of the promotional dollars, we spend we feel pretty comfortable with with that so you should you should expect a modest to flatten growth going forward on that why.

Thanks, Josh Patrick.

Thank you very much.

Well, it's a very excited the way they approve it off of grave all and day, we are waiting for them and the D.A. to give them give out overall assessment by January and next year and new launching battery Adient 2020 overall, we believe out it's a significant needles in the acute treatment of migraine. We know that currently 5 million of Americans are being added three.

Geoff Meacham: for more cost savings looking forward, beyond what you guys have talked about, post-Elan Custody. I'm just trying to get...

Geoff Meacham: , and then Patrick, another one on the migraine side.

Geoff Meacham: Obviously, it is early in the RayVal launch, but can you leverage the access you just mentioned with MGALADY?

The brought acute migraine a thought the five to four at the present to those don't respond well call and tolerate and it'd be a between stones and approximately 15% to those Oakland clay indicate that popped on so that's why we believe it's it's really a tremendous opportunity off that some of the two decades launch a new auto treatment for acute migraine.

Geoff Meacham: I'm just trying to get a sense of the commercial synergies looking at 2020.

Geoff Meacham: And with the CGRP space being a little bit more crowded, how is the pricing environment?

Geoff Meacham: have been so far. Thank you. Great. Thanks, Geoff. We'll go to Josh for SG&A and then Patrik for migraines. Okay.

We see some a significant synergies we have that we them got it the both in terms of boxes axis MB. They overall infrastructure I think really being able to capitalize on the on is that we've had with launch of them got at the since the beginning of 2018, well with rapidly being able to take a leadership position well just in terms of abaxis battles in terms of all the analytics and.

Josh Smiley: Thanks, Geoff. Welcome back. On SG&A, yeah, I think if you look at what we see in Q3 and what we've been talking about relative to our productivity goals for 2020, we're pretty comfortable with the absolute level of investment we have behind our new launches. Even if you look at the last few vaccini, which I mentioned in the prepared comments, and Reval, for example, we're putting those into existing infrastructures, and we'll get good So we'll continue to invest behind our key launches, but I think the absolute level of SG&A, with our ongoing productivity efforts to get more out of each of the promotional dollars we spend, we feel pretty comfortable with that. So you should expect modest to flat growth going forward on that line. Thanks, Josh. Patrik.

Goes in the gap antibiotics.

Thanks, Patrick Jeff. Thanks for the questions next caller. Please use the line of Tim Anderson with Wolfe Research. Please go ahead.

Thank you.

I'd like to come back to 2020, and and contracting in diabetes. I know you were asked this earlier, but.

You didn't give much of an answer you know the stocks down 5% today on a beat and raise I think that reflects concerns about.

About whether you can hit your operating margin guidance in 2020.

Patrik Jonsson: Well, thank you very much. We are also very excited about the approval of RAVAL, and we are waiting for the DEA to give an overall assessment by January of next year and to launch very early in 2020. Overall, we believe there is a significant need also for the acute treatment of migraine. We know that currently 5 million Americans are being treated for acute migraine, but 35 to 40 percent of those don't respond or can't tolerate tryptans, and approximately 15 percent of those are contraindicated for tryptans.

The outlook for diabetes, so specifically on diabetes, you're in this window of kind of having an idea.

Where are your coverage is gonna be for Trulicity and Jardiance.

In terms of net lives gains are lost and what the price concessions are so can you just hopefully give us a little more detail on how we should be thinking about trulicity, specifically in short answer as well going into 2020.

Because there have been changes in the competitive dynamics there second question.

Just going back to all timers. It seemed like a couple of years ago Lilly started the quietly pivot away from thinking that any monotherapy, that's anti amyloid would yield a benefit you started to really go down this combination route.

Patrik Jonsson: So, that's why we believe it's really a tremendous opportunity after two decades to launch a new oral treatment for acute migraine. We see some significant synergies with MGALATY, both in terms of access and the overall infrastructure, and particularly being able to capitalize on the learnings that we have had with the launch of MGALATY at the beginning of 2018, where we have rapidly been able to take a leadership position, not just in terms of access but also in terms of the NRX and closing the gap in TRX. Thanks, Patrick. Jeff, thanks for the questions. Next caller, please. It's a line by Tim Anderson with Wolf Research. Please go ahead.

Given what Biogen just disclose yesterday and your ongoing work in this area. Just how are you thinking about monotherapy and anti amyloid spaces and really anything you can offer your impressions of the Biogen news yesterday.

Be helpful. Thank you.

Tim Anderson: Thank you. I'd like to come back to 2020 and contracting diabetes. I know you were asked this earlier, but you didn't give much of an answer. You know the stock's down five percent today on a beat and raise. I think that reflects concerns about whether you can hit your operating margin guidance in 2020. I'll look for diabetes.

Thanks, Tim So we'll go to Josh for outlook for 2020, and Ah them to Dan for other question on Alzheimer's.

Thanks, Tim as we said in any opening I think if you look at Trulicity and and strip out the things that we see in Q3 that we say are concentrated in that in that quarter. We feel good as Enrique mentioned feel very good about the access that we have now and the access we project into 2020 and.

Tim Anderson: So specifically on diabetes, you're in this window of kind of having an idea of where your coverage is going to be for Trlicity and Jardian in terms of net lives gained or lost and what the price concessions are, so can you just hopefully give us a little more detail on how we should be thinking about Trlicity specifically and Jardians as well going into 2020, because there have been changes in the competitive dynamic. Second question, just going back to Alzheimer's, it seemed like a couple of years ago, Lilly started to quietly pivot away from thinking that any monotherapy that's anti-amyloid would yield a benefit, and you started to really go down this combination route. Given what Biogen disclosed yesterday and your ongoing work in this area, just how are you thinking about monotherapy? in the anti-amyloid space.

We said you should think about trulicity at a modest.

Year over year price decline, which is really just a function of modest price increases and we like the the price and they the value that glip tab in the U.S. today. So we'll do everything we can to preserve that we feel confident as we head into 2020 that that's a very manageable dynamic.

Thanks, Josh Dan Yes. Thanks, Thanks, Tim for the question you know of course with respect to the amyloid hypothesis and the Biogen did I think there was a a lot of thinking about this when they announce their futility.

That.

The main question was whether or not there was evidenced that if you removed significant amounts and what impact from the brain. This could result in a slowing of of cognitive decline. So everyone was sort of waiting to see the very highest doses, where there was a high level. They wanted removal what would happen. So I think the data we saw yesterday from that respect.

Tim Anderson: And really anything you can offer, you know, your impressions of the Biogen news yesterday would be helpful. Thanks, Tim. So we'll go to Josh for Outlook for 2020.

Josh Smiley: And then to Dan for the question on Alzheimer's. Thanks, Tim. As we said in the opening, I think if you look at trulicity and strip out the things that we see in Q3 that we say are concentrated in that quarter, we feel good, as Enrique mentioned, feel very good about the access that we have now and the access we project into 2020. And as we said, you should think about trulicity at a modest year-over-year price decline, which is really just a function of modest price And we like the price and the value that Eclipse has in the U.S. today, so we'll do everything we can to preserve that.

It is an important indicator on on the amyloid hypothesis.

Weve thought for some time that to complete removal of amyloid from the brain could be the goal here doing it in early in the right patients could be important and that underlies the design of our.

Trial with our platform of antibodies nanometer, which weve said to the should be able to remove plaque more quickly and more deeply than anything else we've seen.

So I.

I think Yesterdays news is reason to be a little more optimistic about that theory.

Josh Smiley: We feel confident as we head into 2020 that that's a very manageable dynamic. Thanks, Josh. Dan?

And as I said before we're excited to see the results of that phase two trial with respect to your common question on combination therapy.

Dan Skovronsky: Yeah, thanks, Tim, for the question. You know, of course, with respect to the amyloid hypothesis and the Biogen data, I think there was a lot of thinking about this when they announced their futility, that the main question was whether or not there was evidence that if you removed significant amounts of amyloid plaque from the brain, this could result in a slowing of cognitive decline. So everyone was sort of waiting to see at the very highest doses, where there was that high-level amyloid removal, what would happen. So I think the data we saw yesterday in that respect is an important indicator of the amyloid hypothesis. We've thought for some time that complete removal of amyloid from the brain could be the goal here, doing it early and in the right patients could be important, and that underlies the design of our trial with our plaque-removing antibodies in Enimab, which we say should be able to remove plaque more quickly and more deeply than anything else we've seen.

Indeed, we do think that combination therapies and important Avenue and Alzheimer's disease, like where the first and probably the only company to have tried a combination of two disease modifying therapies.

Unfortunately, we had to stop that one of the therapies was a base inhibitor, which.

I've proven not not to be a productive avenue of investigation.

But given that we have both towel and amyloid approaches I think combination and the futures are very rational approach for Alzheimer's.

Thanks, Dan and Ah. Thanks for your questions. Tim next caller. Please next is Louise Chen with Cantor. Please go ahead hi, Thanks for taking my questions. My first question is here is when you first gave your 2020 revenue outlook or your long term revenue guidance. What did she was down for Sky Ranch and oral semegran attack and.

How it goes launch is proceeding relative to your expectations. There and then second question is how do you think or data read outs from has no impact your thinking on the commercial opportunity for MS. Anyhow, I mean is there more growth slack in the U.S. and how much can your share increase again positive there. Thank you.

Dan Skovronsky: So I think yesterday's news is reason to be a little more optimistic about that theory, and as I said before, we're excited to see the results of that phase two trial. With respect to your question on combination therapy, indeed, we do think that combination therapy is an important avenue in Alzheimer's disease. I think we were the first and probably the only company to have tried a combination of two disease-modifying therapies. Unfortunately, we had to stop that. One of the treatments was a base inhibitor, which has proven not to be a productive avenue of investigation.

Thanks, Louise we'll we'll go to Dave for the other 2020 revenue question, then the and on the ESMO data and presenting <unk>.

Louise Thanks for the question of course, we set the 2020 guidance in the middle of 2016, so maybe the products were facing.

Competition from et cetera today, we're a twinkling the eye of the inventors back then including some of her own launches at that time, we separate guidance because we thought there was a distance between what's the people who do your work and and the company thought about the long term <unk> prospects not line by line.

Dan Skovronsky: But given that we have both tau and amyloid approaches, I think combination therapy in the future is a very rational approach for Alzheimer's. Thanks, Dan. And thanks for your questions. Tim, next caller, please. Next is Louise Chen with Cantor. Please go ahead.

But looking at a portfolio of opportunities that existed in front of us of course, our ability to predict any one competitive situation or product uptake for Lilly is not perfect, but at that time, we did project that we would launch 10 medicines by the end of 19 in the first five years that period and that because of the profound nature of those opportunities.

Louise Chen: Hi, thanks for taking my questions. My first question here is, when you first gave your 2020 revenue outlook or your long-term revenue guidance, what did you assume for Skyrizzy and Oral Semaglutide? And how have those launches proceeded relative to your expectations there? And the second question is, how do you think the data readouts from ESMO will impact your thinking on the commercial opportunity for Resenio? Is there more growth left in the U.S.? And how much can your share increase with this positive data? Thank you. Thanks, Louise. We'll go to Dave for the 2020 revenue question and then to Anne for ESMODATA and Bresenio.

As we were confident we find a way to grow the company at that point, the farm business, 6% Elanco a bit slower we've actually raise that it's a 7% and I think are closing in on achieving that goal. Despite the fact that probably how we predicted we get there isn't the same way we have but I think that was the nature of the exercise back then.

And I think we successfully closed the gap in understanding in terms of with the opportunity for the company to grow was during during that time. So we're proud of that achievement. If we look at the competitive threats, we face across or big products of course, there. There I would just point out as well, though that trulicity volume growth in the U.S. was over 40 per.

Dave Ricks: Louise, thanks for the question. Of course, we set the 2020 guidance in the middle of 2016. So many of the products we're facing competition from, etc. today were a twinkle in the eye of the inventors back then, including some of our own launches at that time.

Dave Ricks: We set the guidance because we thought there was a distance between what the people who do your work and the company thought about the long-term prospects, not line by line, but looking at a portfolio of opportunities that existed in front of us. Of course, our ability to predict any one competitive situation or product uptake for Lilly is not perfect. But at that time, we did project that we would launch 10 medicines by the end of 19, in the first five years of that period. And because of the profound nature of those opportunities, we were confident we'd find a way to grow the company. At that point, the farm business was 6%, Elanco a bit slower. We've actually raised that to 7%.

Were sent in Q3, that's in the face of a year and a half of those epic and that talks volume growth was substantial as well in the face of the scare busy interim fire uptake and in both those cases, it's important I understand that there is far more growth opportunity left in the classes were participating in then share erosion.

Threat to our eyes.

Final comment on all this because I know, there's a lot of interest in the Q3 pricing dynamics on tolson Trulicity. Most of those are facts were determined.

Early in 18 and are now manifesting themselves in Q3 of 19, whether it be that don't have a whole lot change which affect both of them.

Dave Ricks: And I think we're closing in on achieving that goal, despite the fact that probably how we predicted we'd get there isn't the same way we have. But I think that was the nature of the exercise back then, and I think we successfully closed the gap in understanding in terms of what the opportunity for the company to grow was during that time. So we're proud of that achievement.

The rates, we contracted on in the commercial mergers that occurred in the payer space or the the contracting in the case, which was to the in what we knew were lower by segments, but a good volume and of course, a at the margin are highly productive for us to make sure patients in the duty those segments can.

It can reach our products. So just to put a perspective on all that long winded answer, but thanks for the question.

Dave Ricks: If we look at the competitive threats we face across our big products, of course, they're there. I would just point out, though, that trlicity volume growth in the US was over 40% in Q3. That's in the face of a year and a half of Ozempic.

Maybe presenting though and you know could address yes, I'm very happy too. So thanks, Lisa the question and quarter over quarter Q3, U.S. sales were up 19%.

Q2 in Q3 monthly sales look very strong as well. So we do believe that we're seeing growth.

Dave Ricks: And that Tulse volume growth was substantial as well in the face of the Scarizia and Trimphya uptake. And in both those cases, it's important to understand that there is far more growth opportunity left in the classes we're participating in than share erosion threats to our eyes. My final comment on all this, because I know there's a lot of interest in the Q3 pricing dynamics on Tulse and trlicity. Most of those are facts. We're determined, early in 18 and are now manifesting themselves in Q3 of 19, whether it be the donut hole law change, which affects both of them. The rates we contracted on and the commercial mergers that occurred in the payer space or the contracting in the case of Trulicity and what we knew were lower price segments but a good volume, and, of course, at the margin, are highly productive for us to make sure patients in VA, DoD So just to put a perspective on all that long-winded answer, but thanks for the question and maybe Presenio, Anne can address it.

From the outstanding a survival results that we've released a and we do hope that all see some growth for the CDK for six market, although maybe in the single digit area for US here at Lilly. This is a relaunch of presenting else. So the top party for our team is to ensure the doctors, particularly those in the U.S. are aware of these statistically significant.

Data nearly 10 months of survival benefit and will work with them to share that benefit the patients can have from payers anyhow and we do know that oncologists are data driven and we have extremely compelling data in a very strong commercial team that will ensure that we get the word out.

So we do hope very much to increase our share of market, obviously not all the the competitors in this space have been able to demonstrate statistically significant results and so we'll make sure that data is a well communicated, particularly we're going to encourage physicians to identify patients that are likely to do worse. So you probably saw that data that we released.

Dave Ricks: Yes, I'd be very happy to. So, thanks, Louise, for the question. Quarter over quarter, Q3 U.S. sales are up 19% since Q2, and Q3 monthly sales look very strong as well. So we do believe that we're seeing growth from the outstanding survival results that we've released. And we do hope that they'll see some growth in the CDK-4.6 market, although maybe in the single-digit area. For us here at Lilly, this is a relaunch of Versenio.

As no on where the cancer were occurred or where it whenever occurred and those patients do particularly well on versus any deal with some very robust results again, we see that as a differentiator as well from some of that competition and we do know that physicians and patients number one goal is survival and we've been able to deliver now as I said nearly 10 months of us.

Anne E. White: So the top priority for our team is to ensure that doctors, particularly those in the U.S., are aware of these statistically significant OS data, nearly 10 months of survival benefit, and we'll work with them to share that benefit that patients can have from Versenio. And we do know that oncologists are data-driven, and we have extremely compelling data and a very strong commercial team that will ensure that we get the word out. Again, we see that as a differentiator as well from some of the competition.

Survival benefit, which is really remarkable in this setting and I think really I've been a game changer for for this this molecule. So we look forward to next year and then just a comment a little bit outside the U.S. and addition, what I said is good growth in U.S., we're seeing a great portion of our growth come from outside the U.S., particularly in Japan, and we just got the updated data that in common.

Anne E. White: And we do know that physicians' and patients' number one goal is survival, and we've been able to deliver now, as I said, nearly 10 months of survival benefit, which is really remarkable in this setting and, I think, really a bit of a game-changer for this molecule. And great work in Europe as well, with continued uptake, strong patient uptake in the U.K., France, and Germany, and many countries now having reimbursement and are off and running. So we look forward to next year with Versenio and continuing to grow based on this, we think, very significant contribution to this important medicine. Thanks, Anne. Louise, thanks for the questions. Next caller, please. In the line of Naveen Jacob with UBS. Please go ahead.

Nation in first line in combination aromatase inhibitors, we have a 30% share now and in the second line in combination with Essar and a 45% share so really outstanding work by our Japan team and a good growth there and then great work in Europe as well with that continue the uptake strong patient uptake in UK, France, and Germany in many countries now.

Now, having reimbursement and often running so out so we look for its next year with levers any on continuing to grow based on this so we think very significant contribution to to this this important time medicine.

Thanks, San Louise Thanks for the question is next caller. Please is a line of Navin Jacobs with U.S. Please go ahead.

Great. Thanks for taking my questions you gave a lot of color on Trulicity and the pricing dynamics there just on tall.

Naveen Jacob: Great. Thanks for taking the questions. You gave a lot of color on Trulicity and the pricing dynamics there. Just on TALT, I'm wondering if we could get a similar sort of color, specifically, UNH recently excluded TALT from its 2020 formulary.

I'm wondering if we if we could get a similar sort of color specifically you announced recently excluded towards from its 2020 formulary, Keith or help us understand what or how the access on looks for 2020.

Naveen Jacob: Can you help us understand how access looks for 2020 as you're going through those discussions? Do you see any pressure there from some of the other newer entrants? And second question on Jardians, you have a couple of trials waiting for you over the next few years, the Emperor trials and heart failure. How are you thinking about that opportunity? Are those trials meant to bolster the profile of Jardians in the diabetes market? Or do you actually view the heart failure opportunities as an individual standalone opportunity? And if so, could you help us understand if this could be a blockbuster opportunity by itself?

As you've gone through those discussions do you see any pressure there.

From some of the other newer entrants and a second question on Jardiance.

A couple of trials reading out over the next few years damper trials and heart failure. How are you thinking about that opportunities are those trials meant to bolster the profile of jardiance and the diabetes market or do you actually have you the heart failure opportunities as a individual standalone opportunity and if so.

So.

Could you help us understand if this could be a blockbuster opportunity by itself and then associated with that wondering if the six minute function tests are filed by themselves. Thank you very much.

Naveen Jacob: And then, associated with that, wondering if the six-minute function tests are fileable by themselves. Thank you very much.

Thanks, Nuveen, we'll go to Patrick for the question on Tahltan Enrique after the question about Jardiance.

Patrik Jonsson: Thanks, Naveen. We'll go to Patrik for the question on Tulsa and then to Enrique for the question about Jardian.

Thank you very much and Ed access continues to be a chat on hemophilia immunology and the U.S., but we will continue to think show about through a combination all that told it's clear access program and contract with pay us as we continue to ensure that patients get that get that access to towards whenever they need if we look specifically in between between the.

Patrik Jonsson: Well, thank you very much, and access continues to be a challenge in the field of immunology in the US, but we will continue to ensure that through a combination of a TALS clear access program and contracts with payers, that patients continue to get access to TALS whenever they need it. If we look specifically into 2020, we expect 2020 to be similar to 2019 and incrementally better in some areas. And we know that not all plans have yet presented drug benefit schemes for 2020, but we believe we're entering into 2020 with positive momentum and with tolls now replacing Consentex as the preferred IL-17 with OptumRx on their core formularies, which cover more than 14 million lives in the U.S. So, in essence, we believe 2020 to be very similar to 2019, but with some incrementally better areas. Thanks, Patrick. Enrique.

We expect went Atlanta to be seem it out to 2000 to 19 and day incrementally better or in some areas and we have.

We know that's not the at all times of doubt that yes. It yet the present the VAT benefit that drive benefits scheme. So 2020 . We believe we're entering into two ended when do we have both Stephen meant to them and we have at all its notably think on San thinks that the preferred I in 17, Weve optum out audience on that go up on batteries, we just covering more than 14 million.

Our lives in the U.S. CNS as we believe 2020 to be that he seemed at the 2019, but we have that we've had some ma'am incrementally and better battery S.

Thanks, Patrick Enrique.

So we do see heart failure or four giardia says a significant opportunity for us I can you describe to us a.

Enrique Quintero: So we do see heart failure for Jardians as a significant opportunity for us. I think you described it as a block status type of potential, and I think that's right. Clearly, we do have a lot of opportunity for Jardians.

Blokes blocks are status type of potential nothing thats right.

I'm hearing that we do have a lot of opportunity for Jardiance in type two diabetes. So heart failure use on top of the blockbuster opportunity.

Enrique Quintero: In type 2 diabetes, heart failure is on top of that blockbuster opportunity in type 2 diabetes. We do have, when it comes to the six-minute walk test, we have a readout later this year. You asked whether we believe that data would be fileable with the FDA, and we believe, so we believe that we can get that data on our label. Clearly, the outcome studies are also critical for us, and they will be coming at the end of next year, and then for HFPEF in early 2021. So, a very significant opportunity for judges and for patients.

Two.

Ladies we.

We do have when it comes to the six minute walk does we have read out to later this year you asked whether we believe that data would be fileable with the FDA. We believe so we believe that we can get the data on our label purely the outcome studies are also critical for us and they will be coming.

At the end of next year and then.

[laughter] path and in early 2021, so very significant opportunity for enjoying some for patients.

And Oh this is Dan I could just also at in that we are studying jardiance in chronic kidney disease in the phase three trial that will read out in 2022, just another exciting opportunity there.

Dan Skovronsky: And this is Dan. I could just also add that we are studying jargons in chronic kidney disease in a phase 3 trial that we'll read out in 2022, which is another exciting opportunity there. Thank you. Naveen, thanks for your questions. And next caller, please. The next is Seamus Fernandez from Guggenheim. Please go ahead. Oh, thanks very much.

Thank you.

Many thanks for your call the questions and the next caller. Please the Nexus Seamus Fernandez with Guggenheim. Please go ahead.

Oh, thanks very much so.

Just a couple of quick questions.

Seamus Fernandez: So just a couple of quick questions. You know, first off, for the diabetes market, Enrique, can you just help us understand the mix of payers, you know, how that might be changing from a Trulicity perspective in terms of the next incremental script gained? And then similarly, where is Trulicity gaining the most traction incrementally amongst physicians? Is it now really the growth driver growing beyond the endo market and pushing into the primary care physician portion of the market? The reason that I ask that is because I think the mix of payers is really important relative to the incremental acquisition cost for each script, considering the competition from an oral drug that is obviously moving into and seeking to penetrate the primary care market.

First off for the diabetes market.

Enrique can you just help us understand the mix of payers you know how that might be changing from a trulicity perspective in terms of the next to incremental scrip gained and then similarly.

Where is truly a city gaining the most traction incrementally amongst physicians is it now really the growth driver a growing beyond the endo market and pushing into the primary care physician.

A portion of the market. The reason that I asked that is because I think the mix of payers is really important relative to the.

Incremental acquisition cost for each script.

Considering the.

The competition from an oral drug.

Obviously, moving and seeking to penetrate the the primary care market.

The other question is really.

Enrique Quintero: The other question is really a kind of bigger picture question on business development. I think, Dave, you've said in the past that, now that Lilly has launched several successful products in the market today, the focus is to really reload the Phase 2 and the Phase 3 pipeline. Can you just give us a sense of where you're focused? Do you feel like the current Phase 1 pipeline is sufficient to advance there, or is the focus more so or equally on areas outside? And maybe you can just give us a sense of where you're most excited about the science going forward. Thanks. Thanks, Seamus. We'll go to Enrique first for the question on Trulicity's mix of payers and then Dave for your question on business development.

Kind of bigger picture question on business development I think Dave.

You said in the past that you know the focus now that Lilly has launched several successful products in the market today is to really reload the the phase two and the and the phase three pipeline can you just gave US a sense of where your focus do you feel like the current phase one pipeline is sufficient.

Two to advance there or is the focus more so or equally on on areas outside and maybe you can just give us a sense of where you're most excited about the science going forward. Thanks.

Thanks, Seamus, we'll go to Enrique first for the other question on Trulicity, a mix of payers and then Dave for your question on business development.

[noise] Seamus so at least you continues to grow across all payers, so whether its commercial nor part D of course as we've highlighted the we have disproportionate growth in the VA and the D.

Enrique Quintero: Seamus, true, LISI continues to grow across all payers, so whether it's commercial or Part D, of course, as we've highlighted, we have this proportionate growth in the VA and DOD and other types of payers that tend to be lower priced, but as we look at the future, we do continue to expect growth for the product across all of the different payers. When it comes to end or vis-a-vis primary care, we do see the class continue to grow across all segments, and in particular, true LISI has been growing quite a bit when it comes to reaching more primary care physicians, so a big part of the growth is just having more primary care physicians try a new, try a GOP-1 and start using and adopting this important class, and because of the simplicity of true LISI, it is an ideal product for that.

Other types of payers that are the tend to be lower price.

But as we look at the future. We do continue to expect growth for the product across all of the different payers when when he comes to and will be so the primary care.

You do see that glass continuing to grow across all segments and in particular Trulicity has been growing quite a bit when it comes to reaching more primary care physician. So a big part of the growth is just having more from primary care physicians try IMMU try a GLP one on the started using other on adopting these.

For thin glass.

Because of the.

Simplicity of Trulicity and he's on the deal product for that.

Thanks, Enrique Dave Yeah. Thanks, a question on a capital allocation and BD you have a right that we see as significant investment in our own labs. Their own efforts is very important than we've had good success you can comment on the phase one starts this year as an example, but we aggressively want to complement that was outside out.

Enrique Quintero: Thanks.

Dave Ricks: Thanks, Enrique. Dave?

Dave Ricks: Yeah, thanks for the question on capital allocation and BD. You have a right to know that we see a significant investment in our own labs and our own efforts is very important, and we've had good success. Dan commented on the phase one start this year as an example.

Dave Ricks: But we aggressively want to complement that with outside opportunities, really at all phases of development and across all therapeutic areas. Now, of course, our opportunities to add value and find value are not uniform across stages of development or therapeutic areas, and so that does skew our work and our effort there. But we are open-minded about all five of the therapeutic areas we operate in and all phases of development.

Attunitys really all phases of development and across all therapeutic areas now of course.

Our opportunities to add value and find value or not uniform across stages of development or therapeutic areas and so that does skew our work in our effort there, but we're open minded about all five of the Jews, we operate in and all phases of development.

Where we can add value and find value those are the most exciting and attractive opportunities of course. This year, we did our largest acquisition ever with Loxo oncology.

Dave Ricks: Where we can add value and find value, those are the most exciting and attractive opportunities. Of course, this year, we did our largest acquisition ever with Loxham Oncology. On the one hand, on the other hand, you saw a nice tuck into our pain portfolio with the non-deal as another. We don't come at this with any particular financial framework other than finding value. And of course, you know, valuations in biotech have dropped a little bit lately, so that always helps the equation. They've been pretty high over the last 18 months prior to that.

I want to add on the other and you saw a nice tuck into our pain portfolio with the Syntricity on deals is another.

We don't come out this with any particular.

Financial framework other than finding value and of course, you know valuations and biotech have dropped a little bit lately. So that always helps the equation they've been pretty high over the last 18 months prior to that so we continue to look at it all mechanisms.

Dave Ricks: So we continue to look at all mechanisms, all TAs, and all phases. And probably because of the number of opportunities, I've said this before, you'll see that it's active in oncology. That's where a lot of early stage biotech is, and earlier because that's where more of the opportunities lie.

All tiers, and all phases, and probably because of the number of opportunities I've said. This before you will see is active in oncology, that's where a lot of.

Early stage biotech is and earlier, because that's where more of the opportunities lie.

Thanks, Dave Seamus. Thanks for your questions next caller please.

Dave Ricks: Thanks Dave. Seamus, thanks for your questions. Next caller please. Next is David Risinger with Morgan Stanley. Please go ahead. Yes, thanks very much. So with respect to the 31% operating margin target for 2020, that was reiterated today, the street isn't quite there, I don't think I think it's just a tad bit below 31%. What is your sense of that?

Next is a line of David Risinger with Morgan Stanley . Please go ahead.

Okay.

Yes, thanks, very much so I just wanted to go back to the targets. So with respect to the 31% operating margin target for 2020 that was reiterated today. The street isn't quite there I don't think I think its justice.

Had been below 31%.

What is your sense that have the street is.

Over projecting in terms of costs are you, where do you think the costs will be lower than what the street is currently assuming and then with respect to the.

David R. Risinger: of the street is.

David R. Risinger: Overprojected

David R. Risinger: ........

David R. Risinger: With respect to the revenue target that was provided,

Revenue target that was provided in the second quarter slide.

David R. Risinger: provided in the second quarter slide. Uh, are you still comfortable with that 23%?

Are you still comfortable with that 23.6 billion dollar figure for 20 Twond. Thank you.

David R. Risinger: The $23.6 billion figure for 2020. Thank you.

Thanks, Dave will go to Josh for both of those questions. Thanks, Dave on the targets and themselves their margins I think if you look at how we've progressed since we've established those margins weve you've been seeing you know a multiple hundred basis points improvements per year and this year.

Josh Smiley: Thanks, Dave. We'll go to Josh for both of those answers. Thanks, Dave. On the targets themselves or margins, I think if you look at how we've progressed since we established those margins, we've been seeing, you know, multiple hundred basis point improvements per year. And this year, we were clear in saying that wasn't going to be the case because of the Cialis overhang that we faced this year. So I think when we look out in 2020, and of course, everybody's got different different models. I think it's probably a combination of where we see revenue and how we think we can manage costs. Again, as I mentioned earlier, on a prior question, we feel good about the overall SG&A investment that we, we lose the overhang from Cialis and Lartruvo, the volume gains that we're seeing in the new product portfolio and the price that we're projecting gets us, I think, in a much better growth position on the top line with modest growth on the operating expense line.

We we were clear and saying that wasnt going to be the case because of the Seattle us overhang that we face. This year. So I think when we look out in 2020 and course everybody's got different different models.

I think it's a combination probably of where we see revenue and how we think we can manage cost again as I mentioned earlier on a on a prior question we feel good about the overall SGN AIGH investment that we.

We lose the overhang from Seattle Us and Lartruvo the volume gains that were we're seeing in the new product portfolio and the the price that we're projecting gets us I think you know it in a much better growth position on the top line with modest growth on the operating income on the operating expense line, so I get more.

We're confident we reiterate it as you know we raised this this number a little bit and we've reiterated every every opportunity we have that we'll get there I I think it's probably just a function of both topline and a modest more modest increases in a in operating expense, but again that that is.

Josh Smiley: So, again, we're confident, we've reiterated, as you know, we raised this number a little bit, and we've reiterated every opportunity we have that we'll get there. I think it's probably just a function of both the top line and modest, more modest increases in operating expenses. But, again, that is very much in the context of the competitive dynamics we face and the large growth opportunities we have in the long term. We are going to invest in those. In terms of the revenue piece, I think the answer, again, is the same. If you look at how the portfolio is performing on an underlying basis this year, we're confident in the minimum number that we need to achieve in order to get to the 7% compound annual growth rate target that we've outlined. Thanks, Josh. Dave, thanks for the questions. Next caller, please. It's the line of Steve Scala with Colin.

Very much a in the context of the competitive dynamics, we face in the the large growth opportunities. We have a long term, we are going to invest behind us.

In terms of the revenue piece I think I'd answer again is the same as you look at how the portfolio is performing on an underlying basis. This year.

We're we're confident in the the minimum number that we need to achieve in order to get to the Oh, 7% compound annual growth rate target that that weve outlet.

Thanks, Josh Dave Thanks for the questions next caller. Please it's a line of Steve Scala with Cowen. Please go ahead.

Thank you I'm, Dave for investors, who choose to be skeptical. This quarter has provided things to point to say you explain trulicity and touts, but basically basic Laura and Ilim to also fell short the beat was tax rate driven as was the 2019 guidance raise and regains to par.

Steve Scala: Please go ahead. Thank you. Um, Dave, for investors who choose to be skeptical, this quarter has provided things to point to. As you explained Trulicity and Touts, but Basic Law, Basic Law, and Olympta also fell short.

Steve Scala: The beat was tax rate driven, as was the 2019 guidance raised. Enrique is departing at a not ideal time. So why should we be confident that the weaknesses are temporary, the tax rate lowering won't create a tough comparison in 2020 since one-time factors occur once, and that Enrique's departure doesn't portend difficulty ahead in diabetes? So that's the first question. And with the stock unusually weak this year and given your confidence in the outlook, why not take this opportunity to be more aggressive with share or purchase? Why isn't this a phenomenal opportunity?

Sitting at a not ideal time.

So why should we be confident that the weaknesses are temporary the tax rate.

Lowering won't create a tough compare in 2020 cents onetime factors occur once and that Enrique his departure doesn't portend difficulty ahead in diabetes. So that's the first question.

And with the stock unusually weak this year and given your confidence in the outlook why not take this opportunity to be more aggressive with share repurchase why isn't this a phenomenal opportunity. Thank you.

Thanks, Steve who will go to Dave for the first handful of questions and then Josh on the share repurchase yeah, great. Steve. Thanks for synthesizing. They bear case, so effectively there [laughter]. We of course haven't answered all of those things and I honestly I don't think there's been a more interesting are exciting time to be in this company.

Steve Scala: Thank you.

Steve Scala: Steve, we'll go to Dave for the first handful of questions and then Josh on the share repurchase.

Dave Ricks: Yeah, great, Steve. Thanks for synthesizing the bear case so effectively here.

Dave Ricks: We, of course, have an answer to all of those things. Honestly, I don't think there's been a more interesting or exciting time to be in this company, or a more optimistic time. And we went through many of those reasons today. We have a broad portfolio of products that are new in their lifecycles with Cialis behind us, remembering that Cialis has been a six-point growth headwind over the last four quarters. Coupled with the one-time price effects we went through today, which we really believe are substantially, you know, one-time either a step down on the big mergers with our payers or the one-year effect of the donor hole, which falls disproportionately on companies like Lilly who have retail-oriented products. And then we look ahead in diabetes. I have to be honest; I think the diabetes pipeline, the growth opportunities ahead, whether it be with Jardians or Trulicity or Trecipitida, have never been stronger for the company. So I'll let Enrique answer the question on his timing.

We're more optimistic time, and we went through many of those reasons today, we have a broad portfolio products that are new in their lifecycle with CLS behind us remembering that you know CLS is a six point growth headwind over the last four quarters, that's ending now.

Coupled with the onetime price effects, which we went through today, which we really believe are substantially won't you know onetimes either a step down on the big mergers with our payers or the one year effect of.

The doing a whole, which falls disproportionately on companies like Lilly, who have retail oriented products.

And then we look ahead in diabetes I have to be honest I think the diabetes pipeline the growth opportunities ahead, whether it be with Jordi answer Trulicity, which was evident have never been stronger for the for the company. So I'll, let Enrique answer the question on his timing, but I think he's the is leaving on top and there was another level to.

Get too in Lilly diabetes, that's certainly how I feel.

Enrique Quintero: But I think he's leaving on top, and there's another level to get to in Lilly's diabetes. That's certainly how I feel. Of course, in every category we're in, we've talked about, we compete with companies, some of them bigger than ours, some of them more focused, because we have more opportunities than the average company out there. But that doesn't mean that every quarter, every line item, we're going to hit our goals. I think we're honest with ourselves about that, but we have more than half a dozen products that could scale in a significant way. And given our base of pharma revenue, I think that continues to offer a unique situation. And then you couple that with margin expansion, which we're convicted on for the prior question.

I think the.

Of course every category, we're in and we've talked about we compete with companies some of them bigger than ours. Some of them more focus because we have more opportunities than the average company out there and that doesn't mean that every quarter every line item, we're going to nail our goals I think were honest with ourselves about that but we have more.

More than half a dozen products that could scale in a significant way and given our base of pharma revenue I think that continues to offer a unique situation and then you couple that with margin expansion, which were convicted honest for the prior question and given our placement in the league table. There certainly we have upside on that one is the as the.

Enrique Quintero: And given our placement in the lead table there, certainly we have upside. On that one, as the top line scales, I can't think of a better place to work in this industry, to be honest. We've got a great opportunity ahead. Now, on the share buyback, I'll let Josh address that. But certainly, that has been our thinking. We've done an aggressive share buyback this year. As we think about sources of cash, etc., that's clearly on our list. And when we have that discussion with the board, I'm sure that will be a key topic as we plan capital allocation over the coming years. Enrique, do you want to touch on your retirement? I think it's probably worth a mention here.

Topline scales I can't think of a better place to work in this industry to be honest, we've got a great opportunity had no on share buyback I'll, let Josh address that but certainly that has been our thinking we've done aggressive share buyback.

This year as we think about sources of cash et cetera, that's clearly on our list in when when we.

You don't have a that discussion with the board I'm sure there will be key topic as we planned capital allocation over the coming coming years, Ricky you want to touch on your retirement I think it's probably worth a a mentioned here.

Right, Okay I'm.

South to be due in a and retire from live a very proud I think of the business that we're building diabetes.

Enrique Quintero: Sad to be leaving and retiring from Lilly, but very proud, I think, of the business that we built in diabetes. As good as I feel about building that business together with all of my colleagues, I feel even stronger about the bright future that diabetes and Lilly have ahead. Just as I think about Trulicity and Jardians, great momentum, leadership-type brands, but with important catalysts when it comes to Trulicity and Rewind and the higher doses. And when it comes to Jardians, of course, heart failure and CKD on top of the huge opportunity in type 2 diabetes. And I continue to feel very bullish about what Terceptive could do for both the efficacy and the tolerability profile. So, a very exciting time for us in diabetes overall, and I couldn't be more excited about the future of Lilly and diabetes.

As good as I feel about building the business together with all my colleagues.

I feel even stronger about the bright future. The diabetes has on Lilly has.

Ahead, I'm, just I think about its release city.

Yes, great momentum meter she died brands, but with important on coddling when it comes the trulicity and rely on the higher doses.

And when it comes through Jardiance of course heart failure on CKD on top of deal with a huge opportunity in type two diabetes.

I continue to feel very bullish about what they're separate they could do on both the efficacy and tolerability profile. So very exciting time for us and diabetes overall and I couldn't be more excited on the future of leading diabetes.

Thank you.

Thank you, yes, just didn't just a couple of points on its Josh on on share repurchase as Steve just to remind everybody. We did three and a half billion dollar share repurchase in the first half of this year, we did 600 million in the third quarter and <unk> as you say we.

Josh Smiley: Yeah, just a couple points on this, Josh, on share repurchase. Steve, just to remind everybody, we did $3.5 billion in share repurchase in the first half of this year. We did $600 million in the third quarter.

When we see opportunities on the margins to create.

Josh Smiley: And as you say, when we see opportunities on the margins to create value, we're going to be opportunistic in share repurchase. But, of course, we want to be balanced here. As we mentioned in the comments, we want to ensure we've got the capital capacity to invest in the pipeline and business development opportunities when we see them.

Value, we're going to be opportunistic and share repurchase of course, we want to be balanced here as we mentioned in the comments. The one in short we have got the capital capacity to invest in the pipeline and business development opportunities when we see them.

But yeah, you should expect that when we see a outsize movements will we'll do what we can.

Josh Smiley: But yeah, you should expect that when we see, you know, outsized movements, we'll do what we can. Thanks, Josh. Steve, thanks for your questions. Next caller, please. It's the line of Andrew Baum with Citi. Please go ahead.

Thanks, Josh Steve. Thanks for your questions next caller. Please open the line of Andrew Baum with Citi. Please go ahead.

Thank you couple of questions. Please in relation to tout you spoke about access fat Max yet you didn't talk about pricing that pricing, perhaps you could talk to that.

Andrew Baum: Thank you. A couple of questions, please. In relation to TALPS, you spoke about access for next year. You didn't talk about pricing, or net pricing. Perhaps you could talk about that.

Given its predominantly a commercial markets I'm, assuming that rebating, we've seen which looks like 40%.

Andrew Baum: Given it's predominantly a commercial market, I'm assuming that the rebate we're seeing, which looks like 40 percent, is only going to go one way. I note that you're 25 percent higher rebate than Consentex, and your net price, on our calculations at least, is down 16 percent year on year. So some color on where it goes in 2020 would be helpful. And then second, again, on net pricing in relation to trulicity, we estimate that about 25 percent of trulicity is Part D based by volume. I'm obviously coming from a point of view of trying to work out the contribution of the additional donut hole impact versus other factors. If you could confirm how close we are to where it is, that would be very helpful.

Is only going to go one way I know, you're 25% high rebate than consensus the Concentrix and Youre at net price on our calculations at least is down 16% year on yes, a collar on where it goes and 2020 would be helpful. And then second again on that pricing in relation to list of T.

We estimate that about 25% all trulicity is part B base by volume I'm, obviously coming from point of view of trying to work out the contribution of the additional don't hold impact versus other factors. If you could find the how close we ought to where it says that would be very helpful. Many thanks.

Thanks, Andrew will go to a Patrick for the question on a job copper I'll have Josh called ever though okay.

Andrew Baum: Many thanks. Thanks, Andrew. We'll go to Patrik for the question, or Josh. I'll cover them. Or we'll have Josh cover both.

Thanks, Andrew on on calls first I think that's difficult pricing dynamics are little bit different than Trulicity as Patrick mentioned I think earlier as we've talked about another calls about a third of our prescriptions now just given the access a challenge as we have are not reimbursed or Lilly ends up being the primary payer so.

Josh Smiley: Okay. Thanks, Andrew. On TULPS, first, I think that the TULPS pricing dynamics are a little bit different from Trulicity. As Patrik mentioned earlier, as we've talked about in other calls, about a third of our prescriptions now, just given the access challenges we have, are not reimbursed or literally end up being the primary payer. So as we get incremental access, you see interesting price moves here. So we're happy to gain access and pay rebates for that volume because we're transitioning patients, in some cases, from free product to reimbursed product. That being said, there are other cases where the product may not be on formulary, but as we work through PA processes and other things, we end up ultimately getting 100% reimbursement.

As we get incremental access you see you know you see interesting price moves here so.

We're happy to to gain access and pay rebates.

Fourth for that volume because we're transitioning patients in some cases from from free product to a to reimburse product Ah that being said there are other cases, where the product may not be on formulary, but as we work through PA process is another thing we end up ultimately getting 100% reimbursement. So I think as you look at that piece.

Beer, you're going to see it it'll be a little bit more difficult for installs to translate prescriptions to net price all that being said I think if you look in the third quarter. The biggest dynamic we software for tablets on price was similar to Trulicity and that we saw a prior period adjustment and again. This is just estimating the.

Josh Smiley: So I think, as you look at that piece, you're going to see it will be a little bit more difficult for TULPS to translate prescriptions to net price. All that being said, I think if you look at the third quarter, the biggest dynamic we saw for TULPS on price was similar to Trulicity in that we saw a prior period adjustment. And again, this is just estimating the rebate liability. And as we looked over the preceding 12 months, as we got invoices in, we had to make an adjustment there. In total, when we look at the sort of in-quarter adjustments, it was about 20 points of price as well. So we don't see that going forward.

The rebate liability and as we looked over the preceding 12 month as we get invoices and we had to make an adjustment there that in total when we look at this sort of in quarter adjustments. It was about 20 points of prices as well. So we don't see that going forward I think as you look into 28.

20, as Patrick mentioned, we've got some opportunities to gain some incremental access and that'll show up as some price concession, but it's more than compensated or in volume. So we see a relatively you know sort of steady price, but lots of things moving on moving around a under the water I think on.

Josh Smiley: I think as you look into 2020, as Patrick mentioned, we've got some opportunities to gain some incremental access, and that will show up as some price concessions, but it's more than compensated for in volume. So we see a relatively sort of steady price, but lots of things moving on, moving around under the water. I think on Trulicity that your estimates are good. About 30% of Trulicity right now is in Medicare Part D. We see that probably as pretty stable going forward. And as we mentioned, we see the pricing environment on a contracted basis as being pretty stable as we head into 2020 as well.

Hi, I'm Trulicity your estimates are good way.

30% of Trulicity right now than in Medicare part D. We see that probably is as pretty stable going or as as we mentioned were we see that the pricing environment on a on a a contracted basis as being pretty stable as we head into 2020 as well.

Thanks, Josh Andrew Thanks for the questions next caller please.

Josh Smiley: Thanks, Josh. Andrew, thanks for the questions. Next caller, please. This is the line by Damian Conover with Morningstar. Please go ahead. Great, thanks for taking the time to answer the question. I just wanted to follow up on the TALTS study that showed encouraging data head-to-head versus TREMFYA at 12 weeks, and it looks like there is a 24-week end point, or secondary end point, coming up, and my question is, are there any data points coming up after 24 weeks, maybe pushing into 48 weeks? I ask that because of the Eclipse data that showed favorable data from TREMFYA versus a different IL-17 but

The line of Damien Conover with Morningstar. Please go ahead.

Oh, great. Thanks for taking the question I just wanted to follow up on the Tulse study that showed encouraging data a head to head versus that chimps <unk> assets at 12 weeks and it looks like there is a 24 week or endpoint secondary endpoint coming up and my question is is there any data points coming up after 24 weeks maybe pushing.

Into 48 weeks and I asked that because of the clips data that showed favorable data from CIMB fire versus a different aisle 17, but really didn't show the strong data into all week 48, and I just wondering how you're looking at Tulsa positioned against you imply a.

Geoff Meacham: Strong data until week 48. And I just wondered how you're looking at TULPS positioned against TRIMFYA in those sort of longer durations of treatment. And then maybe a follow-up to that is, when you position the product for physicians, is the quick response or potentially a longer response more important from your marketing perspective? Thank you. Okay, thanks, Patrik. Well, thank you very much.

Well in those sort of longer duration of treatment and then maybe a follow up to that is when you positioned the product for physicians is the quick response or potentially a longer response more important from your marketing perspective. Thank you.

Okay. Thanks, Patrick.

Think about a month well extremely excited obey said superiority to try out of an eye and 17 over and I think we only just call. They data published a couple of weeks ago. So we're now in the phase somebody say emanating based data among have kept provided in the U.S. and the rest of world at the end, but for the capital from 12 weeks as you said.

Geoff Meacham: We are extremely excited about this first superiority trial of an IL-17 over an IL-23. We just got the data published a couple of weeks ago, so we are now in the phase of disseminating this data among healthcare providers in the U.S. and the rest of the world. The first cut was at 12 weeks, as you said, and we showed superiority both in terms of onset of action and clearance. The next data cut and the last data cut will be at week 24, and that is driven by the fact that we have also seen that IL-23 peaks in terms of efficacy pretty much at that time. If we look into the key attributes, particularly among patients treated for psoriasis, it's onset of action, its clearance, and its durability.

And we feel we shed a well show to the superiority both in terms of onset of action and clear on the next day that got them, but it all state account would be a day week at week 20 pool and that is driven by the fact that we have seen all that valued at 23. They peak in terms of efficacy pay too much at that time, if we look into the key attributes I think at <unk> I think that.

On page on Threeq to Fourq psoriasis, it's onset of action, it's clear on any stood Abili T and I think this was a thought phase three trial that we have to click on thumbs up towards this is says appear above us and but they're not a and then out fans I. It sounds a bolt ons that adoption and <unk> runs and we had five yesterday data a confirming the.

Geoff Meacham: And I think this was a third phase three trial, but we actually could confirm that TALS is superior to EMBREL, STELARA, and now TRENFIRE in terms of both onset of action and clearance. And we have five years of data confirming the durability of the efficacy as well. We really believe that there is a lot of good momentum for TALS right now.

<unk> efficacy as well, we really believe it varies a lot of good momentum towards right now.

I would just at the.

Patrik Jonsson: And I would just add, you know, the...

You mentioned another I'll 17, but we don't see these two out 17 to similar and it's interesting to note at all or competitors, who are doing I'll 17 comparisons are choosing cosentyx in adults pick them I'm certain today no one has actually compared to any other psoriasis medicines the toll and I think that tells you a lot about the powerful efficacy that we deliver.

Dave Ricks: You mentioned another IL-17, but we don't see these two IL-17s as similar, and it's interesting to note that all our competitors who are doing IL-17 comparisons are choosing Cosmetics and not TALTS. In fact, I'm certain today that no one has actually compared any other psoriasis medicine to TALTS, and I think that tells you a lot about the powerful efficacy that we deliver with this leading medicine.

<unk>.

With this leading medicine.

Dave Ricks: Thanks Dave. Damian, thanks for the questions, and we'll go to Dave for the close.

Thanks, Dave do you mean, thanks for the questions and we'll go to Dave for the close.

Great well, we appreciate everyone's participation today and your interest in the company as I said earlier, we've made meaningful progress thus far in 2019, and we're committed to a revenue and operating margin goals in 19 as well as in 20, while we continue to best investing or innovation based strategy.

Dave Ricks: Great. Well, we appreciate everyone's participation today and your interest in the company. As I said earlier, we've made meaningful progress thus far in 2019, and we're committed to revenue and operating margin goals in 2019 as well as in 20. While we continue to invest in our innovation-based strategy, with diversified and volume-driven revenue growth from one of the freshest portfolios in the industry and a complement, complemented by a pipeline full of exciting opportunities, some of which Dan commented on today, we believe Lilly continues to be a compelling Thanks again for dialing in, and please follow up with the IR team if you have questions we didn't address in today's call. Have a good day.

With the diversified and volume driven revenue growth.

From one of the freshest portfolios in the industry and a compliment.

Complemented by a pipeline full of exciting opportunities some of which Dan commented on today, we believe will be continues to be a compelling investment.

Yes, again for dialing in and please follow up with the IR team. If your questions. We didn't address in today's call have a good day.

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Six nine international participants may dial three sick excuse me 320, 3653844 and use the same access code for seven to 869 that does conclude your conference for today. Thank you for your participation you may now disconnect.

[noise].

[laughter].