Q4 2019 Earnings Call

Ladies and gentlemen, thank you for standing by welcome to the Lilly Q4 2019 earnings call.

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Lilly Q4 2019 earnings call. At this time, all participants are in a listen-only mode. They don't need to continue conducting a question and answer session. If you wish to ask a question during today's call, please press 1, then 0 on your touchtone phone. To remove yourself from the queue, you just press 1, then 0 again. If you need assistance during today's call, please press star, then 0. As a reminder, today's call is being recorded. Now, I turn the comments over to your host, Kevin Hearn. Please go ahead.

At this time all participants are in listen only mode. They don't really coaching conducting a question answer session. If you wish asked a question during today's call. Please press. One then zero on your Touchtone phone to remove yourself from Q you just press one zero again, if you need assistance during today's call. Please press Star then zero as reminder, today's call is being recorded.

Oh sure the culture of your host Kevin Hearn. Please go ahead.

Good morning, Thank you for joining us for Eli Lilly and companies Q4, 2019 earnings call I'm, Kevin her Vice President of Investor Relations. Joining me on today's call, our Dave Ricks, Lilly's, Chairman and CEO , Josh Smiley, Chief Financial Officer, Dr., Danskin, Wronski, Chief Scientific officer in White.

Kevin Hearn: Good morning. Thank you for joining us for Eli Lilly and Company's Q4 2019 Earnings Call. I'm Kevin Hearn, Vice-President

Kevin Hearn: Vice President of Investor Relations. Joining me on today's call are Dave Ricks, Lilly's Chairman and CEO.

Dan Skovronsky: officer, Dr. Dan Skovronsky.

Anne E. White: scientific officer, Anne White, president of Lilly Oncology.

President of Lilly oncology, Patrick Johnson, President of Lilly Bio medicines, and Mike Mason President of Lilly diabetes. We're also joined by Kim Matco and Mike support the Investor Relations team.

Patrik Jonsson: Patrik Jonsson, President of Lilly Biomedicines, and Mike Mason, President of Lilly Diabetes.

Michael B. Mason: We're also joined by Kim Macco and Mike Sapar of Investor Relations. During this conference call, we anticipate making projections and forward-looking statements based on our current expectations. However, 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 in the 8-Ks filed with the Securities and Exchange Commission.

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 those outlined in our latest forms 10-K, 10-Q, and any eight case filed with the Securities and Exchange Commission the info.

Kevin Hearn: The information we provide about our products and pipeline is for the benefit of the investor.

I mean should 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.

Kevin Hearn: It is not intended to be promotional and is not sufficient for prescribing decisions as we transition to our

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 1st 2018.

Kevin Hearn: A reminder that our commentary will focus on non-GAAP financial...

Kevin Hearn: which excludes the financial sector

Kevin Hearn: During 2018 and 2019,

Dave Ricks: 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 Q4 results. Thank you, Kevin.

Now I'll turn the call over to Dave for a summary of our Q4 results. Thanks, Kevin 2019 was a solid year for Lilly and our strong Q4 financial results highlights the strength of the underlying business.

Dave Ricks: 2019 was a solid year for Lilly, and our strong Q4 financial results highlight the strength of the underlying business. We exited 2019 with momentum and will continue to focus on executing our strategy in 2020, which is to deliver excellent business results, develop and launch new medicines for patients, and drive increased productivity. Revenue growth accelerated in Q4, increasing 8% versus Q4 2018, or 9% in constant currency. This strong performance was driven entirely by volume, which contributed 10 percentage points of growth despite continued headwinds from the loss of exclusivity in the U.S. for Cialis and the global withdrawal of Laertuvo. Excluding Cialis and Lartruvo, worldwide volume growth was an impressive 15%.

We exited 2019 with momentum.

Well continue to focus on executing our strategy in 2020.

Just to deliver excellent business results develop and launch new medicines for patients and drive increased productivity.

Revenue growth accelerated in Q4, increasing 8% versus Q4, 2018 or 9% in constant currency.

This strong performance was driven entirely by volume, which contributed 10 percentage points of growth. Despite continued headwinds from a loss of exclusivity in the U.S.C. hours and the global withdrawal of Lartruvo.

Excluding see Alastair Lartruvo worldwide volume growth was an impressive 15%.

Newer medicines continued to be our growth engine, representing 46% of a revenue this quarter.

Dave Ricks: Newer medicines continue to be our growth engine, representing 46% of our revenue this quarter. We made good progress in Q4 on our productivity agenda, as operating income grew 10% versus last year. We posted strong revenue growth and held marketing, selling, and administrative expenses flat. Thank you very much.

We made good progress in Q4 on our productivity agenda as operating income grew 10% versus last year.

We posted strong revenue growth and held marketing selling and administrative expenses flat.

Versus last year, while increasing our investment in R&D, our non-GAAP operating margin was 26.3%.

Dave Ricks: We finished 2019 with a full-year operating margin slightly below our guidance of approximately 28%, as we made targeted strategic investments in Q4 across both our commercial portfolio and pipeline, which will enhance our opportunities for future growth. These investments provide good momentum heading into 2020 and keep us on track to achieve our 31% operating margin target this year. We've announced multiple pipeline milestones since our Q3 earnings call. These include positive results in the remaining two phase three trials of the Bear-Sydney Breeze AD program in atopic dermatitis. The submission of self-recognition in the U.S. and Europe, and the FDA granting separacatinib a priority review. The submission of Tenezumab for OA pain in the U.S. in collaboration with Pfizer, the submission of higher doses of Trulicity in the U.S. and Europe, and the submission of baricitinib for atopic dermatitis in Europe and Japan

Improvement of 40 basis points versus Q4 2018.

We finished 2019 with a full year operating margin slightly below our guidance of approximately 28%.

As we made targeted strategic investments in Q4 across both our commercial portfolio and pipeline.

Which will enhance our opportunities for future growth.

These investments provide good momentum heading into 2020 and keep us on track to achieve our 31% operating margin target this year.

We've announced multiple pipeline milestones since our Q3 earnings call.

Include positive results in the remaining two phase three trials of the Baricitinib Breeze AG program.

In a topic dermatitis.

The submission of separate catnip in the U.S. in Europe .

And the FDA granting separate catnip a priority review.

The submission of today's amount for away pain in the U.S. in collaboration with Pfizer.

The submission of higher doses of Trulicity and the U.S. in Europe .

And the submission of Baricitinib gray topic dermatitis in Europe and Japan.

Dave Ricks: During Q4, we put our strong operating cash flow to work, returning approximately $900 million to shareholders via share repurchase and dividend. In addition, as previously announced, we increased our dividend 15% for 2020. This marks the second consecutive year of a 15% dividend increase, reflecting our confidence in the outlook for the business. Finally, we recently announced the pending acquisition of Jumeirah, a company focused on developing new therapies for chronic skin conditions. Ramirez has an exciting asset in phase 3 for atopic dermatitis, Lebertizumab, in addition to a currently marketed product for excessive underarm sweating, Qbrexo. This transaction enhances our Phase III pipeline and complements our existing efforts in atopic dermatitis with baricitinib. We look forward to closing that transaction here in Q1.

During Q4, we put our strong operating cash flow to work returning approximately $900 million to shareholders via share repurchase and dividend. In addition, as previously announced we increased our dividend 15% for 2020.

As marks the second consecutive year of a 15% dividend increase reflecting our confidence in the outlook for the business.

Finally, we recently announced the pending acquisition or Mira [noise].

Company focused on developing new therapies for chronic skin conditions.

<unk> as an exciting has an exciting asset in phase three for a topic dermatitis separatism out.

In addition to a currently marketed products from excessive underarm sweating director.

This transaction enhances our phase three pipeline and complements our existing efforts NHL dermatitis for Baricitinib.

We look forward to closing that transaction here in Q1.

Moving to slide five you'll see the list of key events since our last earnings call.

Dave Ricks: Moving to slide 5, you'll see a list of key events since our last earnings call. In our continued efforts to help make medicines more affordable and reduce out-of-pocket costs for patients, we recently announced plans to introduce two additional lower-priced insulins, Humalog 7525 QuickPen and Humalog Junior QuickPen. Both products will be available by mid-April and will be offered at a 50% lower list price compared to the branded version. Once these additional options are available, more than 90% of low-lease hemolog options will be accessible to help patients reduce their out-of-pocket costs, and we hope to see payers provide increased access to patients for these solutions. During the month of December alone, Insulin Lyspro helped nearly 79,000 patients in the U.S. These recent additions complement existing offerings in the Lilly Diabetes Solutions Center, which currently helps as many as 20,000 patients per month better afford their insulin. As a company that has been in business for over 140 years and invests over $5 billion per year in long-term research and development, we take our responsibility to pursue sustainable business, social, and environmental practices very seriously. Now, I'll turn the call over to Josh to review our Q4 results and provide an update on our 2020 financial promise.

And our continued efforts to help make medicines more affordable and reduce out of pocket cost for patients. We recently announced plans to introduce two additional lower priced insource.

He blog 70, 525 quick pad and Humalog Junior quick thing.

Both products will be available by mid April it'll be offered at a 50% lower list price compared to the branded versions.

Once these additional options are available more than 90% of lilly's humalog options will be accessible to help patients reduce their out of pocket costs.

We hope to see payers provide increased access to patients for these solutions.

During the month of December a well.

So a lifepro helped nearly 79000 patients in the U.S.

These recent additions complement existing offerings in the Willie diabetes solution Center, which includes which currently helps as many of his 20000 patients per month better afford their insulin.

As a company that has been a business for over 140 years and invest over $5 billion per year and long term research and development, we take our responsibility to pursue sustainable business, social and environmental practices very seriously.

Now I'll turn the call over to Josh to review, our Q4 results and to provide an update on our 2020 financial.

Josh: Thanks, Dave. Slide 6 summarizes our presentation of gap results and non-gap, and slides 5-7 provide the summary of our GAAP results. So looking at the non-GAAP measures on slide 8, you'll see revenue increased 8% or 9% in constant currency. However, gross margin as a percent of revenue declined 70 basis points to 79.9 percent. Excluding the impact of FX on international inventory sold, Gross Margin as a Percent of Revenue was 79.6%.

Thanks, Dave.

I think summarizes our presentation of GAAP results non-GAAP measures and five seven provides a summary of our GAAP results.

So looking at the non-GAAP measures on slide eight you'll see revenue increased 8% or 9% in constant currency.

Gross margin as a percent of revenue declined 70 basis points to 79.9%.

Excluding the impact of FX on international inventory sold gross margin as a percent of revenue was 79.6%.

Josh: On this same basis, our Gross Margin percent decreased by approximately 50 basis points compared to Q4 2018, driven by an unfavorable product mix and the negative impact of price on revenue. Moving down the P&L, operating expenses grew 6% versus last year's quarter. Marketing, selling, and administrative expenses were flat as cost containment and productivity measures offset investments and keep the growth process; R&D expenses increased 14%, reflecting higher development expenses for late-stage assets, including tersepatite, helper cat nib, and mirror kismet. Operating income increased 10% compared to Q4 2000, as sales growth outpaced expense growth, resulting in an operating income as a percent of revenue of 26.3% for the quarter This quarter's results are indicative of the potential for growth and margin expansion in our portfolio of new medicines options.

On the same basis, our gross margin percent decreased by approximately 50 basis points compared to Q4 2018.

Driven by unfavorable product mix in the negative impact of price on revenue.

Moving down the CNL operating expenses grew 6% versus last year's quarter.

Marketing selling and administrative expenses were flat at cost containment and productivity measures offset investments in key growth products.

R&D expenses increased 14%, reflecting higher development expenses for late stage assets, including trust appetite now for catnip in mirror and get them out.

Operating income increased 10% compared to Q4, 2018, I sales growth outpaced expense growth, resulting in operating income in the percent of revenue of 26.3% for the quarter and 27.2% for the full year.

This quarter's results are indicative of the potential for growth and margin expansion our portfolio of new medicines offers we're well positioned to drive top tier revenue growth and invest in the next wave of new medicines, while driving margin expansion at the same time.

Josh: We are well positioned to drive top-tier revenue growth and invest in the next wave of new medicines while driving margin expansion at the same time. We exit 2019 with significant momentum executing our strategy and are on track to achieve our 2020 full year operating margin target of 31 percent. Other income and expense was $206 million this quarter compared to $31 million in Q4 2018, driven by investment gains on public equity. As we highlighted previously, this line item can be volatile as public market valuations fluctuate. Gains in Q4 were primarily generated by our investments in Chinese biotech companies through our Lilly Asia Ventures arm and strategic investments in companies focused on newer technologies like RNAI. While we appreciate the gains, we are even more pleased with the relationships and the potential to develop new medicines for patients that accompany some of these investments.

We exit 2019 with significant momentum executing our strategy and are on track to achieve our 2020 full year operating margin target of 31%.

Other income and expense was income of $206 million this quarter compared to income of $31 million in Q4, 2018, driven by investment gains on public equities.

As we highlighted previously this line item can be volatile at public market valuations fluctuate gains in Q4 will primarily generated by our investments in China biotech companies through our late Lilly Asia ventures arm and strategic investments in companies focused in newer technologies like our nei.

Well, we appreciate the gains we're even more pleased with the relationships and the potential to develop new medicines for patients that accompanies some of these investments.

Our tax rate was 12.6% a decrease of 300 basis points compared with the same quarter last year, driven primarily by an increase in net discrete tax benefits, including tax benefits from the resolution of U.S. and foreign audience.

Josh: Our tax rate was 12.6 percent, a decrease of 300 basis points compared with the same quarter last year, driven primarily by an increase in net discrete tax benefits, including tax benefits from the resolution of U.S. and foreign audits. At the bottom line, net income increased 26% while earnings per share increased 31%, due to a reduction in shares outstanding from share repurchase. Slide 9 outlines these same non-GAAP measures for the poll users. While we are excited with our performance in Q4 and the momentum headed into 2020, we're also pleased with our overall performance for the full year in 2019. Last year, we experienced the full effect of the Cialis patent expiration and the impact of the withdrawal of Artuvo.

At the bottom line net increased net income increased 26% while earnings per share increased 31% due to a reduction in shares outstanding from share repurchases.

Slide nine outlines the same non-GAAP measures for the full year.

While we are excited with our performance in Q4 in the momentum heading into 2020. We're also pleased with our overall performance for the full year end 2019 last year, we experienced the full effect of the Seattle patent expiration and the impact of the withdrawal of our true though.

Josh: In spite of these headwinds, we grew the top line at 5% in Quonset Currency and generated EPS growth of 11% while investing behind our newer products in Python. We also generated good shareholder value and established a strong strategic foundation through our split off of Elanco and the acquisition of Loxo Oncology. As we highlighted in December last year, we are well positioned in 2020 to deliver our five-year financial goals and continue this period of sustained growth. Moving to slide 10, you'll find a reconciliation between reported and non-GAAP EPS. Additional details are provided on slides 26 and 27.

Eight of these headwinds we grew the topline at 5% in constant currency and generated EPS growth of 11%, while investing behind our products and pipeline.

We also generated good shareholder value and his job established a strong strategic foundation through our split off Blanco and the acquisition of Loxo oncology.

As we highlighted in December last year, we are well positioned in 2020 to deliver our five year financial goals and continue this period of sustained growth.

Moving to slide 10, you'll find a reconciliation between reported and non-GAAP EPS. Additional details are provided on slide 26 and 27.

On slide 11, we quantify the effective price rate than volume on revenue growth.

Josh: On slide 11, we quantify the effect of price, rate, and volume on revenue. As mentioned earlier, worldwide revenue grew 9% in constant currency during Q4, driven by strong volume growth of 10%, partially offset by price. Foreign exchange had a modest negative impact on revenue.

As mentioned earlier worldwide revenue grew 9% in constant currency during Q4, driven by strong volume growth of 10%, partially offset by price.

Foreign exchange had a modest negative impact on revenue growth.

Josh: For the fourth straight year, we delivered worldwide revenue growth each quarter, despite headwinds from patent expiration. U.S. revenue grew 7% compared to the fourth quarter of 2018. Volume growth of 8% was led by Trulicity, Kaltz, Bresenio, Jardians, and Gallaty. Excluding Cialis and Lartubo, volume grew over 50% Pricing was a 1% drag on U.S. revenue growth this quarter, impacted by increased funding during the coverage gap in Medicare, unfavorable changes in estimates for rebates and discounts, and disproportionate volume growth in lower net The full year impact of price was a headwind of 3%, consistent with our 2019 and 2020 expectations for U.S. price having a moderate drag on revenue growth.

For the fourth straight year, we delivered worldwide revenue growth each quarter, despite headwinds from patent expirations.

You asked revenue grew 7% compared to the fourth quarter of 2018 volume growth of 8% with led by Trulicity calls presenting out Jardiance and Gallatin.

Excluding see Allison Lartruvo volume grew over 15.

Pricing was a 1% drag on us revenue growth this quarter impacted by increased funding during coverage gap in Medicare unfavorable changes in estimates for rebates and discounts and disproportionate volume growth in lower net price segments.

Which was partially offset by the net of modest list price increases in higher rebates as well as reduced reliance on patient assistance programs, primarily due to improved commercial access form gallatin.

The full year impact of price was a headwind of 3% consistent with our 2019 and 2020 expectations for us price, having a moderate drag on revenue growth.

Moving to your revenue grew 12% in constant currency driven by impressive 15% volume growth, partially offset by the negative effects of foreign exchange and price.

Josh: Moving to Europe, revenue grew 12% in constant currency, driven by impressive 15% volume growth, partially offset by the negative effect of foreign exchange and price. Volume growth was led by Trulicity, Illumiant, Taltz, and Verzenio. We're pleased with the uptake of our newer products across UARP and are looking forward to continued strong growth in 2020. In Japan, revenue grew 7% in constant currency, driven entirely by volume growth, somewhat offset by a modest pricing headwind due to the government-mandated price decreases that went into effect in 2019. Bersenio, Simbalta, Trulicity, and Illumiant were the key contributors to growth. Meanwhile, revenue in the rest of the world increased 14% in constant currency, led by 44% growth in China on the same basis. China growth was driven by strong performance across a number of key products, including Kaivit. We're excited about the recent launches of Trulicity, Talc, and Illumia. The same information for our full-year revenue is at the bottom of the slide.

Volume growth was led by Trulicity alumina cost and present here.

We're pleased with the uptake of our newer products across Europe and are looking forward to continued strong growth in 2020.

In Japan revenue grew 7% in constant currency driven entirely by volume growth somewhat offset by a modest pricing headwind due to the government mandated price decreases it went into effect in 2019.

For his anyones, cymbalta, trulicity, and illuminate where the key contributors to growth.

Revenue in the rest of the world increased 14% in constant currency led by 44% growth in China on the same basis.

China growth was driven by strong performance across a number of key products, including tie that we're excited about the recent launches of Trulicity Paulson linear.

The same information for our full year revenues at the bottom of the slide.

Josh: As shown on slide 12, our key growth products continue to drive impressive worldwide volume. These new medicines delivered nearly 15 percentage points of growth this quarter, continuing the strong trajectory we've seen throughout 2019. Brands that have experienced loss of exclusivity provided a drag of over 400 basis points driven primarily by Seattle. As a reminder, generic Tadalafil entered the U.S. market in September 2018, significantly impacting Seattle's revenue, with erosion further accelerating in Q2 2019 as multi-source generics entered the market. While the impact of this event is beginning to fade, it still had a meaningful negative impact on growth in Q4 2019. Slide 13 highlights the contributions of our key growth projects. In total, these brands generated over $2.8 billion in revenue, making up 46% of revenue. Our newest medicines, again, had impressive results in large and growing therapeutic areas. Our ability to reach more patients continues to demonstrate this.

As shown on slide 12, our key growth products continue to drive impressive worldwide volume growth.

These new medicines delivered nearly 15 percentage points of growth this quarter, continuing the strong trajectory we've seen throughout 2019.

Branded of experience loss of exclusivity, providing a drag of over 400 basis points driven primarily by Seattle.

As a reminder, generic to Dallas sell entered the U.S. market in September 2018 significantly impacting Crs revenue with Rogensi erosion further accelerating in Q2 2019 at multi source generics entered the market.

While the impact of this event is beginning to sunset, it's still had a meaningful negative impact on growth in Q4 2019.

Slide 13, I'd like the contributions of our key drug products in total these brands generated over $2.8 billion in revenue this quarter, making up 46% of revenue.

Our newest medicine to get had again had impressive results in large and growing therapeutic areas and our ability to reach more patients continues to demonstrate the strength of our commercial execution.

Within diabetes, the injectable GLP one class continues to add new patient. Despite the entry of a new oral therapy in the U.S. total injectable Glip prescriptions grew 29% versus Q4 2018 inch to lift the grew faster than the market posting an increase of 32% in total prescriptions during the same period.

Michael B. Mason: Within diabetes, the injectable GLP-1 class continues to add new patients despite the entry of a new oral therapy. In the U.S., total injectable GLP prescriptions grew 29% versus Q4 2018, and Trulicity grew faster than the market, posting an increase of 32% in total prescriptions during the same period. Net pricing in the U.S. for Trulicity declined in the mid-single digits, in line with our expectations for Q4 and for 2020. As we discussed on the Q3 call, Trulicity price in Q1 through Q3 of 2019 was impacted by a number of factors that we don't expect to persist in 2020.

Net pricing in the U.S. for Trulicity declined in the mid single digits in line with our expectations for Q4 and for 2020.

As we discussed on the Q3 call Trulicity price in Q1 through Q3 of 2019 was impacted by a number of factors that we don't expect to persist in 2020.

SDLP to inhibitors accelerated their trajectory as total U.S. prescriptions for the class grew nearly 20% versus last year's quarter and new therapy starts grew over 46%.

Michael B. Mason: SGLT-2 inhibitors accelerated their trajectory as full U.S. prescriptions for the class grew nearly 20% versus last year's quarter, and new therapy starts grew over 46%. As the market leader, Jardians continues to drive strong class growth and accounts for over 55% of total prescriptions. Our sustained market leadership in these two important and growing classes within diabetes is a competitive advantage for our diabetes business and positions us well for future growth. In immunology, TALS continues to have strong growth, as U.S. total prescriptions grew nearly 40% versus Q4 2018. Despite an increasingly competitive market, TALS gained over three share points in dermatology during 2009, and Rheumatology weekly prescriptions have more than doubled during that same time. In 2020, we look to build on the strong momentum demonstrated in 2019 and reach even more patients.

At the market leader Jardiance continues to drive strong class growth accounts for over 55% of total prescriptions.

Our sustained market leadership in these two important growing classes within diabetes is a competitive advantage for our diabetes business and positions us well for future growth.

In immunology talks continue that strong growth as U.S. total prescriptions grew nearly 40% versus Q4 2018.

Despite an increasingly competitive market talks gained over three share points in dermatology during 2019 in rheumatology weekly prescriptions have more than doubled during that same timeframe.

In 2020, we look to build on the strong momentum demonstrated in 2019 reach even more patients.

Michael B. Mason: In pain, Evgality continued its U.S. leadership in share of the market for new-to-brand prescriptions at over 47 percent. While pleased with the uptake, we believe there is room for significant additional growth as we expand our commercial presence in primary care. We continue to see progress, with roughly 80% of prescriptions reimbursed at the end of Q4, reflecting the strong access to mGalaxy. Within Oncology, Fresenio U.S. total prescriptions grew over 46% versus Q4 2018, and the CDK 4 and 6 market is showing encouraging growth, as total prescriptions increased by over 16% during the same time. Additionally, Saramsa continues to post solid growth as we realize thoracic synergies across our portfolio. In addition to the strong performance of our key growth drivers, we look forward to potentially launching three new meta...

In pain and reality continued its U.S. leadership in share of market for new to brand prescription at over 47%.

While pleased with the uptake we believe there's room for significant additional growth as we expand our commercial presence in primary care, we continue to see progress with roughly 80% of prescriptions reimbursed at the end of Q4, reflecting the strong access and then Gallatin.

Within oncology presenting to you at total prescriptions grew over 46% versus Q4, 2018, and the CDK four and six market is showing encouraging growth as total prescriptions increased by over 16% during the same timeframe.

Additionally, the Ram the continued to post solid growth as we realize thoracic synergies across our portfolio.

In addition to the strong performance our key growth drivers, we look forward to but on potentially launching three new medicines in 2020 with Ray vow software catnip and ultra rapid Lifepro. We believe all three new medicines have potential to be first in class are best in class and to improve the lives of patients.

Dave Ricks: We believe all three new medicines have the potential to be first-in-class or best-in-class and to improve the lives of patients. In addition, launching new medicines into therapeutic areas where we have existing commercial infrastructure will support further margin expansion. Slide 14 shows the year-over-year change in select lines of our income statement, focusing on our non-GAAP results, foreign exchange rates having a modest negative impact on revenue, gross margin, operating income, and EPS, and a modest net positive impact on operating. On slide 15, we provide an update on capital allocation. In 2019, we invested over $13 billion to drive our future growth through a combination of business development, capital expenditures, and after-tax investment in R&D. In addition, we returned approximately $7 billion to shareholders via dividends and share repurchase. As Dave mentioned earlier, we also announced a 15% dividend increase for the second consecutive year, showing our confidence in the outlook for the company.

In addition, watching new medicines in the therapeutic areas, where we have existing commercial infrastructure will support further margin expansion.

Slide 14 shows the year over year change in select lines of our income statement focusing on a non-GAAP results foreign exchange rates had a modest negative impact on revenue gross margin operating income.

And a modest net positive impact on operating expenses.

On slide 15, we provide an update on capital allocation in 2019, we invest over $13 billion to drive our future growth through a combination of business development capital expenditures, an after tax investment in R&D.

In addition, we returned approximately $7 billion to shareholders via dividends and share repurchases as Dave mentioned earlier, we also announced a 15% dividend increase for the second consecutive year, showing our confidence in the outlook for the company.

We are focused on utilizing the strong cash flow our business generates to develop the next wave of new medicines through both internal and external sources as highlighted by the recently announced the acquisition of Nomura.

Josh: We are focused on utilizing the strong cash flow our business generates to develop the next wave of new medicines through both internal and external sources, as highlighted by the recently announced acquisition of Demura, and will remain active in assessing bolt-on acquisitions or in licensing where we can create shareholder value and enhance our future growth. Turning to our 2020 financial guidance on slide six... you'll see that we've updated our non-GAAP guidance to reflect the impact of the planned acquisition of DMIRA and our recent strong business performance. Specifically, we're increasing our revenue range by $100 million to include Tubrexa and to reflect the strong prescription trends we see in the underlying business. Updating our SG&A guidance to account for the addition of the Demura sales force and the commercial expenses to support Tuberexa while maintaining all other line items and confirming our non-GAAP earnings per share range of $6.70 to $6.80 and operating margin target of 31%.

We will remain active in assessing bolt on acquisitions or in licensing, where we can create shareholder value and enhance our future growth prospects.

Turning to our 2020 financial guidance on slide 16, you'll see that Weve updated our non-GAAP guidance to reflect the impact of the planned acquisition of Nomura and our recent strong business before.

Specifically, we're increasing our revenue range by $100 million to include two Brexit answer reflect strong prescription trends, we see the underlying business.

Updating our SDMA guidance to account for the addition of the Mira Salesforce and the commercial expenses to support to Brexit.

And maintaining all other line items and confirming our non-GAAP earnings per share range of $6.70 to $6.80, an operating margin target of 31%.

On a reported basis the impact of the mirror acquisition will have an impact of 21 cents and earnings per share for 2020 is now expected to be in the range of $6, an 18 cents to $6 in 28 cents.

Josh: On a reported basis, the impact of the DiMera acquisition will have an impact of 21 cents, and earnings per share for 2020 is now expected to be in the range of $6.18 to $6.28. We continue to execute our innovation-based strategy while leveraging our young commercial portfolio of new medicines to drive margin expansion over the midterm. Now, I will turn the call over to Dan to highlight our progress on R&D. Thanks.

We continue to execute our innovation based strategy, while leveraging our young commercial portfolio of new medicines to drive margin expansion over the midterm.

Now I will turn the call over to Dan to highlight our progress on R&D. Thanks, Josh Slide 17 shows selected pipeline opportunities as of January 27 positive movement. Since our last earnings call includes the submission to sell per catnip in the us into Europe as well as the initiation of phase three trials for supper catnip in patients with Red.

Dan Skovronsky: Thanks, Josh. Slide 17 shows select pipeline opportunities as of January 27th. Positive movement since our last earnings call includes the submission of selprocatinib in the U.S. and Europe, as well as the initiation of phase three trials for selprocatinib in patients with RET fusion positive non-small cell lung cancer or RET mutant medullary thyroid cancer. The submission of Tenezumab in the U.S. for osteoarthritis pain, The submission of higher doses of Trulicity for type 2 diabetes in the U.S. and Europe, and The submission of baricitinib for atopic dermatitis in Europe and Japan. The addition of leberizumab for atopic dermatitis to the Phase 3 portfolio pending the closure of the Dremera acquisition. The Initiation of a Phase 3 Study of Terzapatide in Obesity and a Phase 2 Study of Terzapatide in NASH

Fusion positive non small cell lung cancer or ret mutant medullary thyroid cancer.

The submission of tuned as a map in the U.S. for osteoarthritis pain.

The submission of higher doses of Trulicity for type two diabetes in the us in Europe .

The submission of Baricitinib for atopic dermatitis in Europe and Japan.

The addition of laboratories, a map or a topic dermatitis to the phase three portfolio pending the closure of the Dermira acquisition.

The initially location of a phase three study of trees appetite in obesity.

And to phase two study of Theres appetite in Nash.

Dan Skovronsky: The initiation of phase two for our checkpoint agonist, CD200R, in immunology, the initiation of phase one for four assets, as well as the termination of three early stage oncology aspects. In addition, we had some important early stage readouts, including LOXO305, our novel BTK inhibitor, which we highlighted on the 2020 financial guidance call and continues to progress quickly in development. We also had internal data readouts from two phase two trials of pegylodecacan in combination with immunotherapy agents in patients with non-small cell lung cancer, Cypress 1 and Cypress 2. Although the full data will be presented at a medical meeting later this year, I can say that both studies were negative. Though we are disappointed in the lack of efficacy for pegylodecacan in combination with checkpoint inhibition in lung cancer, we remain committed to finding new therapies for people with cancer. Although we're still analyzing the totality of the data that we have obtained with Peg Island Deca- At present, we do not anticipate additional trials with this agent. Moving to slide 18, we show a final tally of how we finished 2019 versus the key events we expected to occur. 2019 was a very productive year.

The initiation of phase two for our checkpoint agonist Cdtwo hundred are in immunology.

In the initiation of phase one for four assets.

As well as the termination of three early stage oncology assets.

In addition, we had some important early stage readouts, including Loxo, three or five our novel BTK inhibitor, which we highlighted on the 2020 financial guidance call and continues to progress quickly and development.

We also had internal data readouts from two phase two trials of Pega decadent in combination with immunotherapy agents in patients with non small cell lung cancer Cypress, one in Cyprus too.

Although the full data will be presented at a medical meeting later this year I can say that both studies were negative.

So we are disappointed in the lack of efficacy for pega decadent in combination with checkpoint inhibition in lung cancer, we remain committed to finding new therapies for people with cancer.

Well that we're still analyzing the totality of the data that we have obtained with pega deck again.

At present, we do not anticipate additional trials with the stage.

Moving to slide 18.

We show a final tally of how we finished 2019 versus the key events, we expected to occur.

2019 was a very productive year, and we made significant progress and bringing new medicines to patients.

In total we added four new phase three clinical programs to our pipeline all with the potential to be first in class are best in class.

We reported 12 positive phase three or Registrational trial, readouts, including a mix of enemies and new indications are new data for launch products.

Dan Skovronsky: We made significant progress in bringing new medicines to patients. In total, we added four new Phase III clinical programs to our pipeline, all with the potential to be first-in-class or best-in-class. We reported 12 positive phase 3 or registrational trial readouts, including a mix of NMEs and new indications or new data for launched products. We submitted 12 NMEs or new indications for regulatory review in geographies around the world.

We submitted 12 enemies or new indications for regulatory review in geographies around the world.

And we received positive regulatory action on two new medicines Ray about index CEEMEA as well as four important new indications across Trulicity tops Im Galaxy and SAMHSA.

We're proud of the significant achievements, we made in 2019, and we're focused on discovering and developing more new medicines to help patients as we enter another promising decade.

Moving to slide 19, well, it's early in the year, we've already made good progress on our 2020 goals, having announced the initiation of additional phase three trials for cell patented.

Dan Skovronsky: And we received positive regulatory action on two new medicines, Ravow and Baksimi, as well as four important new indications across Trulicity, TALTS, Mgality, and Cyramza. We're proud of the significant achievements we made in 2019, and we're focused on discovering and developing more new medicines to help patients as we enter another promising decade. Moving to slide 19, well, it's early in the year, but we've already made good progress on our 2020 goals, having announced the initiation of additional phase 3 trials for cell protatinib and positive results in the remaining two trials of the Baricitinib-Breeze program for atopic dermatitis. The submission of paracetamide for atopic dermatitis in the EU and Japan. The submission of Tinezumab for osteoarthritis pain in the U.S., in collaboration with Pfizer. FDA approval of Trijardi, a fixed-dose combination of mpagliflozin, linagliptin, and metformin XR, and regulatory approval of PYRAMSA for first-line EGFR-positive non-small-cell lung cancer in Europe.

Positive results in the remaining two trials are the Baricitinib degrees program for atopic dermatitis.

The submission of Baricitinib for atopic dermatitis in the EU in Japan.

The submission of Tanezumab for osteoarthritis pain in the us in collaboration with Pfizer.

FDA approval of tried giardia fixed dose combination of impact will close and Linda Clifton in Metformin XR.

And regulatory approval of Cyramza for first line EG fr positive non small cell lung cancer in Europe .

Before turning the call back over to Dave I'd like to spend a few minutes, providing additional details on important milestones for two clinical programs that I mentioned earlier.

It is the initiation of additional clinical trials for actors appetite.

And the completion of the bare sit in a breeze 88 topic dermatitis program.

Beginning with terms appetite on slide 20, we previously shared our plans to initiate a cardiovascular outcome study purchase appetite this year assessing theres appetite head to head against the most widely used GLP one therapy trulicity.

Dan Skovronsky: Before turning the call back over to Dave, I'd like to spend a few minutes providing additional details on important milestones for two clinical programs that I mentioned earlier. That is, the initiation of additional clinical trials for terzapatide and the completion of the barocytinib-BREATHE-AD atopic dermatitis program. Beginning with terzapatide, on slide 20, we previously shared our plans to initiate a cardiovascular outcome study for terzapatide this year, assessing terzapatide head-to-head against the most widely used GLP-1 therapy, i.e., trulithin. This is a bold move, and signals both our confidence in the strength of terzapotide as well as our desire to deliver meaningful data for patients and physicians on how new medicines measure up against leading therapies. Through very collaborative discussions with the FDA, we've gained alignment on the key design features of this unique study called SURPASS-CVOT. This trial will include approximately 12,500 patients with type 2 diabetes and confirmed atherosclerotic cardiovascular disease and will measure time In addition to Surpass CVOT, we're pleased to share that the Phase 3 Type 2 Diabetes Program, Surpass, is progressing extremely well. Investigator interest has been very strong, and four of the eight Surpass clinical trials are already fully enrolled. We look forward to sharing top-line results for the first study to read out from the SURPASS program later this year.

This is a bold move it signals both our confidence in the strength of Theres appetite as well as our desire to deliver meaningful data for patients and physicians.

How new medicines measure against leading therapies.

Through very collaborative discussions with the FDA, we've gained alignment on the key design features of this unique study called surpass CV OTI.

This trial will include approximately 12500 patients with type two diabetes and confirmed atherosclerotic cardiovascular disease, and we'll measure time to first occurrence of the composite endpoint of CV death.

Cardio infarction or stroke.

The study will assess both noninferiority and superiority of tours appetite versus Trulicity and we anticipate it will take just over four years to complete.

In addition to surpass CVT, we're pleased to show that the phase III type two diabetes program surpass is progressing extremely well investigator interest has been very strong in four of the eight surpassed clinical trials are already fully enrolled.

We look forward to sharing topline results for the first study to readout from the surpassed program later this year.

Finally, we're excited that the surmount phase three obesity program is actively dosing patients and that the synergy phase two program in Nash is currently underway as well.

Given the profound weight loss seen in phase two trials, which was appetite we're excited about the potential opportunity. These additional clinical programs presents to help patients.

There were the ongoing surpass studies. These additional studies will expand the current phase III is appetite program to over 20000 patients.

Dan Skovronsky: Finally, we're excited that the Surmount Phase 3 obesity program is actively dosing patients and that the Synergy Phase 2 program in NASH is currently underway as well. Given the profound weight loss seen in Phase 2 trials of terzapatide, we're excited about the potential opportunity these additional clinical programs present to help patients. Together with the ongoing SURPASS studies, these additional studies will expand the current Phase III Terzapatide program to over 20,000 patients. We're excited about the breakthrough that Terzapatide represents for patients, and we'll continue to invest fully to maximize this opportunity. Moving to slide 21, we recently announced the completion of the final two studies of the BREEZE-AD clinical program, BREEZE-AD4 and BREEZE-AD5. The Fulbreeze program was comprised of five studies assessing Bairstedt monotherapy and in combination with topical corticosteroids in patients with moderate to severe atopic dermatitis.

We're excited about the breakthrough that has appetite represents for patients and we'll continue to invest fully to maximize this opportunity.

Moving to slide 21, we recently announced the completion of the final two studies of the Breeze clinical program, Greece, 84, and Breeze 85.

The full Breeze program was comprised of five studies assessing baricitinib in both monotherapy and in combination with topical corticosteroids in patients with moderate to severe atopic dermatitis.

Well not all the data have yet been presented we're particularly encouraged by the strong results for the two milligram dose in the U.S trial.

We believe that the full data package generated from Breeze 80 shows the potential that baricitinib could offer as an additional treatment option for patients with atopic dermatitis, where there are limited choices.

Dan Skovronsky: While not all the data have yet been presented, we're particularly encouraged by the strong results for the two milligram dose in the U.S. trial. We believe that the full data package generated from BREEZE-AD shows the potential that baricitinib could offer as an additional treatment option for patients with atopic dermatitis where there are limited choices. In addition, these data add to the large safety database of Barasitnik, which has over 10,000 patient years of safety data. We recently submitted Baricitinib for Atopic Dermatitis in the EU and Japan, and we expect regulatory action late in 2020. We plan to submit it to the U.S. later this year.

In addition, these data add to the large safety database of Baricitinib, having over 10000 patient years of safety data.

We recently submitted Baricitinib for atopic dermatitis in the EU in Japan, and we expect regulatory action late in 2020, we plan to submit in the US later this year.

We anticipate that bear sitting there will be the first oral JAK inhibitor for the treatment atopic dermatitis, and we look forward to bringing a new treatment option to patients.

Dan Skovronsky: We anticipate that baricitinib will be the first oral JAK inhibitor for the treatment of atopic dermatitis, and we look forward to bringing a new treatment option to patients. Finally, we recently announced the planned acquisition of Dermura. Pending deal closing, this transaction would add an additional medicine to the Lilly pipeline for moderate to severe atopic dermatitis, that is, lebrokizumab, which is an injectable antibody targeting IL-13, currently in phase 3 trials. We view leberizumab as highly complementary to our efforts with baricitinib and atopic dermatitis. The unmet medical need here is great, and we anticipate physicians and patients will use a range of oral injectable therapies similar to current common practice for the treatment of psoriasis. Now I'll turn the call back over to Dave for some closing remarks. Thank you, Dan.

Finally, we recently announced the planned acquisition of do Mira pending deal closing this transaction would add an additional medicines that Lilly pipeline for moderate to severe atopic dermatitis that is lever tourism hub, which is an injectable antibody targeting aisle 13 currently in phase III trials.

We view lubricants AMAP is highly complimentary to our efforts with baricitinib in atopic dermatitis.

The unmet medical need here is large and we anticipate physicians and patients we use a range of oral injectable therapies similar to current common practice for the treatment of psoriasis.

Now I'll turn the call back over to Dave for some closing remarks. Thank you Dan before we go to acuity, let me briefly some of the progress we've made.

In the fourth quarter of 2019 in the full year.

We delivered impressive performance in Q4 revenue grew 8% as our newest medicines were again the catalyst for volume base grows.

Dave Ricks: Again, before we go to...

Dave Ricks: Before we go to Q&A, let me briefly sum up the progress we've made in the fourth quarter of 2019 and for the full year. We delivered an impressive performance in Q4. Our revenue grew 8% as our newest medicines were again the catalyst for Volume Basis Pro. Worldwide prescription trends are strong, and we are well positioned entering 2020 to continue our positive trajectory and deliver our 2020 financial guidance. We advanced our productivity agenda, controlling operating expenses while investing in key commercial growth drivers and our late stage pipeline. We grew sales in Q4 while keeping marketing, selling, and administrative expenses flat versus Q4-18, demonstrating our ability to drive margin expansion. We made important pipeline progress in Q4, capping a year that featured significant new additions to the Phase 3 portfolio, several positive readouts in Phase 3 trials, and a multitude of regulatory submissions and approvals. Finally, we returned nearly $600 million to shareholders via the dividend and completed $300 million of shared purchases as well.

Our worldwide worldwide prescription trends are strong and.

And we are well positioned entering 2020 to continue our positive trajectory and deliver our 2020 financial guidance.

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

We grew sales in Q4, while keeping marketing selling and administrative expenses flat versus Q4 18.

Demonstrating our ability to drive margin expansion.

We made important pipeline progress in Q4 jumping year that featured significant new additions to the phase three portfolio.

Overall positive readouts in phase three trials in a multitude of regulatory submissions and approvals.

Finally, we returned nearly $600 million to shareholders via the dividend and completed $300 million of share repurchases as well.

As we shared during our 2020 financial guidance call last December we are in the early stages of a period of sustained growth at Lilly.

The balance of new medicines, we plan to launch over the next five years and the continued scaling of our newer medicines compared to our limited patent exposure sets up and exciting period ahead.

We are pursuing new medicines and some of the most important diseases with both significant unmet medical need and sizable business opportunities.

Dave Ricks: As we shared during our 2020 financial guidance call last December, we are in the early stages of a period of sustained growth at Lilly. The balance of new medicines we plan to launch over the next five years and the continued scaling of our newer medicines compared to our limited patent exposure sets up an exciting period ahead. We are pursuing new medicines and some of the most important diseases with both significant unmet medical need and sizable business opportunities. We are pleased with our finish to 2019 and our position of strength as we enter 2020 and the next decade of this company's history. This concludes our prepared remarks, and now I'll turn the call over to Kevin to moderate the Q&A. Thanks, Dave.

We're pleased with their finish to 2019 and our position of strength as we enter 2020.

And the next decade of this company's history.

This concludes our prepared remarks, and then I'll turn the call over to Kevin to moderate acuity.

Thanks, Dave we'd like to take questions from as many colors as possible. So we ask that you limit your questions to tune per caller, Sean. Please provide the instructions for the Q and a session and then we're ready for the first caller. Thank.

Thank you as a reminder, today, ladies and gentlemen, if you do wish US a question. Please press one person you on your Touchtone phone you will hear it announcement, saying you've been placed in Q. Our first questions. In the comes from line of Jeff May come from Bank of America Merrill Lynch. Please go ahead.

Good morning, guys. Thanks for the question.

Operator: We'd like to take questions from as many callers as possible, so we ask that you limit your questions to two per caller. Sean, please provide the instructions for the Q&A session, and then we're ready for the first caller.

Just had more on pall someone on the the ILUVIEN filing in the so for pulse the growth has been solid but what would you say could be a demand tipping point looking the 2020 and beyond is a new contract agreements as a broader indication base you have to invest more commercially.

Operator: Thank you. As a reminder today, ladies and gentlemen, if you do wish to ask a question, please press 1 and 0 on your touchtone phone. You will hear an announcement saying you've been placed in queue. Our first question is going to come from Geoff Meacham from Bank of America Merrill Lynch. Please go ahead. Good morning, guys.

And then on the aluminum filing an 80.

I wasn't sure if the effect of the forming dose changes the regulatory conversation the us.

You had in the our indication since approval, obviously was mostly focused on the two big indication of the two Meg approval, but wasn't sure if that changes at all on the back of this new data. Thank you.

Geoff Meacham: Thanks for the question. I just had one on TALT and one on the Illumion filing in AD. So for TALT, the growth has been solid, but what would you say could be a demand tipping point looking to 2020 and beyond? Is it new contract agreements? Is it a broader indication base? Do you have to invest more commercially?

Thanks, Jeff will go to Patrick for both of those questions.

Thank you very much.

We're very pleased with the performance of thoughts in the fourth quarter.

Patrik Jonsson: And then on the Illumiant filing in AD, I wasn't sure if the effect of the 4MG dose would change the regulatory conversation in the U.S. The quality you've had in the RA indication since approval, obviously, was mostly focused on the 2MG indication or the 2MG approval, but I wasn't sure if that would change at all on the back of this new data. Thank you. Thanks, Geoff. We'll go to Patrick for both of those answers.

Last year with the growth of Silicon Photonics, we've we've approximately 40%.

And we'll look at many of them space Thats all my apologies. Despite increased competition. We think we are holding grown very nicely and we are maintaining our thoughts on omni channel marketing you all despite increased competition.

Also it into the body of evidence we head to head data vessel spend by all the identically, but we again demonstrated superiority and on on asking drams and Thats been studying combined we invest a lot and brand where we have again demonstrated superiority. We're confident in continued growth phase with them up on Angie.

Patrik Jonsson: Well, thank you very much. We are very pleased with the performance of TALC in the fourth quarter last year, with the growth of total Rx by approximately 40%. If we look at the different spaces, first of all, dermatology, despite the increased competition, we think we are holding ground very nicely, and we are maintaining our total Rx shadow marketing Q4 despite the increased competition. Also, added to the body of evidence, we had head data versus sperm fire, the IL-23, but we again demonstrated superiority on skin clearance. And that's the third study combined with STELLARA and EMBR So we are confident in continued growth in the space of dermatology. The biggest opportunity for us remains in rheumatology, where we, in Q4, announced the only IL-17 to demonstrate superiority versus Humira in the Spirit Head-to-Head Study.

The biggest alteon tapered off remains being in rheumatology well, we in Q4 announced the only 17 due to demonstrate superiority versus humira in this period head to head study and we saw some significant acceleration in Q4 audience on some new to brand and we are confident that we will continue.

To grow in the room I wanted you space. We have that are a lot of opportunities for US. We also filed add during the second half of the last year, the non Rhodri graphic art Spa and that's an indication while also see and also patients that are not being up often and diagnose and evening diagnosed want the proppant between.

Loss from the bulk and ontology in rheumatology, a huge amount of patients SDN threed leave the TNF Alpha in almost all of you fall at the present in rheumatology, 70% and we believe that remains the biggest opportunity, but all in new assets. Thank you all that page ends up being upgraded to new mode on one indication and safe.

Patrik Jonsson: And we saw some significant acceleration in Q4 in terms of new to brand, and we are confident that we will continue to grow in the rheumatology space, where there are a lot of opportunities for us. We also filed, during the second half of last year, the non-radiographic AXPA, and that's an indication where we also see a lot of patients that are not being appropriately diagnosed and, even if diagnosed, not appropriately treated. Lastly, both in dermatology and rheumatology, a huge amount of patients are still treated with amputee NF-alpha. In dermatology, 40%, and in rheumatology, 70%.

Treatments.

In terms of event.

New me and why we don't them.

Comment on rig not only options if a specific brown, we continue to explore options again to four milligram dosage approved in the US however them an item most recent regulatory actions, we love the Jack in the EBITDA also realistic in terms of our expectations to get four milligram approved in the us in the near term.

As Dave mentioned, we have very much to encourage by mid two milligram data over looming in atopic dermatitis, and where we're demonstrating a hitting our primary objective in both in terms of them at least 75% improvement on skin inflammation, and but all things on saw that patient reported outcomes improvements on aging.

Patrik Jonsson: In terms of Illumiant, why don't we... comment on regulatory actions for specific brands; we continue to explore options to get the four milligram dosage approved in the U.S. However, in light of the most recent regulatory actions with other JAK inhibitors, we're also realistic in terms of our expectations to get four milligrams approved in the U.S. in the near term. But, as Dave mentioned, we are very much encouraged by the two milligram data of Illumiant in atopic dermatitis, where we're demonstrating hitting our primary objective both in terms of at least 75% improvement in skin inflammation So that is encouraging for us in terms of Illumiant submission in the U.S.

So that is that is encouraging for us in terms of aluminum submission in the us.

Thanks, Patrick Jeff. Thanks for your questions next caller please.

Thank you.

Next question is going to come from line of Chris Schott from JP Morgan. Please go ahead.

Great. Thanks, very much on first question, we're just on the quarterly progression of sales and earnings as we go through 2020, I think last year, we saw a depressed first quarter sales relative to the rest of the year that surprise the street a bit should we expect a similar gating of sales in 2020 and are there any particular products, we should be watching where I guess 2020 kind of resets of plans could.

The impact those first quarter results.

Second question was was just on the Alzheimer's strategy more broadly how would the approval orders not of at acumen impact how you're thinking about your pending Alzheimer's read outs and development strategies from here thanks very much.

Patrik Jonsson: Thanks, Patrik. Geoff, thanks for your questions. Next caller, please.

Operator: Thank you. The next question is going to come from Chris Schott from J.P. Morgan. Please go ahead. Great, thanks very much.

Thanks, Chris I'm going to Josh for the first question and Dan for the second one.

Chris Schott: My first question was just on the quarterly progression of sales and earnings as we go through 2020. I think last year we saw depressed first quarter sales relative to the rest of the year that surprised the street a bit. Should we expect a similar gating of sales in 2020? And are there any particular products we should be watching where I guess 2020 kind of resets of plans could impact those first quarter results? My second question was just on the Alzheimer's strategy more broadly. How would the approval or not of NAB impact how you're thinking about your pending Alzheimer's readouts and development strategies from here?

Thanks, Chris if we look at 2020, and we don't provide quarterly guidance, but if we look at sort of the trajectory of sales that we'd expect.

Look at our guidance for the full year, we're in somewhere in the high single digits for sales growth, we'd expect that kind of growth to be pretty consistent through the year. Although keep in mind in Q1, we still have a little bit more of the overhang from things like Seattle Us. So you might expect to see a little bit more sales.

Growth through the year, but pretty consistent on an absolute basis, though Chris we do always see.

Sales in Q1 lower than Q4 I wanted that just has to do is shipping patterns and otherwise so.

Again growth should look good in Q1 relative to the year absolute sales will be last I think thats as a trend that you see im sure across almost all companies. There is nothing unique going on there other than normal shipping patterns between Q4 in Q1.

Josh: Thanks very much. Thanks, Chris. We'll go to Josh for the first question and Dan for the second one.

Josh: Thanks, Chris. If we look at 2020, you know, we don't provide quarterly guidance, but if we look at sort of the trajectory of sales that we'd expect, if you look at our guidance for the full year, you know, we're somewhere in the high single digits for sales growth. We'd expect that kind of growth to be pretty consistent through the year, although keep in mind that in Q1, we still will have a little bit more of the overhang from things like Cialis. So you might expect to see a little bit more sales growth through the year. But pretty consistent.

Chris Thanks for your question on our Alzheimer's strategy of course, we like many others, we'll be watching out of Canada closely.

And of course will adapt our plans and thinking to meet wherever we see the regulatory bar placed but I don't think you should expect us to pivot in our Alzheimer's strategy, one way or another we've placed some pretty important bets. We're excited to see those readouts over time both solanezumab.

But also our own plaque clearing antibody to nanomabs as well as our.

Josh: On an absolute basis, though, Chris, we do always see sales in Q1 lower than Q4. A lot of that just has to do with shipping patterns and otherwise. So, again, growth should look good in Q1 relative to the year. Absolute sales will be less. I think that's a trend that you see, I'm sure, across almost all companies. There's nothing unique going on there other than normal shipping patterns between Q4 and Q1.

How.

Anti Tao antibody that's in phase two we also happy.

How small molecule in phase one and other agents earlier and development. So we'll continue to progress. Those we think we have smartly design trials that would give us important readouts over time, thanks, Stan Chris. Thanks for your questions next caller. Please.

Dan Skovronsky: Chris, thanks for your question on our Alzheimer's strategy. You know, of course, we, like many others, will be watching Adekanamab closely. And, of course, we'll adapt our plans and thinking to meet wherever we see the regulatory bar placed, but I don't think you should expect us to pivot in our Alzheimer's strategy one way or another. We've placed some pretty important bets.

Thank you. Our next question is going to come from Louise Chen from Cantor. Please go ahead.

Hi, Thanks for taking my questions here. So first question I have for you and can you provide more color ill, let me might be driving your stronger volume growth when compared to other companies out there in the space.

And if this is durable over the longer term and then my second question for you is with this growing competition and atopic dermatitis, where do you see Lilly feeding into the evolving treatment paradigm. Thank you.

Dan Skovronsky: We're excited to see those readouts over time, both with solanezumab but also our own plaque-clearing antibody, denetimab, as well as our tau, anti-tau antibody that's in phase two. We also have a tau small molecule in phase one and other agents earlier in development. So, we'll continue to progress those. We think we have smartly designed trials that will give us important readouts over time.

Thank you. So we'll go to adjust for the first question Patrick for the second thanks.

Thanks, Louise Good morning, I think in terms of volume growth, what we see that a corporate level is a function of our portfolio as we mentioned about little bit less than half of our sales are coming from new products that we've launched since 2014 10 of those theyre all still in the very much in their growth phases through listen.

Operator: Thanks, Dan. Chris, thanks for your questions. Next caller, please.

The growing a 31% for example trip the tall to 37%. So we've got a relatively young portfolio.

Operator: Thank you. Our next questioner is going to come from Louise Chen from Cantor. Please go ahead. Hi, thanks for taking my questions here. So the first question I have for you is, can you provide more color on what might be driving your stronger volume growth when compared to other companies out there in the space?

We expect the volume gains that we saw in Q4 to be sustainable between 2020 and 2025 as we mentioned on our guidance call.

We expect to see top tier revenue growth over that period, it will be driven by volume gains it will be driven by that cohort of products as well as the new launches that we will expect over this period, including three that we're planning for this year you couple that going forward with.

Louise Chen: [inaudible]

Louise Chen: With this growing competition in atopic dermatitis, where do you see Lilly fitting in?

Josh: Fitting into the evolving treatment paradigm. Thank you.

Less generic exposure than probably most of the companies that we compete against or that you cover and I think that would certainly say to us that the volume gains were seeing or something that we're we're planning for and think are sustainable.

Josh: Thank you. So we'll go to Josh for the first question and Patrik for the second.

Josh: Thanks, Louise. Good morning.

Josh: I think in terms of volume growth, what we see at a corporate level is the function of our portfolio. As we mentioned, about a little bit less than half of our sales are coming from new products that we've launched since 2014. Ten of those, they're all still very much in their growth phases, Trulicity growing at 31%, for example, Talt at 37%. So we've got a relatively young portfolio, and we expect the volume gains that we saw in Q4 to be sustainable between 2020 and 2025. As we mentioned on our guidance call, we expect to see top-tier revenue growth over that period, and it'll be driven by volume gains. It'll be driven by that cohort of products, as well as the new launches that we'll expect over this period, including three that we're planning for this year. You couple that going forward with less generic exposure than probably most of the companies that we compete against or that you cover, and I think that would certainly say to us that the volume gains we're seeing are something that we're planning for and think are sustainable.

Thanks, Josh Patrick but currently it's estimated that approximately 18 million Americans.

Suffering from our topic dermatitis, and 10 million of those are suffering from severe to moderate atopic dermatitis and the treatment opportunities are very limited I want to saying about the Andean atopic dermatitis anticipate amounts will have psoriasis was 15 years ago and delighted that we believe as we had extremely well positioned as we said we are encouraged.

With the most recent data on aluminum, hoping you as an outside of US and we have submitted a new me on foot approval in Japan, and you and we think regulatory actions in 2020 here in the us and we believe at the new mound could definitely be an option for patients that are having fiato injection.

And we're also excited about the announcement, we made a few weeks ago about our intent and aim to acquire data meta and a significant them obviously, the big driver about the than we see the biggest mob.

Based upon the phase Twob data.

Patrik Jonsson: Well, currently, it's estimated that approximately 18 million Americans are suffering from atopic dermatitis, and 10 million of those are suffering from severe to moderate atopic dermatitis, and the treatment opportunities are very limited.

Submitted CMS will at least be competitive we do think sense and we've been opportunity even be best in class differentiating on each so overall, we believe as we can play a very important role in the field of atopic dermatitis with both of US the auto JAK inhibitor for patients I'll say, it will be injection and potentially best in class medicine in any case him up thanks.

Patrik Jonsson: One is saying that the field of atopic dermatitis is pretty much where psoriasis was 15 years ago. And in light of that, we believe that we are extremely well positioned. As we shared, we are encouraged by the most recent data on Illumion, both in the U.S. and outside the U.S., and we have submitted Illumion for approval in Japan and the EU, and we'll take regulatory actions in 2020 here in the U.S. And we believe that Illumion could definitely be an option for patients that are having fear of injections. And we are also excited about the announcement we made a And leprechausenab is the big driver of that deal, and we see leprechausenab, based upon the Phase IIb data, as a medicine that will at least be competitive with opixan and with an opportunity to even be best-in-class, differentiating on each. So overall, we believe that we can play a very important role in the field of atopic dermatitis, with both a first oral Thanks, Patrick.

Patrick Louise Thanks for your questions next caller please.

Your next question will come from London, Tim Anderson from Wolfe Research. Please go ahead.

Wonderful.

I apologize next question that will come from line of more often from Evercore ISI. Please go ahead hi, thanks, so much for taking my two questions in both of them on our Kevin's favorite topic. So the first one is on.

CNS penetrance of your Glip ones and I have two parts on the first one so theres feedback out there that trulicity Doesnt cross blood brain barrier very much perhaps in part because of its size.

Hey can you comment on that and in that same question I also want to ask towards appetite does not have NRG. So presumably should have good CNS penetration I just want to make sure I hear your take on on the CNS penetration both trulicity answers appetite.

Secondly.

Dave perhaps for you so eight for trial in asymptomatic Alzheimer's My understanding is fully enrolled in December 2017, and at this point, it's already past two years in every single patient and by end of 2020, you would've had a three year landmark and every single patient. So my question is strategically thinking if regular.

Patrik Jonsson: Louise, thank you.

Operator: Louise, thanks for your questions. Next caller, please. Thank you.

Operator: Thank you. Our next question will come from the line of Tim Anderson from Wolfe Research. Please go ahead. I apologize. Our next question will come from the line of Umar Rafat from Evercore ISI. Please go ahead.

Umar Rafat: Hi, thanks so much for taking my two questions; both of them are Kevin's favorite topics.

Leaders are being more accommodating of late wouldn't make strategic sense to possibly consider taking and efficacy read at three years, because even at three years. Its two X the duration of all prior Solana you cannot trials. Thank you very much.

Umar Rafat: So, the first one is on CNS penetrance of your GLPT-1s, and I have two parts to this first one. So, there's feedback out there that Trlicity doesn't cross the blood-brain barrier very much, perhaps in part because of its size.

Thanks soon were for those questions. This is butler Bulldog basketball's, probably my favorite topic, but we don't cover that on the call. This is a close second so we'll go to Dan for both of these okay. Great. Thanks, Sam or so with respect to CNS penetration and GLP ones, you're right that these are large molecular weight molecules actually both the FC fusion.

Umar Rafat: A, can you comment on that? And in that same question, I also want to ask, Terzepatite does not have an IgG, so presumably it should have good

Umar Rafat: at CNS Penetration. I just want to make sure I hear your take on the CNS Penetrant for both Trulicity and Terzapatide. Secondly, Dave, perhaps for you, so the A4 trial in asymptomatic Alzheimer's, my understanding is it was fully enrolled in December 2017. And at this point, it's already past two years, and every

In molecules like Trulicity.

And also ace related peptides like turns appetite.

Those modifications to the peptides or what gives them the long half life that enables once weekly injection and molecules of that size typically don't penetrate the blood brain barrier, having said that we don't see those attributes blood brain barrier penetration as being important for the efficacy of this class of drugs as evidenced I think by.

Umar Rafat: Every single patient.

Umar Rafat: And by the end of 2020, you would have hit a three-year landmark in every single patient.

Umar Rafat: So my question is, strategically thinking, if regulators are being more accommodating of late, wouldn't it make strategic sense to possibly consider taking

The tremendous opportunity that we've seen with Trulicity and then unprecedented efficacy that we've seen winters appetite so.

Umar Rafat: Please consider taking an efficacy read at 3 years because even at 3 years, it's 2x the duration of all prior SOLA and aducanumab trials. Thank you very much. Thank you Umar for those questions.

I think that that addresses that with respect to a four you're right that this is longer duration trial, then really I think any other.

Operator: My favorite topic, but we don't cover that on the call. This is a close one.

Dan Skovronsky: We'll go to Dan for both of these. Okay, great. So, with respect to CNS penetration in GLP-1s, you're right that these are large molecular weight molecules. Actually, both the FC fusion molecules, like trulicity, and also acylated peptides, like terzapatide, those modifications to the peptides are what gives them the long half-life that enables once-weekly injection, and molecules of that size typically don't penetrate the blood- Having said that, we don't see those attributes, blood-brain barrier penetration, as being important for the efficacy of this class of drugs, as evidenced, I think, by the tremendous efficacy that we've seen with Trulicity and then the unprecedented efficacy that we've seen with terzapatide.

Large Alzheimer's trial has has ever been the reason for that though is because these patients are.

Sure for asymptomatic at the being in the trial so there.

Very early in the disease course in it it takes and great to have time to let these patients progress in their disease course, and it's only through progression of patients on the placebo group and hopefully differential less progression of patients on therapy that we could hope to see.

Effective drug so thats why the design include such a long call appeared.

Thanks, Stan and were thanks for your questions and we'll go to the next caller. Please thank you.

And once again, we would have a question of Tim Anderson from Wolfe Research. Please go ahead.

Dan Skovronsky: So, I think that addresses that. With respect to A4, you're right that this is a longer-duration trial than, really, I think, any other large Alzheimer's trial has ever been. The reason for that, though, is that these patients are asymptomatic at the beginning of the trial, so they're very early in the disease course, and it takes a great deal of time to let these patients progress in their disease course, and it's only through progression of patients in the placebo group and, hopefully, differential, less progression of patients on therapy that we could hope to see an effective drug.

Hi.

A question on your PD, one with an event and really plans for that product outside the U.S. seem like last summer when I talk to management and there was.

And we described as a China only opportunity with limited potential but it seems that you may have pivotal in recent months and may have bigger plans.

Bring them into other geographies. So I'm, hoping you can give us your latest thinking.

Second question is just on the Diane to all Samaras trial.

Dan Skovronsky: So, that's why the design includes such a long follow-up. Thanks Dan, and Umer, thanks for your questions, and we'll go to the next caller, please. And once again, we're going to have a question from Tim Anderson from Wolf Research. Please go ahead. Oh, hi.

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Confirming that we should see those results really any time can you confirm that.

Just how do you view odds of success kind of seems to me that.

It's highly improbable that this will yield positive results for solar but what are your views.

Operator: A question on your PD-1 with InnoVent and really plans for that product outside the US. It seemed like last summer when I talked to management, it was really described as a China-only opportunity with limited potential. It seems that you may have pivoted in recent months and may have bigger plans to bring them to other geography.

Thanks, Tim will go to and for the first question and then Dan for the second Tim. Thanks for the question on tie that in our inner in collaboration. So as you said our current focuses on development and commercialization of tie that in China. However in of it's been really important and terrific Street strategic partner to us and so we're always open.

Operator: So I'm hoping you can give us your latest. And then the second question is just on the Diane 2 Alzheimer's trial, confirming that we should see those results really any time soon. Can you confirm that? And then just how do you view the odds of success? It kind of seems to me that it's highly improbable that this will yield positive results for SOLA, but what are your views?

And to discussing opportunities to expand that for mutual benefit theres really not more we can say at this time.

We're really pleased I think as Josh and Dave mentioned with the performance of tie that in China. It's been a remarkable story and really now as you know the only PD. One that's included on the NRG list and I think that demonstrates how the energy say as recognize its clinical value and then we were able to share the great news that we had the first line non squamous right.

Now that in from positive Sobi planning to submit that this year and then we expect additional read out.

Tim Anderson: Thanks, Tim. We'll go to Anne for the first question and then Dan for the second.

First and second line squamous this year within event. So it's been a great product and we look forward to where we can do here. Thanks for the question. Thanks, and then yes, Tim on the Diane just a reminder, forever on that this is donnelly inherited type of Alzheimer's is a rare and sort of severe and fast progressing form of Alzheimer's disease, where we're testing so and.

Anne: The focus is on the development and commercialization of TIVIT in China. However, Innovit's been a really important and terrific strategic partner to us, and so we're always open to discussing opportunities to expand that for mutual benefit.

Hmm.

Dan Skovronsky: There's really not more we can say at this time. We're really pleased, I think, as Josh and Dave mentioned, with the performance of TIVIT in China. It's been a remarkable story, and now, as you know, the only PD-1 that's included on the NRDL list, and I think that demonstrates how the NHSA has recognized its clinical value. And then we were able to share the great news that we had the first-line non-squamous readout at interim. It's positive, so we'll be planning to submit that this year, and then we expect additional readouts in first- and second-line squamous this year with Innovit. So, it's been a great product, and we look forward to what more we can do here. But thanks for the question.

Your question on timing of results, we don't have the data yet.

But we do expect that this quarter.

In terms of the odds of success I think it's hard to speculate but as you know this is a very small trials small population is being studied.

And.

It is as I said, a severe form of Alzheimer's disease. So those factors weigh against it there's other factors that way for it.

We know that it's driven by mutations here and amyloid overproduction and it has a relatively longer follow up but we'll just have to wait and see that data.

Thanks, Dan Tim Thanks for your questions next caller please.

Thank you.

Next question, that's going to come from blend of Andrew Baum from Citi. Please go ahead.

Dan Skovronsky: Thanks, Dan. Dan?

Operator: Yeah, Tim and Diane, just a reminder for everyone that this is a dominantly inherited type of Alzheimer's. It's a rare and sort of severe and fast-progressing form of Alzheimer's disease where we're testing solanezumab. Your question on timing of results; we don't have the data yet, but we do expect that this quarter. In terms of the odds of success, I think it's hard to speculate, but as you know, this is a very small trial, a small population is being studied, and it is, as I said, a severe form of Alzheimer's disease, so those factors weigh against it. There are other factors that weigh for it. We know that it's driven by mutations here in amyloid overproduction, and it has a relatively longer follow-up, but we'll just have to wait and see that data. Thanks, Tim. Tim, thanks for your questions. Next call

Thank you couple of questions.

Thank you.

Hi, Mike.

Paul you want to mitigate.

Okay.

Worldwide.

Mike.

Great.

Thanks.

Hey, Andrew Andrew This is Kevin were Andrew we're we're really having trouble hearing you can't really pick up the question other than we have submitted.

Got to be backup.

No.

Not much year.

Yes, we will try and.

My question My question.

Talking about outcome trial, Youre running a head to head Charles.

Which would be described hi, Paul.

Mitch on pension in GB L G agonism activism.

Operator: Next caller, please.

Andrew Baum: Thank you. Our next question then is going to come from the line of Andrew Baum from the City. Please go ahead. Thank you. A couple of questions. Firstly, in relation to the exercise, you highlighted that trans cardiovascular control involves giving your right ear against a ventricle. There's been some literature where agonism may not be a great thing in a potentially elevated world, so reducing cardiovascular- Andrew, this is Kevin.

And should be increasing copy of asking about rather than increasing.

Given its evident the markets heightened cardiovascular disease as well.

Perhaps you could talk.

And then second mobile we'd like to think that maybe.

There are many of your Kid and understanding the Directionally specific administration in terms of help Evercore there've been some discussions about whether the ipi proposal could be expanded to include Medicare Hawk drugs Robin just pumping, perhaps you could share your thoughts on what you expect in that direction apologies for lung cancer.

Operator: We're-

Operator: Andrew, we're really having trouble hearing you and can't really pick up the question other than that we heard tersepatide.

Andrew Baum: You've got to be back, bud. No. That's not much here. Yep, we'll try it. So my question, my question, my question is on the cardiovascular outcome trial. You're running a head-to-head trial versus a ventricle, which would be described as a high bar. There is some literature on potentially GIT agonism, hip agonism could potentially be increasing cardiovascular rather than decreasing, which given its evidence is a marker for heightened cardiovascular disease, as well as some preclinical data, perhaps you could discuss your thoughts on the relevance of that literature and, second, more broadly, we like to think that Lilly is perhaps better placed than many of your peers in understanding the direction of this particular administration in terms of healthcare reform. There have been some discussions Perhaps you could share your thoughts on what you expect in that direction. Apologies for the long pause.

Thanks, Andrew will go to Dan for the question Winters appetite and then Dave on the policy question. Yes. Thanks first of all just a clarification that Charles said that against Trulicity.

Okay, I think that there is a little bit of literature out there as you referenced about effects of GRP, one, but our thinking is really based on the clinical data that we've already obtained with trust appetite in the phase two trials I think everything we see in those trials point to a large cardiovascular benefits.

For a drug like this.

And so that's the driver that's what gives us confidence is the real clinical data with this molecule.

The combination of GLP, one and GLP, one against certain effects, which which were able to see so for example.

Dan Skovronsky: Thanks, Andrew. We'll go to Dan for the question on terzapatide and then Dave on the policy question.

Good day when see control.

Dave Ricks: Thanks. First of all, just a clarification, the terzapatide trial is head-to-head against Trulicity. Look, I think that there is a little bit of literature out there, as you referenced, about the effects of GIP-1, but our thinking is really based on the clinical data that we've already obtained with terzapatide in the Phase II trials. I think everything we see in those trials points to a large cardiovascular benefit for a drug like this. And so that's the driver. That's what gives us confidence is the real clinical data with this molecule. The combination of GLP-1 and GRP-1 gives certain effects which we're able to see. So, for example, the improved A1C control and notably the very dramatic improvement in weight loss, which I think will drive the cardiovascular benefits even higher than we saw in truancy. Thanks, Dan. Dave?

Notably the very dramatic improvement on weight loss.

Which I think will drive cardiovascular benefits, even higher than we saw trulicity.

Thanks, Dan Dave Yes on the policy front, we continue to advocate for change in us system, because although we're in a as an industry and certainly is really a deflationary pricing environment.

Those savings are not reaching consumers are the pharmacy counter and so either through a combination of passing through transparency of those discounts or.

Insurance reform were for change in our focus is primarily right now with the legislative pathway on both those fronts.

Theres one more vehicle probably left in this congress to to work on those but progress is difficult and Congress. So we continue to advocate for change on behalf of patients. So as release Ipi. This proposal was part of the blueprint and spring of 18, it's been sitting out there for a while we've yet to see.

Dave Ricks: Yeah, so on the policy front, you know, we continue to advocate for change in the U.S. system because although we're in, as an industry, and certainly as Louis said, a deflationary price environment, those savings are not reaching consumers at the pharmacy counter. And so either through a combination of passing through or transparency of those discounts or insurance reform, we're for change. And our focus is primarily right now on the legislative pathway on both those fronts. There's probably one more vehicle left in.

Any draft guidance for proposed rulemaking ready version of this in detail Theres always a lot of swirling rumors about it including expanding into other parts of government programs or changes to it in terms of the the objectives, we see large these misguided.

Dave Ricks: I'd like to invite this Congress to work on those, but progress is difficult in Congress, so we continue to advocate for change on behalf of patients, though. As it relates to IPI, you know, this proposal was part of the blueprint in spring of 2018. It's been sitting out there for a while.

Primarily because in part b patients hardly have any cost sharing to begin with so if we're worried about out of pocket costs for patients.

I will do very little it's mostly just a punitive measure against the industry going back to decisions made on European pricing, sometimes decades ago.

Dave Ricks: We've yet to see any draft guidance for proposed rulemaking or any version of this in detail. But there are always a lot of swirling rumors about it, including expanding it to other parts of government programs or changes to it in terms of its objectives. We see it largely as misguided, primarily because in Part B, patients hardly have any cost sharing to begin with. So if we're worried about out-of-pocket costs for patients, IPI will do very little. It's mostly just a punitive measure against the industry going back to decisions made on European pricing sometimes decades ago. It probably won't change those prices in Europe if that's the President's goal, and it certainly won't change the affordability equation for patients in the U.S. So we oppose it for those reasons. That said, it's an administrative financial action, and we'll have to read it if it comes out. We'll decide what to do from there, but it pretty much is a difficult thing to support for our industry, and you'd probably see pharma universally oppose it. So, we'll wait and see. Thanks, Dave. Andrew, thanks for your question.

It won't probably change those prices in Europe , if thats the presence goal and then certainly won't change the affordability equation for patients in the U.S. So we oppose it for those reasons.

Said, it's a administrative potential action and wants to read it if it comes out so.

Decide what to do from there, but it's pretty much as.

Difficult thing too to support for our industry, you, probably see pharma universally oppose it so we'll wait wait and see.

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

Our next question will come from line of Seamus Fernandez from Guggenheim. Please go ahead.

Thanks for the question so maybe the first question.

Is really for Josh Josh can you just help us understand the progression of margins as we move through the balance of.

Next year or sorry, this year in 2020.

When I look at the original guidance from.

From this year I think you guys had said 28% was the target I think ultimately we ended up at 27.2%.

Operator: to answer your questions. Next caller, please.

Operator: Our next question will come from Seamus Fernandez from Guggenheim. Please go ahead.

Seamus Fernandez: Oh, thanks for the question. So maybe the first question is really for Josh.

At the final point of the year, but on the guidance call. In December you had you stated and reiterated the 31% target can you just help us understand the path.

Josh: Josh, can you just help us understand the progression of margins as we move through the balance of next year, or sorry, this year in 2020? When I look at the original guidance for this year, I think you guys had said 28% was the target. I think ultimately, we ended up at 27.2% at the final point of the year. But on the guidance call in December, you had stated and reiterated the 31% target. Can you just help us understand the path to that 31%? Just because the second half of this year kind of came in below investors' expectations to some degree.

To that 31%.

Just because the second half of this year I think kind of came in below.

Investors' expectations to some degree and we're just trying to understand a little bit better.

The very strong move in margins going higher obviously.

The pieces of guidance makes sense I think we're just trying to understand the path.

As we move through the balance of the or and then the second question.

The pega what that could can update thanks for that.

Appreciate the understanding.

And the challenges can maybe Jay can just sort of update us on his thoughts and also Dan.

Josh: And we're just trying to understand a little bit better. The very strong move in margins going higher, obviously, you know, the pieces of guidance make sense. I think we're just trying to understand the path as we move through the balance of the year. And then the second question, You know, the Pegalodecacan update. Thanks for that. You know, I appreciate the understanding and the challenges. Maybe Jay can just sort of update us on his thoughts, and also Dan, you could update us on your thoughts on the growth of oncology.

Yes, good update us on your thoughts for the growth of the oncology development portfolio in Directionally, where you're headed thanks.

Thanks, Josh and then Dan great. Thanks, Seamus in terms of.

Margin. This year again, we've reiterated that we're on track for 31%.

And one thing we have said is Q1 will likely be below 31%, that's mostly a function of the less absolute sales and I talked about on a prior question.

Josh: for the development portfolio and directionally where you're headed. Thanks.

Josh: Josh and then Dan. Great. Thanks, Seamus. In terms of margin this year, again, we've reiterated that we're on track for 31%. And the one thing we have said is Q1 will likely be below 31%. That's mostly a function of the lower absolute sales that I talked about in a prior question, on top of a relatively fixed OPEX absolute amount. So I think as you look or model OPEX for the year, we see that as pretty constant and on an absolute basis, quarter over quarter, of course, some, you know, small variation. And then you'll see absolute sales dollars on a quarter over quarter basis grow. So we don't expect to be at 31% in Q1. But that's, again, a function of the dynamics of growth through the quarters.

On top of the relatively fixed opex absolute amount. So I think as you as you look our model Opex for the year, we see that is pretty constant and on absolute basis quarter over quarter of course, some small variation and then you will see absolute sales dollars on a quarter over quarter basis grow so.

We don't expect to be at 31% in Q1, but that's again thats a function of the the dynamics of the growth through the quarters remember, though in terms of how that how to get there in totals for the year.

We said for 2019 that we would grow our R&D at an unusual growth rate.

In 2019, as we scale up.

Programs like towards appetite and mirror it gives a map.

In 2020, those programs are running at debt more like full speed, we're able to bring in an asset like.

Josh: Remember, though, in terms of how to get there in totals for the year, we said for 2019, that we would grow our R&D at an unusual growth rate in 2019 as we scale up programs like Terzapatide and Mirakizumab. In 2020, those programs are running at more like full speed, and we're able to bring in an asset like Demira and keep that within a relatively smaller growth rate in R&D. So I think we're confident that the sales growth that we're seeing that we talked about in Q4 and should persist for the year on top of a slower growing OPEX that we can predict and manage will get us to 31%. And again, I wouldn't be too concerned in Q1 if we weren't at that level, but you should expect it as we move through the year.

The Mira and keep that within a relatively.

Smaller growth rate in R&D. So I think we're confident that the sales growth that we're seeing that we've talked about in Q4, and our should persist for the year on top of a slower growing opex that we can predict and manage will get us to 31% and again I wouldn't I wouldn't be too concerned in Q1, if we're not at that level, but you should expect it as we've been through the year.

Thanks, Josh Dan Yes. Thanks, Thanks for the question on oncology strategy of course.

Last call, we talked about our Loxo oncology at Lilly and how Thats changed oncology strategy and we're quite pleased with the progress that we made on executing against that strategy you can see some portfolio changes in our pipeline update.

Josh: Thanks, Josh. Dan?

Dan Skovronsky: Yeah, thanks for the question on our oncology strategy. Of course, on the last call, we talked about our LOXO oncology at Lilly and how that's changed our oncology strategy. And we're quite pleased with the progress that we have made on executing against that strategy. You can see some portfolio changes in our pipeline update. And we also talked about the three key early While we said we're going to focus a lot of our resources on high probability biology that's well understood, bets like those, we will also from time to time continue to pursue more novel biology, higher risk, high reward bets, like Peg Aladekian was, and that will be a smaller part of our portfolio in the future.

And we also.

Talked about the three key early stage programs, three or five K Ras answered all of which are progressing in the clinic.

While we said we're going to focus a lot of our resources on high probability.

Allergy, that's well understood bets like those.

We will also from time to time continue to pursue more novel biology, higher risk hi reward bets.

Like Pega deck again was.

And that will be a smaller part of our portfolio in the future.

Dan Skovronsky: Thanks, Dan.

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

Operator: for your questions. Next caller, please.

Operator: Our next question

Our next question comes from one of them David Risinger from Morgan Stanley . Please go ahead.

David R. Risinger: Our next question comes from David Risinger from Morgan Stanley. Please go ahead. Thanks very much.

Thanks very much.

David R. Risinger: I have two questions. First, just going back to the high level of GLPT-1s and Alzheimer's. Novo has recently conveyed enthusiasm about the potential for Glp-1 treatment in Alzheimer's. Could you just comment on your view of whether Glp-1 treatment over a few years could actually change the progression of Alzheimer's? And then second, with respect to high dose trulicity, could you please frame what we should focus on when we see the Phase 3 data and your planned positioning of that product? Thank you.

I have two questions first.

Just going back to the high level on.

Ones in Alzheimer's Novo as recently conveyed enthusiasm about the potential.

For Glip, one treatment and all Simers could you just comment on your view of.

Of weather Glip, one treatment over a few years can actually change the progression of balls timers.

And then second with respect to high dose Trulicity.

Could you please frame what we should focus on when we see the phase III data.

And your plan positioning of that product. Thank you.

David R. Risinger: Thanks Dave. We'll go to Dan for the first question and then Mike for the second.

Thanks, Dave will go to Dan for the first question and then Mike for the second one.

Dan Skovronsky: The second one. Thanks. Of course, we're aware of the comments that NOVA has made on GLP-1s and

Thanks of course, we're aware of the comments and nobody has made on on GLP ones and Alzheimer's disease in the potential there look forward to seeing data from that first trial look I think that we know that GLP one treatment has beneficial cardiovascular outcomes.

Dan Skovronsky: for this first trial. Look, I think that we know that GLP-1 treatment has beneficial cardiovascular outcomes, including reductions in stroke. Probably that's the tip of the iceberg, and there are other sorts of micro-infarcts that are decreased by GLP-1 therapy. That could, over time, contribute to a slower rate of cognitive decline. Is there a direct effect of GLP-1s on Alzheimer's pathology?

Including we've seen reductions on stroke, probably thats the tip of the iceberg and there's other sort of micro in parks that are decreased.

Hi, GLP, one therapy that could over time contributed to a slower rate and cognitive decline is there a direct effective GLP ones on Alzheimer's pathology, I think thats not yet known so we'll watch how the field evolves if it turns out that theyre great opportunities I think we have.

Dan Skovronsky: I think that's not yet known. So we'll watch how the field evolves. If it turns out that they're great opportunities, I think we have a best-in-class inkerton in the pharmaceutical industry's appetite, and we'd be open to future opportunities with it. Thanks, Dan. Mike?

The best in class Anchorage, and in the form matures appetite and we'd be open to future opportunities within thanks, Stan Mike.

Mike: David, thanks for your question on our favorite subject. Creelsey had another great quarter, growing by 32% on volume and 29% on revenue. We're still quite excited about the overall GLP market growth. The 52-week rate was at 29.7, while the monthly grade in December was at 31.5.

Hey, Thanks for your question on our favorite subject.

We will see had another great quarter growing by 32% on volume and 29% on revenue.

We're still quite excited about the overall glip market growth.

If you do we rate was at 29.7, while the multi great in December was at 31 and a half so the market continues to grow.

Mike: The market continues to grow, and Creelsey continues to hold up in a very strong market share leadership position, outpacing TRS-C class growth in the face of semi-glutide product launches. So we expect that both the new Trulicity Rewind as well as the high dose label enhancements will continue to drive class growth as well as solidify our market leadership position. And we're excited about that. I think as you take a look at the results here, you will see that our A1C results are increased, as well as the weight loss results. And what we think is the strength of Trulicity is the fact that you get real world benefits by having, you know, powerful efficacy simply delivered. And this will just give people using Trulicity another reason to stay on it. Thanks, Mike. David, thanks for your feedback.

Trulicity continues to hold up in a very strong market share leadership position outpacing Trs.

Class growth in the phase systemically type product launches. So we expect that both the new Trulicity rewind as well as the high dose label enhancements will continue to drive class growth as well as solidify our market leadership position play. So we're excited about that I think as you take a look at the results of their take a look at increase.

Yes.

Are you won't see results as wells the weight loss results and what we think is the strength of Trulicity is the fact that you get real will benefit by having.

Powerful FSC simply delivered and this will just give.

People using trulicity another reason to stay on it.

Thanks, Mike David Thanks for your questions next caller please.

Mike: Thanks for your questions. Next caller, please.

Operator: Thank you. Our next question will come from Terence Flynn from Goldman Sachs. Please go ahead. Great.

Thank you next question will come from one of Terence Flynn from Goldman Sachs. Please go ahead.

Terence Flynn: Good morning. Thanks for taking the questions. The first one is on terzepatide in the CVOT trial. I was wondering if you could share any more details on the stats or powering assumptions there, as well as the discontinuation rate that you're assuming in the arms of the trial. And then for imgality, you mentioned looking to the next phase of growth here in the primary care market. What are some of the markers beyond obviously sales that we should look to in terms of, you know, gauging successful uptake there? And then, any thoughts on the potential impact of oral CGRPs? Thank you.

Great. Good morning, Thanks for taking the questions.

The first one is on terms appetite in the CVR T trial was wondering if you can share any more details on the stats are powering assumptions there as well as the discontinuation rate that you are assuming in the arms of the trial and then from Dallas. The you mentioned look into the next phase of growth here in the primary care market. What are some of the markers beyond obviously sales that we should.

Look too in terms of gauging successful uptake there and then any thoughts on potential impact from oral CRP. Thank you.

Okay. Thanks, we'll go to Dan purchase Uptime, and then Mike and then Patrick for the oral CRP question. Yes. Thanks for your question asking for more detail on the Theres appetites surpassed CVR two trial design I think at this moment, we don't sort of comment on any of the finer details around clinical trial design and dropout rates.

Dan Skovronsky: Okay, thanks. We'll go to Dan for Terzapatide and then Mike and then Patrik for the oral CGRP question. Yeah, thanks for your question asking for more detail on the Terzapatide Surpass CVOT trial design. I think at this moment, we don't sort of comment on any of the finer details around clinical trial design and dropout rates. But I would say that having a trial like this where it's a head-to-head with two great active drugs, one in each arm, should be a very compelling opportunity for enrolling physicians and a great opportunity for treatment for patients as well. So I think that those kinds of factors should help with both enrollment and retention in the trial. Dan, Mike?

But I would say that having a trial like this where it's a head to head with two great active drivers one is on each arm.

Should be a very compelling opportunity for enrolling physicians and a great opportunity for treatment for patients as well. So I think that those kinds of factor should help with both enrollment and retention in the trial.

Mike I agree I think.

Dan Skovronsky: I agree. I think as we look at the opportunity and really learn from what providers and payers want, they want active comparators. I think this provides a lot of value and a lot of insights into the incremental value of one product over another. And so obviously, doing a head-to-head trial versus trlicity is a bold bet, but I think it really reinforces the confidence we have in Trazepatide in its population. So we're very excited about the study. It is a bold bet, but one that we are very excited about the potential of this product in CVLT.

As we look at the opportunity.

It really learn what providers and payers want they want active competitors I think this provides a lot of value in lot of insights into the incremental value of one product over another product and so.

Obviously doing a head to head trial versus Trulicity is both that but I think it really reinforces the confidence we have and present the tide in this population. So we're very excited about the study.

It is a bold bad but one that we are.

Excited about the pit until this product and see VLP. Thanks, Patrick.

Mike: Patrick

Patrik Jonsson: Thank you. If we look at the prevention market, we currently have 6 million patients eligible for prevention treatment in the U.S., but only 3 million of those are being treated. So that's a big opportunity for us with the increased competition in the marketplace as well as to drive patient activation. And specifically for mGalati, if we look at the prescriber base today, it's relatively limited, and only 15% of our targets are currently regularly prescribing mGalati. That's where we see a tremendous opportunity both in specialty care as well as in primary care. In terms of oral CGRPs, I think it's important to have in mind that they are only approved or will be approved for the treatment of acute migraine this year, and the prevention indication is coming later on. We are very confident with the profile of Mgality, particularly taking into account that we are now the market leader and the preferred CGRP in the marketplace.

Thank you if we look up on the that prevention market. We've got only 6 million patients eligible for prevention treatment. In you asked about the only 3 million of those are being treated so thats a big opportunity before us we have increased competition in the market basis when to drive the patient Ducted Asia.

And specifically from Galaxy, if you look up on the prescriber base today, it's relatively limited and only 15% of our targets all county regularly prescribing and reality, so thats, where we see tremendous opportunity both inspection of the CAD as well as in primary cap.

In terms will be auto Cgps I think it's important to have in mind, but they ought only approved a we'd be approved for the treatment of acute migraine Bcf and the prevention indication is coming later on we are very confident with the profile of them got a particular taking into account that we are now the that the market lead on the CD.

In the marketplace and particularly the differentiation we have the M&A, but we both fab. If you guys at 57 to five and 100% level and also the convenience that the device also us and from the same device platform us as to release it Dave.

I don't see Joe piece.

We'd be competing acute space and also that any and excited about the announcement that was saying that prepublication notice from the D that was publicly prominently displayed this morning, and then we'll address.

Patrik Jonsson: in an announcement in the Federal Register tomorrow enabling us to bring RAYVAL to the marketplace probably late next week and that's where we have a tremendous opportunity to bring more value in the space of acute migraine and for the first time we'll be able to talk about complete pain elimination already after two hours with one single dose of RAYVAL and not just complete pain elimination but also complete elimination of both of them symptoms such as sound phobia, light sensitivity and nausea so we believe that we are very well positioned both in the preventive space as well as the acute phase but patient activation will be key and that's something that will be beneficial with also new entrants in the marketplace. Thank you, Patrick.

In M&A has been deem that tend to federal Register tomorrow enabled us to putting rave out through to the marketplace and probably late next week, and that's where we have a tremendous opportunity to bring more value in this phase of acute migraine and pull that time, we'll be able to talk about complete the pain elimination already off the two hours we've won.

Single dose already about and not just complete pain elimination, but also company elimination above as I'm seem to suggest some phobia nights sensitivity and in North Sea App. So we believe that we have better way to position both in the preventive space as well as the acute phase of patients activation will be key.

Something about we'd be beneficial we've also knew and trends in the marketplace. Thank you Patrick Terrence. Thanks for your questions next caller. Please.

Operator: Terence, thanks for your questions. Next caller, please.

Operator: Our next question will come from Steve Scala from Cohen. Please go ahead. Thank you.

Our next question will come from one of Steve Scala from Cowen. Please go ahead.

Steve Scala: Thank you. I have a couple of questions. I'll take the other side of an earlier question and see if I can answer it.

Thank you I've a couple of questions I'll take the other side of an earlier question and suggested would be surprising if diane.

Steve Scala: and suggest it would be surprising if Dianne T.U. didn't hit its end point given the signal you saw in the expedition trials and the fact that Dianne T.U. is testing a higher dose in a more homogeneous population for a longer time with a tailor-made endpoint. So Dan, I'm trying to understand your pessimism, and maybe you could please tell us on which of the points that I stated you disagree.

Ooh didn't hit it standpoint, given the signal you saw in the expedition trials and the fact that Dan to you is testing a higher dose in a more homogeneous population for a longer time, where the taylormade endpoint.

So Dan I'm trying to understand your pessimism.

And maybe you could please tell us which of the point that I stated you disagree.

Dan Skovronsky: And then there are four components to the primary endpoint.

And then there are there are four components to the primary endpoint do you need to hit all four to achieve success.

Dan Skovronsky: you need to hit all four to achieve success. Thank you. Thanks, Steve. Dan?

Thank you.

Thanks, Steve Dan Okay, Steve So.

Dan Skovronsky: Okay, Steve. So, look, I think most of the comments you made are right. The importance of those factors in the outcome of the study is what we don't know. And there are other factors, as I said earlier, going against us here. The one that should give anyone the most pause, I think, is the small sample size. And Alzheimer's trials are, I think, even in large trials, notorious for surprising us because of the heterogeneity of the facts and variability of the outcome measures. So, it's factors like that that could make it difficult to really know what is true. Look, I still think it's, regardless, an interesting scientific question and an important experiment. We'll look forward to seeing the data. With respect to the specifics around the composite, I think the nature of a composite is that you have to hit the overall composite score as the primary endpoint, which could be driven by the various sub-measures or not. But, as you point out, this was custom-made for this trial.

Look I think most of the comment you said I write the importance of those factors in the outcome of the study is what we don't know.

And there are other factors as I said earlier going against US here. The one that should give anyone the most pause I think is the small sample size in Alzheimer's trials are I think even in large trials notorious for.

Surprising us because of the heterogeneity of effect and variability in the outcome measures. So its factors like that that could make it difficult to really know what is true look I still think its.

Regardless an interesting scientific question.

Pardon experiment, we'll look forward to seeing the data.

With respect to the specifics around the composite.

I think it and the nature of a composite is that you have to hit the overall composite score as the primary endpoint, which could be driven by the various sub measures or not but as you point out. This was custom made for this trial.

Steve Scala: Steve, thanks for your questions. Next caller, please.

Thanks, Dan Steve Thanks for your questions next caller please.

Operator: We have a question line from Naveen Jacob from UBS. Please go ahead.

We have a question line of intervene Jayco from US. Please go ahead.

Naveen Jacob: Hi, yes, thanks for taking my questions. Just on Virginio, Pfizer has slightly delayed its Ibran's adjuvant trial palace to early 2021, wondering, and they highlight the event rate progressing much slower. Wondering how, relative to your expectations, the event rate has been progressing in Monarch E, and is the timeline still for early 2021? And any color on the potential for an interim would be appreciated.

Yes, thanks for taking my questions.

Just on versus Ennio.

Pfizer has.

Slightly delayed it.

Brent Adjuvant trial palace to early 2021.

Wondering and they highlight the event rate progressing much slower.

Wondering how.

Relative to your expectations. The event rate has been progressing in monarch he.

And as the timelines till for an early 2021 readout and any color on the potential for an interim.

Be appreciated thats on presenting and then just on Humalog.

Anne: That's on Virginio. Just on Humalog, I think your press release suggested that pricing in the U.S. would benefit from a better segment mix. Is that because of a volume shift to the Humalog authorized generic, and that's assuming that the authorized generic is being recorded within the Humalog revenue line? I just wanted to know if you could provide any more clarity on that. Thank you so much. Great, thank you. We'll go to Anne for the question on Resenio and to Mike for the question on Humalog.

I think your press release suggested that pricing in the U.S. benefit from a better segment mix.

Is that because of volume shift.

To the Humalog authorized generic and that's assuming that the authorized generic is being recorded within the Humalog revenue line I just wanted to just any if you could provide any clarity on that thank you so much.

Great. Thank you, we'll go to and for the question numbers anyone Mike for the question on Humalog Nadine. Thanks, a question on drugs anyhow. So as you know we have not disclose any interim analysis now this isn't event driven trial similar to our palace.

Naveen Jacob: Nadine, thanks for the question on Verzenio. As you know, we have not disclosed any interim analysis. Now, this is an event-driven trial, similar to PALIS, but our estimates make us quite confident that we're looking at a readout in the first half of 2021. So, we continue to expect that. And, as you know, the trial enrolled remarkably well, and so we were able to enroll ahead of schedule, which helps, obviously, drive the event rate for that. And, again, we specifically designed this trial with a high-risk population, and that was both a strategy where we believed that Verzenio would really differentiate, but, as well, it drove the speed of the trial. So, again, we feel quite confident in that. As you know, the positive Monarch 2 overall survival results, particularly as we saw those with primary resistance and visceral disease, really an eight-month survival benefit in patients with visceral disease, really reinforce our confidence in the potential success of Monarch E. So, we designed it with that high-risk population and really used what we think are thoughtful selection factors that physicians use today to make prescribing decisions in that adj So things like the number of nodes involved, the tumor size, and the measure of proliferation. And so, we feel quite confident in the design of this study and, again, look forward to that readout in 2021. Thanks, Anne.

Our estimates.

Make us quite confident that we're looking at a read out in the first half of 2021. So we continue to expect that and as you know the trial enrolled remarkably well in so we are able to roll ahead of schedule, which helps obviously drive of the event rate for that.

Again, we.

Really the time this trial with a high risk population and that was both a strategy of where we believe that present Neal would really differentiate that as well it drove the speed of the trial. So again, we feel quite confident in that as you know the positive monarch two overall survival results, particularly as we saw those with primary resistance and visceral disease really eight.

Survival benefit to patients with visceral disease really reinforce our confidence in the potential success of monarchy. So we designed it with that high risk population and really used what we think our thoughtful selection factors that physicians use today to make prescribing decisions in that adds of in setting so thing.

It's like the number of nodes involved the tumor size and the measure a proliferation and so we feel quite confidence and the design of the study and again look forward to that readout in 2021. Thanks, Mike.

Anne: Thanks, Anne. Mike?

Mike: Thanks for your question on Humalog. The biggest driver in Humalog's second mix is the fact that with Amilog's uptake, they are taking volume away from Humalog and Medicaid. Since our Medicaid rebate rates are essentially 100 percent, that TRX decline actually doesn't have a flat or positive impact on net revenues for Humalog. And just to confirm, the AG products are consolidated into the HEMA?

Thanks for your question on Humalog. The biggest driver Humalog segment mix is the fact that analogs uptake. They are taking volume away from Humalog in Medicaid since our Medicaid rebate rates are essentially 100% that trx decline actually doesn't have a has a flatter positive.

Pat on net revenues for the long.

Just to confirm the AG products, our consolidated into that.

Mike: Thanks, Mike. Naveen, thanks for your questions. We'll go to Dave for the close.

Yes.

Thanks, Mike intervene. Thanks for your questions, we'll go to Dave for the close Okay. Thank you. All appreciate your participation in today's earnings call in your interests in yellow and company.

Dave Ricks: Okay, thank you all. I appreciate your participation in today's earnings call and your interest in Ilya Lilly and Company. 2019 was a strong year for the company, and we anticipate another great year in 2020. We remain focused on executing our innovation-based strategy to bring new medicines to patients and create value for our shareholders. With our strong commercial portfolio complemented by a pipeline of exciting opportunities, Lilly continues to be a compelling investment.

2018 was a strong year for the company and we anticipate another great year in 2020.

We remain focused on executing our innovation based strategy to bring new medicines to patients.

Great value for our shareholders.

With a strong commercial portfolio complemented by a pipeline of exciting opportunities willing continues to be a compelling investment.

Operator: Thanks again for dialing in. Please follow up with our investor relations team if you have any additional questions we weren't able to address on today's call. Hope you have a great day. Thank you.

Thanks again for dialing in please follow up with our Investor Relations team. If you have any additional questions. We weren't able to address on today's call will give a greater.

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