Q2 2020 Eli Lilly and Co Earnings Call
Ladies and gentlemen think standing by and working to the Lilly Q2 2020 earnings call. At this time all participants are no listen only mode. Later, we will conduct a question answer session. If you wish to clean up the queue for questions. Please press, one then zero to remove yourself from Q.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Lilly Q2 2020 earnings call. Now, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If you wish to place yourself in queue for questions, please press 1, then 0. To remove yourself from the queue, please repeat the 1, then 0 command.
Repeat the one than zero command as a reminder, today's cost being recorded I.
Operator: As a reminder, today's call is being recorded. I will now turn the call over to your host, VP of Investor Relations, Kevin Hearn. Please go ahead. Thank you.
I would now I'm trying to Carlo to your host VP Investor Relations Kevin her. Please go ahead Sir.
Thank you good morning, and thank you for joining us for Eli Lilly and companies Q2, 2020 earnings call I'm, Kevin heard Vice President Investor Relations joining me on todays call, our Dave Ricks, Lilly's, Chairman and CEO, Josh Smiley, Chief Financial Officer, Dr., Danskin, Roski, Chief Scientific Officer and.
Kevin Hearn: Good morning, and thank you for joining us for Eli Lilly and Company's Q2 2020 Earnings Call. I'm Kevin Hearn, Vice President of Investor Relations. Joining me on today's call are Dave Ricks, Lilly's Chairman and CEO, Josh Smiley, Chief Financial Officer, Dr. Dan Skovronsky, Chief Scientific Officer, Anne White, President of Lilly Oncology, Patrik Jonsson, President of Lilly Biomedicines, and Mike Mason, President of Lilly Diabetes. We're also joined by Sarah Smith and Mike Sapar of Investor Relations. During this conference call, we Our actual results could differ materially due to a number of factors.
White President of Lilly oncology, Patrick Johnson, President of Lilly Bio medicines, and Mike Mason President of Lilly diabetes.
We're also joined by Cirrus Smith, and Mike So far of the Investor Relations team.
During this conference call, we anticipate making projections and forward looking statements based on our current expectations. Our actual results could differ materially due to a number of factors, including the extent and duration of the effects of the cobot 19 pandemic as well as other factors listed on slide three and those outlined in our latest forms 10-K.
Kevin Hearn: including the extent and duration of the effects of the COVID-19 pandemic as well
Kevin Hearn: listed on slide three.
Kevin Hearn: and those outlined in our latest Forms 10-K and 10-Q.
10-Q, and any eight case filed with the Securities and Exchange Commission.
Kevin Hearn: and any 8Ks filed with the Securities and Exchange Commission. The information we provide about our products and pipeline is for the benefit of the investment community. It is not intended to be promotional and is not sufficient for prescribing decisions. As we transition to our prepared remarks, a reminder that our commentary will focus on non-GAAP financial measures which exclude the financial contribution from ELANCO during 2019 and present earnings per share as though the full disposition via the exchange offer was complete on January 1st, 2019. Now, I'll turn the call over to Dave for some opening comments. Thanks, Kevin.
The information, we provide about our products and pipeline is for the benefit of the investment community. It is not intended to be promotional and is not sufficient for prescribing decisions as we transition to our prepared remarks, a reminder, that our commentary will focus on non-GAAP financial measures, which exclude the financial contribution from Elanco during 2019 and for.
Earnings per share as though the full disposition via the exchange offer was complete on January 1st 2019, now I'll turn the call over to Dave for some opening comments.
Thanks, Kevin.
Dave Ricks: A lot has changed in the world since our last earnings call. Science has continued to advance our understanding of COVID-19, and efforts across the industry to develop treatments and vaccines are progressing rapidly. While some regions and countries have begun to reopen, COVID-19 cases and deaths are climbing in other places. Despite these challenges, Lilly continues to demonstrate resilience and resourcefulness to progress our mission of making medicines for the millions of patients we serve. I've never been more proud of the company and my 35,000 team. This past quarter was unlike any other during my tenure as CEO, concurrently combating social, economic, and public health crises. Economic uncertainty remains as high unemployment persists in many countries.
What has changed in the world since our last earnings call Science has continued to advance our understanding of koby 19 and efforts across the industry to develop treatments and vaccines are progressing rapidly.
Well some regions and countries have been gone to reopen cobot 19 cases and gas are climbing and other places.
Despite these challenges Lilly continues to demonstrate resilience and resourcefulness to progress our mission of making medicines for the millions of patients we serve.
I've never been more proud of the company and my 35000 teammates.
This past quarter was unlike any other during my tenure as CEO concurrently combating social economic and public health crisis.
Economic uncertainty remains as high unemployment persists in many countries.
Dave Ricks: As expected, our business experienced headwinds this quarter, with patients unable to see doctors or access health care during periods when the economies were shut down to prevent the spread of COVID-19, and by the dwindling or the plan by the unwinding of forward buying into Q1 that occurred. However, overall, our year-to-date results are strong and indicative of the underlying trend. I'm proud of Lilly's efforts to ensure patients have access to their medicine, to find creative ways to ensure we advance critical research, and to advance our ongoing efforts to develop treatments for COVID-19. We continue to staff our manufacturing facilities around the globe with essential personnel to ensure there are no disruptions in the supply of medicine. And in recent weeks, we resumed activity in the majority of our clinical trials where enrollment had been paused.
As expected our business experienced headwinds this quarter with patients unable to see doctors or access health care during periods. When the economies were shut down to prevent the spread of koby 19.
And by the dwindling or the planned by the unwinding afford buying into Q1 that occurred.
Overall, our year to date results are strong and indicate indicative of the underlying trends.
I'm proud of Lilly's efforts to ensure patients have access to their medicines.
To find creative ways to ensure we advance critical research.
And to advance our ongoing efforts to develop treatments for Covance 19.
We continue to staff, our manufacturing facilities around the globe with essential personnel to ensure there are no disruptions in the supply of medicine.
And in recent weeks, we resumed activity in the majority of our clinical trials, where enrollment had been caused.
Resuming in person promotional activities when it's safe on a country by country and on a state by state basis in the U.S.
Dave Ricks: We're resuming in-person promotional activities when it's safe, on a country-by-country and state-by-state basis in the U.S. And we will continue to use these virtual engagement tools we've built to augment in-person promotional activities. Throughout Q2, we saw a steady increase in customer contacts and medical education touchpoints as we leveraged new platforms to reach physicians. We continue to see increased interest and volume of virtual interactions from physicians and expect a hybrid model of in-person and remote engagement for some time in the U.S., as well as internationally. We also made good progress this quarter, executing our R&D strategy, and launching two new medicines in the U.S., including Ritevmo, the first therapy ever approved for patients with Rett-driven lung and thyroid cancer, and Lum Jeff, a fast-acting mealtime insulin for patients with type 1 and type 2 diabetes.
And we will continue to use these virtual engagement tools, we've built to augment in person promotional activities.
Throughout Q2, we saw steady increase in customer contacts and medical education, Touchpoints as we leverage new platforms to reach physicians.
We continue to see increased interest in volume of virtual interactions from physicians and expect a hybrid model of in person a remote engagement for sometime in the U.S. as well as internationally.
We also made good progress this quarter executing our R&D strategy launching two new medicines in the U.S., including retail, though the first therapy ever approved for patients with ret, driven lung and thyroid cancers.
And loom, Jeff a fast acting mealtime insulin for patients with type one and type two diabetes.
Dave Ricks: TULPS and non-radiographic AXPA, SIRAMSA in combination with Erlotinib for EGFR-mutated non-small cell lung cancer, and TALVID, our new diagnostic for patients with Alzheimer's disease, were also approved in the U.S. Several positive phase 3 readouts this quarter included Verzenio in adjuvant breast cancer, now the first and only CDK4-6 inhibitor to succeed in this population. Mirakizumab and psoriasis compared to both placebo and head-to-head versus Cosentix.
Talks and non Radiographic Act spa ceramic in combination with Erlotinib for you if our mutated non small cell lung cancer and talented our new diagnostic for patients with Alzheimer's disease were also approved in the U.S.
Several positive phase three readouts this quarter include versus Ennio in agile in breast cancer now the first and the only CDK for six inhibitor to succeed in this population.
Your kids map in psoriasis compared to both placebo in head to head versus Cosentyx and just today in collaboration with bearing Ingelheim Jardiance in heart failure patients with reduced ejection fraction, both with and without diabetes.
Dave Ricks: And just today, in collaboration with Beringer Ingelheim, Jardians in heart failure patients with reduced injection fraction, both with and without diabetes. We also continue to make progress on our potential COVID-19 therapies, notably the initiation of multiple clinical trials developing neutralizing antibodies, both as monotherapy and in combination. Dan will provide you with more detail during the R&D update. The unprecedented pace at which we're executing this project across our development and manufacturing organizations is evidence of what we are capable of as an innovative company. As I mentioned earlier, our Q2 business results were negatively impacted by COVID-19. However, we remain confident in the underlying fundamentals of our business.
We also continued to make progress on our potential koby 19 therapy therapies, notably the initiation of multiple clinical trials developing neutralizing antibodies.
Both as monotherapy and combination.
Dan will provide you with more detail during the R&D update.
The unprecedented pace at which were executing this project across our development and manufacturing organizations is evidence of what we're capable as an innovative company.
As I mentioned earlier, our Q2 business results were negatively impacted by Coca 19. However, we remain confident in the underlying fundamentals of our business.
Dave Ricks: COVID-19 had a meaningful impact on economic activity, and we observed the following trends in the US. A sharp decline in the number of patient visits to physicians dropping to roughly 50% of pre-CoVID-19 levels; reduced visits translated into fewer new prescriptions with the peak impact in late April and early May in most therapeutic classes. A slow return to health care activity through a combination of telehealth and in-person visits.
Koby 19 had a meaningful impact on economic activity.
And we observed the falling trends in the us.
A sharp decline in the number of patient visits to physicians dropping to roughly 50% of pre cobot 19 levels reduced visits translated into fewer new prescriptions with the peak impact in late April and early may in most therapeutic classes.
A slow returned to health care activity through a combination of tele health and in person visits as Acumedia data showed patient visits were back to 85% of pre cobot 19 levels in June.
Dave Ricks: As IQVIA data showed, patient visits were back to 85% of pre-COVID-19 levels in June, and new prescriptions are slowly beginning to recover, although some variation across therapeutic areas. While the outlook for economic activity isn't certain, we remain optimistic that patients, physicians, and hospital systems will continue to find ways to ensure patients can access the medicines they need. Turning to our Q2 results, as expected, reduced patient visits and inventory dynamics were both a drag on otherwise solid total prescription trends. Revenue declined 2% compared to Q2 2019, and we estimated revenue was negatively impacted by the reversal of largely all of the $250 million of stocking related to COVID-19 that we experienced in Q1. While most existing prescriptions were maintained, new patient prescriptions declined in Q2 relative to the pre-COVID-19 baseline.
And new prescriptions slowly beginning to recover although some variation across therapeutic areas.
Well the outlook for economic activity is uncertain, we remain optimistic that patients physicians in hospital systems will continue to find ways to ensure patients can access the medicines they need.
Turning to our Q2 results as expected reduced patient visits in inventory dynamics were both a drag on otherwise solid total prescription trends revenue declined 2% compared to Q2 2019, and we estimated revenue was negatively impacted by the reversal of largely all of the $250 million.
Dollars of stocking related to Cobank team that we experienced in Q1.
Well most existing prescriptions were maintained new patient prescriptions decline in Q2 relative to pre koby 19 baselines.
Dave Ricks: We estimate this impact to have been about $250 million across the board. Taking into account current trends, we are on track to deliver the financial goals we established for 2020. The strength of our new products, our ability to scale them worldwide, and our productivity agenda position us well to continue to deliver robust business performance and create shareholder value. Moving to slide five, you'll see the full list of key events since our last earnings call. Before Josh discusses our financial results, I want to make a few comments about the executive orders that were announced last Friday. We all share the goal of making medicines more affordable and accessible for patients and believe concepts such as rebate reform and the sharing of savings within the eligible 340b patient population offer real opportunities to lower the out-of-pocket costs for patients quickly.
We estimate this impact to have been about $250 million across the portfolio.
Taking into account current trends, we're on track to deliver the financial goals, we established for 2020.
The strength of our new products, our ability to scale than worldwide and our productivity agenda position us well to continue to deliver robust business performance and to create shareholder value.
Moving to slide five you'll see the full list of key events since our last earnings call.
Before Josh discusses our financial results just a few comments about the executive orders that were announced last Friday.
We all share the goal of making medicines more affordable and accessible to patients and believe concepts such as rebate reform and the sharing of savings within the eligible threeforty be patient population offer real opportunities to lower the out of pocket costs for patients quickly.
Dave Ricks: However, as I've noted before, the concept of international price indexing is a bad policy. This policy will have almost no benefit for patient out-of-pocket costs but, together with reimportation, will most assuredly have serious negative consequences for patients, for the safety of our supply chain, and for the future of innovation. So now is the wrong time to introduce sweeping government actions that will, at best, distract and, at worst, cripple the same industry that's racing to discover vaccines and treatments to defeat COVID-19. Now, I'll turn the call over to Josh to review our Q2 results in more detail and provide an update on our financial guidance for 2020.
However, as I've noted before the concept of international price indexing is a bad policy.
This policy will have almost no benefit to patient out of pocket costs, but together with Reimportation will most assuredly have serious negative consequences for patients for the safety of our supply chain and for the future of innovation.
So now is the wrong time to introduce sweeping government actions that will at best distract and it was cripple the same industry, that's racing to discover vaccines and treatments to defeat Koby 19.
Now I'll turn the call over to Josh to review, our Q2 results in more detail and provide an update on our financial guidance for 2020.
Josh Smiley: Thanks, Dave. Good morning, everyone. Moving to slides six and seven, our non-GAAP financial performance in Q2 and during the first half of 2020 was impacted by COVID-19 across many lines of income. As Dave mentioned, revenue declined 2% this quarter compared to Q2 2019, and was negatively impacted by COVID-19 in two ways. First, largely all of the $250 million in COVID-related stocking in Q1 reversed as excess supply in the channel and in medicine cabinets was consumed, and Q2 closing inventory returned to historically normal levels. Second, reduced patient visits due to COVID-19 resulted in lower new prescriptions across many of our brands, which we estimate had a negative impact on Q2 revenue of approximately $250 million. We have to meet.
Thanks, Dave Good morning, everyone.
Moving to slide six and seven our non-GAAP financial performance in Q2 and during the first half of 2020 was impacted by Cobot 19 across many lines of the income statement.
As Dave mentioned revenue declined 2% this quarter compared to Q2 2019, it was negatively impacted by cope with 19 in two ways.
First largely all of the 250 million of color coded related stocking in Q1 reverse as excess supply in the channel and in medicine cabinets was consumed in Q2 closing inventory returns historically normal levels.
Second reduce patient visits due to covert 19 resulted in lower new prescriptions across many of our green, which we estimate had a negative impact on Q2 revenue of approximately $250 million as well.
Josh Smiley: This impact will be a temporary step down in market size, which we expect will return to pre-COVID levels over the balance of the year, with the pace of recovery varying by therapeutic area. Given the stocking and destocking seen between quarters, our first half performance of 7% sales growth in constant currency is a more accurate reflection of underlying performance. Gross margin as a percent of revenue in Q2 was $79.6 billion, a decline of 140 basis points versus Q2 2019, driven primarily by the negative impact of price, which I'll describe in more detail in a moment. Moving down the P&L, selling general and administrative expenses declined 9% this quarter compared to Q2 2019, as reduced marketing and travel and meeting expenses were only partially offset by investment in virtual faculty.
We estimate.
The impact to be a temporary step down the market size, which we expect will return to preclude levels over the balance of the year with the patient recovery varying by therapeutic area.
Given the stocking and destocking seen between quarters, our first half performance of 7% sales growth in constant currency is a more accurate reflection of underlying performance.
Gross margin as a percent of revenue in Q2 was 79.6% a decline of 140 basis points versus Q2, 2019, driven primarily by the negative impact of price, which I'll describe in more detail in a moment.
Moving down the BNL selling general and administrative expenses declined 9% this quarter compared to Q2 2019 has reduced marketing and travel meeting expenses were only partially offset by investments in virtual tactics.
Josh Smiley: Research and development expenses declined 1% as the pause in clinical trials has shifted activity and expenses to the second half of 2020. In total, operating income decreased 2% compared to Q2 2019, during the first half.
Research and development expenses declined 1% pause in clinical trials shifted activity and expenses in second half 2020.
In total operating income decreased 2% compared to Q2 2019.
During the first half.
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Josh Smiley: We just had a system problem. So, in total, operating income decreased 2% compared to Q2 2019. During the first half of 2020, operating income increased by 14% as revenue growth outpaced operating expense growth by 500 basis points... Operating income as a percent of revenue was 28% during the second quarter and 29.1% for the first half of 2020. We continue to adapt the way we allocate resources to efficiently operate in an environment where the threat of COVID-19 is likely to be disruptive for a sustained period of time.
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So in total operating income decreased 2% compared to Q2 2019 during the first half of 2020 operating income increased by 14% as revenue growth outpaced operating expense growth by 500 basis points.
Operating income as a percent of revenue was 28% during the second quarter and 29.1% for the first half 2020.
We continue to adapt the way, we allocate resources to efficiently operating environment, where the threat of cobot 19 is likely to be disruptive force sustained period of time.
Josh Smiley: We're expanding our virtual capabilities to support executing our strategy and are committed to our 2020 full-year operating margin target of 31%. Other income and expense was revenue of $447 million this quarter compared to an expense of $32 million in Q2 2019. This quarter's other income was primarily driven by the increase in value of investments in Asian biopharmaceutical companies, as well as previously private companies that went public here in the U.S. We have investments across a range of private and public biopharmaceutical companies as a part of our external innovation strategy. These investments allow us to nurture emerging science and access potential new medicines and novel modalities.
We're expanding our virtual capabilities to support executing our strategy and are committed to our 2020 full year operating margin target of 31%.
Other income expense was income of $447 million this quarter compared to an expense of $32 million in Q2 2019.
This quarter's other income was primarily driven by the increase in value of investments in Asian, Biopharma companies as well as previously private companies and went public here in the us.
We have investments across a range of private and public biopharma companies as a part of our external innovation strategy and these investments allowed to nurture emerging science and access potential new medicines the novel modality.
Josh Smiley: As we regularly highlight, this line item can be volatile as public market valuations fluctuate. Our tax rate was 13.4 percent, an increase of 340 basis points compared with the same quarter last year, driven by the mix of earnings in higher tax jurisdictions and a lower net discrete tax benefit than last year. At the bottom line, earnings per share increased 26% in Q2, as the sizable gain on public equities more than offset the decline in operating income. During the first half of 2020, earnings per share increased 29%.
As we regularly highlight this line item can be volatile as public market valuations fluctuate.
Our tax rate was 13.4% an increase of 340 basis points compared with the same quarter last year, driven by the mix of earnings and higher tax jurisdiction and a lower net discrete tax benefit than last year.
At the bottom line earnings per share increased 26% in Q2 as a sizable gain on public equities more than offset the decline in operating income during the first half of 2020 earnings per share increased 29%.
On slide eight we quantify the effective price rate in volume on revenue.
Josh Smiley: On slide 8, we quantify the effect of price, rate, and volume on revenue. Worldwide revenue declined 2% during Q2 as volume growth of 6% was offset by price; foreign exchange had an additional 1% negative impact on revenue growth. During the first half of 2020, revenue grew 7% in cost of currency as volume grew 13% and price declined 7%, were 5% excluding the impact Olympia and Taipei had in China. U.S. revenue declined 3% compared to the second quarter of 2019. Volume growth of 4% was led by Trulicity, Talt, Mgality, and Verzeni.
Worldwide revenue declined 2% during Q2 as volume growth of 6% was offset by price.
Foreign exchange had an additional 1% negative impact on revenue growth.
During the first half of 2020 revenue grew 7% in constant currency and volume grew 13% and price declined 7% or 5%, excluding the impact Olympia and tie that in had in China.
US revenue declined 3% compared to the second quarter of 2019.
Volume growth of 4% with led by Trulicity, all galaxy and presenting us.
Josh Smiley: As mentioned earlier, we saw de-stocking at the wholesaler and patient level due to COVID-19 that contributed approximately $200 million of negative impact during the quarter. In addition, we estimate reduced new prescriptions due to COVID-19 negatively impacted Q2 revenue by approximately $150 million. Pricing was an 8% drag on U.S. revenue growth this quarter, impacted by predominantly changes to estimates for rebates and discounts, most notably impacting Humalog, which was driven primarily by favorable Medicaid adjustments in the prior period and unfavorable commercial adjustments in the current, Then to a lesser extent by higher growth across the portfolio and lower net price segments and increased rebates to maintain our strong commercial access, which was partially offset by reduced co-pay program utilization for MGALITY and TALPS as a function of improved access versus last year.
As mentioned earlier, we saw a destocking at the wholesaler and patient level due to the 19 the contributed approximately $200 million of negative impact during the quarter. In addition, we estimate reduced new prescriptions due to cope with 19 negatively impacted Q2 revenue by approximately $150 million.
Pricing with an 8% drag on U.S. revenue growth this quarter impacted by predominantly changes to estimates for rebates and discounts, most notably impacting humalog, which was driven primarily by favorable Medicaid adjustment in the prior period and unfavorable currency commercial adjustments in the current period.
That to a lesser extent by higher growth across the portfolio and lower night net price segment and increase rebates to maintain our strong commercial access which was partially offset by reduced copay program utilization for and galleons health as a function of improved access versus last year.
Josh Smiley: As we've previously discussed, our quarterly pricing trends in the U.S. fluctuate based on delayed invoicing from customers, seasonality of copay assistance, and our obligations during the coverage gap in Medicare Part D. Excluding the impact of the one-time HUMILOG adjustment, and focusing on trends that impact our business going forward, we saw an underlying pricing trend of a low single-digit decline in Q2 versus Q2 2015. And this is con-
As we previously discussed our quarterly pricing trends in the U.S. fluctuate based on delayed invoicing from customers seasonality of co pay assistance and our obligations during the coverage gap in Medicare part D.
Excluding the impact of the onetime humalog adjustment and focusing on trends that impact our business going forward. We saw an underlying pricing trend of low single digit declined in Q2 versus Q2 2019.
And this is consistent with our current expectation of mid single digit price decline for the year with the underlying low single digit net price decline combined with onetime adjustments in the first half of 2020 and modest effects of opened 19 in the second half of the.
Josh Smiley: with our current expectation of mid-single digits.
Josh Smiley: for the year with the underlying low single-digit net price decline combined with one-time adjustments in the first half of 2020 and modest effects of COVID-19 in the second half of the year. During the first half of 2020, U.S. revenue increased 5% versus last year, volume grew 11%, and price declined 6%. We are encouraged by the improving demand trends in recent weeks and more normalized shipping. As we conclude our 2021 U.S. contracting negotiations, we remain confident in our strong commercial and Medicare Part D access across the portfolio and our ability to maintain this going forward.
During the first half of 2020 us revenue increased 5% versus last year volume grew 11% and price declined 6%.
We are encouraged by the improving demand trends in recent weeks and more normalized shipping trends.
As we conclude 2021 U.S. contracting negotiations, we remain confident in our strong commercial and Medicare part D access across the portfolio and our ability to maintain this going forward.
Moving on to your revenue declined 4% in constant currency at price and volume declined by 2% each strong volume growth from Trulicity presenting on Paul was offset by volume declines from the Alice Forteo, Illinois, Thats for Darrin Humalog.
Josh Smiley: Moving on to Europe, revenue declined 4% in constant currency as price and volume declined by 2%. Strong volume growth from Trulicity, Resenio, and Tulps was offset by volume declines from Cialis, Forteo, Olymptis, Fratera, and Humiloc. We estimate European revenue was reduced by approximately $50 million due to COVID-19-related destocking in Q2, and roughly $35 million due to COVID-19-related lower new prescriptions. Despite fluctuation across quarters, the underlying trends are very strong as York posted volume growth of 11% during the first half of 2020 as our new products continue to scale. In Japan, revenue declined by less than 1% in constant currency, as 4% volume growth was more than offset by government-mandated price decreases effective April 2020.
We estimate European revenue was reduced by approximately $50 million due to coated 19 related de stocking in Q2.
Roughly $35 million due to open 19 related lower new prescriptions.
Despite fluctuation across quarters, the underlying trends are very strong as youre posted volume growth of 11% during the first half 2020, as our new products continue to scale.
In Japan revenue declined by less than 1% in constant currency at 4% volume growth was more than offset by government mandated price decreases effective April 2020.
In addition, we had estimate reduce new prescriptions due to covert 19 negatively impacted Q2 revenue by approximately $35 million.
Josh Smiley: In addition, we estimate reduced new prescriptions due to COVID-19 negatively impacted Q2 revenue by approximately $35 million. The solid volume growth of Verzenio, Trulicity, Illumion, and Seramza were the key contributors to growth, partially offset by the increased competition for Forteo and the impact of generic stratera. In China, revenue grew 8% in constant currency, driven by 50% volume growth, largely offset by price.
The solid volume growth versus any Oh, let's city ILUVIEN into Ramser, where the key contributors to growth, partially offset by the increased competition for forteo and the impact of generics for Tara.
In China revenue grew 8% in constant currency, driven by 50% volume growth largely offset by price volume and price where both affected by the inclusion of tie that in Olympia in government sponsored program, which substantially increased access for patients to these important cancer medications.
Outside of the oncology portfolio in China, we saw rebound the new patient initiations and in person customer interaction as the Pandemics impact began to moderate.
Our newest launches trulicity talking aluminum are seeing good uptake in humalog, the Allison Cymbalta art again exhibiting solid growth.
Josh Smiley: Volume and price were both affected by the inclusion of Tyvet and Olympta in government-sponsored programs, which substantially increased access for patients to these important cancer medications. However, outside of the oncology portfolio in China, we saw a rebound in new patient initiations and in-person customer interactions as the pandemic's impact began to moderate. Our newest launches, Trlicity, Tulsa, and Illumion, are seeing good uptake, and Humalog, Cialis, and Cymbalta are again exhibiting solid growth. Revenue in the rest of the world increased 7% in constant currency, driven by increased volume from our key growth drivers.
Revenue in the rest of the world increased 7% in constant currency driven by increased volume from our key growth drivers strong performance from Trulicity Giardia Paulson, presenting us with partially offset by decreased the outfall.
Revenue was negatively impacted by coven related reduced new prescriptions by approximately $25 million, which was more than offset by the sale of the legacy product in Asia.
As shown on slide nine our key growth products continue to drive impressive worldwide volume growth.
These new medicines delivered over 12 percentage points of volume growth this quarter.
The strong volume growth volume trend in our key products as partially offset by a mix of competition and lower utilization of post eloise products or what's the outlook as well as reduced trajenta royalties from the restructuring of our alliance with Beringer Ingelheim, we announced last year.
Josh Smiley: Strong performance from Trulicity, Jardians, Tulse, and Bresenio was partially offset by decreased Cialis volume. However, revenue was negatively impacted by COVID-related reduced new prescriptions by approximately $25 million, which was more than offset by the sale of a legacy product in April. As shown on slide 9, our key growth products continue to drive impressive worldwide volume. These new medicines delivered over 12 percentage points of volume growth this quarter. The strong volume trend in our key products was partially offset by a mix of competition and lower utilization of post-LOE products, Orteo and Cialis, as well as reduced progenitor royalties from the restructuring of our alliance with Beringer and Ingelheim that we announced last year. We exit the first half of 2020 pleased with the 16% year-to-date volume growth that our key products have delivered, despite a challenging environment. Slide 10 highlights the contributions of our key growth products. In total, these brands generated nearly $3 billion in revenue this quarter, making up 54% of revenue.
We ended the first half of 2020 pleased with that 16% year to date volume growth of our key products that deliver despite a challenging environment.
Slide 10 highlights the contributions of our key growth products in total these brands generated nearly $3 billion in revenue this quarter, making up 54% of revenue.
While 12% volume growth from key product in Q2 is robot the negative impact on new patient starts from Cowen 19 endemic and cover 19 related inventory movements across borders or drag on growth in the quarter.
But both of these impacts to be transient and we're seeing new to brand prescriptions recover in June and July the underlying business is robust and while coven 19 had impact our therapeutic areas differently, our product specific trends within the market backdrop our strong.
In diabetes Trulicity remains a market leader in the U.S. GLP, one market with over 45% share of total prescription.
While new to brand prescriptions for the GLP, one class, where 32% less than Threeq of 19 levels at one point during Q2 activity is trending in the right direction and now sits at around negative 16% for the week ending July 17.
Josh Smiley: While 12% volume growth from key products in Q2 is robust, the negative impact on new patients starts from the COVID-19 pandemic and COVID-19-related inventory movements across quarters or drag on growth in the quarter. We expect both of these impacts to be transient, and we are seeing new to brand prescriptions recover in June and July. The underlying business is robust, and while COVID-19 has impacted our therapeutic areas differently, our product-specific trends within the market backdrop are strong. For diabetes, Trulicity remains the market leader in the U.S. GLP-1 market, with over 45% share of total prescriptions. While new-to-brand prescriptions for the GLP-1 class were 32% less than pre-COVID-19 levels at one point during Q2, activity is trending in the right direction and now sits at around negative 16% for the week ending July 17.
Total prescription trends have slowed sound, but we're still robust for the class and grew by 27% in Q2 compared to last year as the class leader Trulicity is well positioned for future growth and we look forward to regulatory action later this year on the higher doses of your list.
We expect the potential launch of additional doses to be an important option to allow patients to realize benefits, while extending the duration of therapy entre lifted.
In another large in fast growing diabetes class Jardiance maintained market leadership in the U.S.S. GLP two class with over 57% share of total prescriptions.
The CLC two class similar magnitude of reductions as the GLP, one class and new to brand prescriptions as new prescriptions were 38% less than the pre cove it.
19 levels before recovering some in June and July.
Current weekly trends approximately 15% below creek over 19 levels.
So parties continues to be the catalyst for class growth in new and total prescriptions growing over 12 percentage points faster than the market in Q2 with 32% growth versus last year.
Josh Smiley: Total prescription trends have slowed some, but we're still robust for the class and grew by 27% in Q2 compared to last year. As the class leader, Trulicity is well-positioned for future growth, and we look forward to regulatory action later this year on the higher doses. We expect the potential launch of additional doses to be an important option to allow patients to realize benefits while extending their duration of therapy on TruLipid. In another large and fast-growing diabetes class, Jordians maintained market leadership in the US SGLT2 class with over a 57% share of total prescriptions. The SGLT2 class saw a similar magnitude of reductions as the GLT1 class in new-to-brand prescriptions, as new prescriptions were 38% less than the pre-COVID-19 levels before recovering some in June and July. Current weekly trends are approximately 15% below pre-COVID-19 levels.
We're excited by the recently announced positive results in sorry in patients with heart failure in the upper reduced trial and look forward to the upper a preserve probably down in 2021.
We estimate the addressable market from each trial is up to 3 million additional patients in the us, adding a potential new source of future growth regarding.
Ill call. It in oncology presenters will continue to show positive trends in the metastatic setting as us share of market in new to brand prescriptions continue to increase above 20%.
While new to brand prescriptions for the CDK, four and six class and more than 30% below pre coded levels at one point in the quarter presenting a fair better at negative 19% and the most recent week of new to brand prescriptions is above the pre coven 19 average.
Presented positive momentum as the monarch each trial result add to the compelling existing data package. We look forward to presenting these data at a medical meeting later this year.
Tie that our immuno oncology product in collaboration with innovation in China posted another strong quarter performance. It was the biggest driver of China's 50% volume growth in Q2.
It was added to the national drug reimbursement lift in January this year, and we anticipate strong sales momentum in the second half of 2020.
Josh Smiley: Jardim continues to be the catalyst for class growth in new and total prescriptions, growing over 12 percentage points faster than the market, with 32% growth versus last year. We're excited by the recently announced positive results of JARDIANS in patients with heart failure in the EMPEROR REDUCED trial and look forward to the EMPEROR PRESERVED trial readout in 2021. We estimate the addressable market from each trial is up to 3 million additional patients in the U.S., adding a potential new source of future growth for JARDIANS. In oncology, Fresenio continues to show positive trends in the metastatic setting as the U.S. share of the market in new-to-brand prescriptions continues to increase above 20 percent. While new-to-brand prescriptions for the CDK 4 and 6 classes were more than 30% below pre-COVID levels at one point in the quarter, Fresenio fared better at negative 19%, and the most recent week of new-to-brand prescriptions is above the pre-COVID 19 average. Presenting you with positive momentum as the MONARCH-D trial results add to the compelling existing data package. We look forward to presenting these data at a medical meeting later this year. Tyvit, our immuno-oncology product in collaboration with InnoVent in China, posted another strong quarter of performance and was the biggest driver of China's 50% volume growth in Q2.
Does that tie that to continue to be an important driver of growth in China.
Our newest oncology medicine, the tempo had a strong launch despite the viewing during a challenging external environment.
We're encouraged by early demand signals and initial customer feedback on the impressive safety and efficacy profile is very positive our salesforce and medical science liaisons are actively engaging with 6000 long and by with specialists through virtual tactics in our existing relationships with this customer base are leading to a high quality interaction and increased brand awareness.
For this first in class medicine.
I still early in the launch we're excited about the fast start and continue to believe we have a best in class products.
In immunology, we saw strong new to brand trend with Paul. It's early in Q1, followed by a sizable that more gradual impact of coven 19.
Compared to pre cope with levels, new to brand prescriptions across immunology declined 36%.
While this category has also been slower to recover the most recent weeks of showed improvements in trends however, new to brand prescriptions for the total market are still 21% below pre open levels.
Paul continues to compete for leadership in Denver apology, new to brand share of market.
Andrew mythology trends are encouraging although growing from a smaller base.
Total part Paul prescriptions grew 11% in Q2 compared to Q1 and 35% versus Q2 2019, we remain confident that are compelling data package of head to head trial in recent approval in non radiographic X. box will deliver growth in a competitive field of immunology.
In migraine, we've also seen a more long decline in new to brand prescriptions is over 19.
Due to that brand prescriptions in the injectable CRP class have been 15% to 20% below pre cobot level since late April and through July and galley share market remains strong with over 30% of new in total prescriptions within the class.
Josh Smiley: Tybutt was added to the National Drug Reimbursement List in January this year, and we anticipate strong sales momentum in the second half of 2020. We expect TIBIT to continue to be an important driver of growth in Our newest oncology medicine, Ritevmo, had a strong launch despite debuting during a challenging external environment. We're encouraged by early demand signals, and initial customer feedback on the impressive safety and efficacy profile is very positive. Our sales force and medical science liaisons are actively engaging with 6,000 lung and thyroid specialists through virtual tactics, and our existing relationships with this customer base are leading to high-quality interactions and increased brand awareness for this first-in-class medicine. While still early in the launch, we're excited about the fast start and continue to believe we have a best-in-class product.
Although new to brand trends have been app impacted by Coven 19 class growth for total prescriptions was robust in Q2, increasing 64% compared to last year and 12% versus Q1 2020.
Given the importance of primary care physicians in driving growth with the return of active promotion from multiple competitors, we expect class growth to reaccelerate in the second half in 2020.
Also in migraine, our acute therapy Ray vow was significantly impacted by the lack of patient visits and in person customer interactions related to coven 19.
While uptake so far has been modest early in the launch will make investments to drive awareness and focus our promotional efforts in the coming quarters to drive uptake.
The field is competitive we continue to believe our portfolio of both acute and preventative treatment with two mechanisms of action is a differentiated a differentiator for a migraine franchise.
On slide 11, we provide an update on capital allocation.
During the first half in 2020, we invested we invested over $4 billion to drive our future growth through a combination of business development capital expenditures and after tax investment in R&D.
Josh Smiley: In immunology, we saw strong new-to-brand trends with pulse early in Q1, followed by a sizable but more gradual impact of COVID-19. Compared to pre-COVID levels, new-to-brand prescriptions across immunology declined 36% While this category has also been slower to recover, the most recent weeks have shown improvements in trends. However, new-to-brand prescriptions for the total market are still 21% below pre-COVID levels. TALS continues to compete for leadership in dermatology new to brand share of the market, and rheumatology trends are encouraging, although growing from a smaller base. Total pulse prescriptions grew 11% in Q2 compared to Q1 and 35% versus Q2 2019. We remain confident that our compelling data package of head-to-head trials and recent approval of non-radiographic AXPA will deliver growth in a competitive field of immunology.
In addition, we returned almost $2 billion to shareholders versus share reports.
Share repurchase and the dividends.
We remain well capitalized and have the ability to access debt markets at attractive rates.
We expect to continue to enhance our long term growth by acquiring first or best in class pipeline assets.
I would anticipate cobot impacts regarding travel at market uncertainties affect our efforts.
Before we provide an update on our 2020 financial guidance Slide 12 provides an overview of the composition of our us business split by payer segment mix.
This is the topic a frequent interested investors in permanent as we monitor the currently high levels of unemployment and the potential for that to negatively impact our business.
Based on gross sales during the first half of 2020 within our existing business commercial plans makeup the largest portion at around 40%.
Medicare part D. As the second largest segment at approximately 20% mainly due to our diabetes portfolio.
Permanent hospital segments make up roughly 15% Medicaid is around 10%.
Medicare part B is nearly 5% and then non contracted business uninsured and cash makeup the remaining 10%.
Josh Smiley: In migraine, we've also seen a more prolonged decline in nutibran prescriptions due to COVID-19. New-to-brand prescriptions in the injectable CGRP class have been 15 to 20 percent below pre-COVID levels since late April and through July, and Galilee's share of the market remains strong with over 38 percent of new and total prescriptions within the class. Although new-to-brand trends have been impacted by COVID-19, class growth for total prescriptions was robust in Q2, increasing 64 percent compared to last year and 12 percent versus Q1 2020. Given the importance of primary care physicians in driving growth, with the return of active promotion from multiple competitors, we expect class growth to reaccelerate in the second half of 2020. Also, in migraine or acute therapy, RAVAL was significantly impacted by the lack of patient visits and in-person customer interactions related to COVID-19. While uptake so far has been modest early in the launch, we'll make investments to drive awareness and focus our promotional efforts in the coming quarters to drive uptake. While the field is competitive, we continue to believe our portfolio of both acute and preventative treatments with two mechanisms of action is a differentiator for a migraine franchise.
So as we continue to monitor and email and analyzed the potential impact of unemployment, causing people to lose their commercial insurance and potentially shift in Medicaid. Our modeling suggests this will have a modest impact in 2020 and is contemplated in our financial guidance range.
We expect these trends to have a larger impact in 2021, and the magnitude will be driven by the size and duration of unemployment in the us the quality of commercial or AC a exchange insurance plan displace employees move from.
The majority of our product as newer products have smaller net pricing spread between Medicaid in commercial plans and government stimulus or really lands that may keep patients on commercial insurance.
Although there is uncertainty on how all these factors at play out at this time, we anticipate increased utilization of Medicaid versus commercial insurance.
Moderate headwind to revenue in 2021 of approximately $200 million.
This approximation contemplates pcus unemployment in the low double digits in 2020.
Gradual recovery in 2021 to high single digits percent on employed by year end.
We did not have an estimate on the impact of the executive orders on 2021 at this point, but given the uncertainty around them in our modest exposure to part B, we expect the near term impact to be limited given our view of 2021 pricing negotiations, we still expect mid single digit price impact across the portfolio in 2021.
Josh Smiley: On slide 11, we provide an update on capital allocation. During the first half of 2020, we invested over $4 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 almost $2 billion to shareholders via share repurchase and the sale of certain assets. We remain well capitalized and have the ability to access debt markets at attractive rates. We expect to continue to enhance our long-term growth by acquiring first or best-in-class pipeline assets, and do not anticipate COVID impacts regarding travel or market uncertainty to affect our efforts. Before we provide an update on our 2020 financial guidance, slide 12 provides an overview of the composition of our U.S. business split by payer segment. This is a topic of frequent interest to investors and is pertinent as we monitor the currently high levels of unemployment and the potential for that to negatively impact our business. Based on growth in sales during the first half of 2020 within our existing business. Commercial plans make up the largest portion, at around 40%. Medicare Part D is the second largest part.
So now moving to slide 13, you'll find our updated 2020 financial guidance. This is based on our best estimates at this time and similar to how we approach Q1, we're balancing transparency an insight into the current view of the business with the uncertainty we're all facing surrounding the sand and duration of the impact of the KOVA 19 pandemic.
Key assumptions supporting our updated guidance include healthcare activity returns to normal levels in the second half of 2020 as doctors utilized tele health or in person visits to see patients despite potential additional covert 19 outbreaks.
The recovery and new patient prescriptions improves in the US, reaching and then growing above creek over 19 levels by Q4 for most brands, noting the trends will differ regionally and by brand.
Price headwinds from increased utilization of patient affordability programs and changes in segment mix due to increased U.S. unemployment continue to be modest.
Clinical trial sites remain open an active and enrolling patients and promotional spend in the second half of the year constitutes a mix of in person customer interactions direct to consumer advertising and investments in support in digital promotion.
While uncertainty remains regarding the continued spread of coven 19, and the resulting impact on the pace of economic economic recovery around the world. We believe health care activity will continue to be a priority in the patients and physicians will find ways to access health care.
We believe the stocking and Destocking activity observe in Q1 in Q2 and largely washed out we are encouraged by the demand trends and more normal shipping patterns, we're seeing with our customers.
Josh Smiley: 20%, mainly due to our diabetes portfolio. Government and hospital segments make up roughly 15%. Medicaid is around 10%. Medicare Part B is nearly 5%, and then non-contracted business uninsured in cash makes up the remaining 10%.
As a result, we're maintaining our revenue range recognizing additional closures in the healthcare system could cause us to revisit that range later in the year.
Moving down the income statement, we're lowering our gross margin as a percentage of revenue to be approximately 80% on a non-GAAP basis. This reduction reflects changes in geographic mix and lower realized prices.
Josh Smiley: So as we continue to monitor and analyze the potential impact of unemployment causing people to lose their commercial insurance and potentially shift to Medicaid, our modeling suggests this will have a modest impact in 2020 and is contemplated in our financial guidance range. We expect these trends to have a larger impact in 2021, and the magnitude will be driven by the size and duration of unemployment in the U.S. The Quality of Commercial or ACA Exchange Insurance Plans Displaced Employees Move From. The majority of our products, the newer products, have a smaller net pricing spread between Medicaid and commercial insurance, and government stimulus or relief plans that may keep patients on commercial insurance. While there is uncertainty about how all these factors will play out, at this time, we anticipate increased utilization of Medicaid versus commercial insurance to be a moderate headwind to revenue in 2021 of approximately $200 million.
We expect our GAAP gross margin to be 78%.
We're also lowering our range from marketing selling and administrative expenses by $200 million to reflect savings from reduced travel meetings and in person promotional activities, which are only partially offset by investments in digital capabilities.
Our range for research and development expenses is unchanged, we expect savings associated with temporary pausing, a clinical trial start and enrollment to catch up in the second half of 2020 as we resumed activity in Q2.
Of note if we see positive data in our neutralizing antibody treatments for coven 19 that supports broader development, we plan to fully invested registrational clinical trials and further scaling of manufacturing cascade capacity.
Under this scenario our research and development expenses are likely to be on the high end of our range as Lilly is fun self funding all of these programs.
We believe these investments are important to help combat the impact as the global pandemic.
Our non-GAAP operating income as a percent of revenue goal, 31% remains as a reduction in total operating expenses offset slightly lower gross margin percentage.
Josh Smiley: This approximation contemplates peak U.S. unemployment in the low double digits in 2020 and a gradual recovery in 2021 to a high single-digit percent unemployment rate by year-end. We do not have an estimate on the impact of the executive orders on 2021 at this point, but given the uncertainty around them and our modest exposure to Part B, we expect the near-term impact. Given our view of 2021 pricing negotiations, we still expect mid-single-digit price impacts across the portfolio in 2020. So now moving to slide 13, you'll find our updated 2020 financials. This is based on our best estimates at this time, and similar to how we approached Q1, we're balancing transparency and insight into the current view of the business with the uncertainty we're all facing surrounding the extent and duration of the impact of the COVID-19 pandemic. Key assumptions supporting our
We are updating the range for other income and expense of 350 million to 550 to 500 billion of income reflecting gains in our equity portfolio seen in the second quarter as I mentioned earlier. This number is of course subject to volatility of the capital markets.
Turning to taxes were reducing our GAAP and non-GAAP effective tax rate guidance to approximately 14% driven by the net discrete tax benefits, we booked for the first half of the year.
So earnings per share is now expected to be in the range of $7 in 20 cents per share to $7 in 40 cents per share on a non-GAAP basis. Our GAAP EPS is expected to be in the range of $6.48 per share to $6.60 per share.
In Q on Q2 is certainly an atypical quarter highlighted earlier code that impacted our financial result in a number of ways. However, our confidence in the strength of our underlying business and our demonstrated ability to overcome challenges gives us the conviction to reaffirm our robust outlook for sales growth and productivity.
So now I'll turn the call over to Dan to provide an update on our ongoing efforts to develop treatments for coven 19, a summary of key data disclosures in Q2 and a pipeline update.
Josh Smiley: To conclude, healthcare activity returns to normal levels in the second half of 2020 as doctors utilize telehealth or in-person visits to see patients despite potential additional COVID-19 outbreaks. The recovery in new patient prescriptions improves in the U.S., reaching and then growing above pre-CoVID-19 levels by Q4 for most brands, although the trends will differ regionally and by brand. Price headwinds from increased utilization of patient affordability programs and changes in segment mix due to increased U.S. unemployment continue to be modest. Clinical trial sites remain open and active in enrolling patients, and promotional spend in the second half of the year constitutes a mix of in-person customer interactions, direct-to-consumer advertising, and investments in support for digital promotion. While uncertainty remains regarding the continued spread of COVID-19 and the resulting impact on the pace of economic recovery around the world, we believe health care activity will continue to be a priority and that patients and physicians will find ways to access health care. We believe the stocking and destocking activity observed in Q1 and Q2 has largely washed out, and we are encouraged by the demand trends and more normal shipping patterns we're seeing with our customers.
Thanks, Josh since our last call we've had major lifecycle read outs for three of our most important new medicines for Zinio Trulicity and Jardiance.
All three were positive all represent clinically meaningful advances for patients and all should help drive continued growth for these important brands.
Speak briefly about each there's lots of phase three read out from here is a map promote you'll still under development.
In addition to advancing our existing R&D portfolio, we've devoted significant efforts to creating and testing potential therapies for covered 90 and here too we've made good progress this quarter.
Before I go through the pipeline update I'll provide an update on our cobot.
Therapy.
Moving to slide 14, we provide an overview of the active programs are pursuing to treat or prevent cobot 19. These programs have moved with unprecedented speed in hopes of finding new medicines to help blunt the impact so buyers.
Baricitinib, our JAK inhibitor has two ongoing phase three clinical trials in patients hospitalized cobot 19.
Anti inflammatory activity observed by Baricitinib and other diseases is thought to be potentially beneficial in treating covered 90.
The first trial is investing bears investigating baricitinib in combination with direct desk severe as part of the NIAD adaptive cobot 19 treatment trial, and we expect to have data from this trial within the coming months.
Josh Smiley: As a result, we're maintaining our revenue range, recognizing additional closures in the healthcare system could cause us to revisit that range later in the year. Moving down the income statement, we're lowering our gross margin as a percent of revenue to be approximately 80%. This reduction reflects changes in geographic mix and lower realized prices. We expect our gap growth margin to be 78%. We're also lowering our range for marketing, selling, and administrative expenses by $200 million to reflect savings from reduced travel, meetings, and in-person promotional activities, which are only partially offset by investment in digital capabilities. Our range for research and development expenses is unchanged.
The second trial is really sponsored and is assessing baricitinib as monotherapy. We expect results from this trial later this year.
Second we're pursuing a phase two trial of an antibody that targets Angiopoietin, two which has been observed elevated in patients with acute respiratory distress syndrome or a rds based on trial enrollment. We now expect to have data in house. This fall to inform next steps.
Well these two efforts maidenform treatment of the symptoms with Cobot 19, you approach I'm most excited about inspires neutralizing antibody for the treatment and prevention of Copel 19.
Both single antibody therapy and in combinations.
Josh Smiley: We expect savings associated with the temporary pausing of clinical trial starts and enrollment to catch up in the second half of 2020 as we resume activity in Q2. Of note, if we see positive data in our neutralizing antibody treatments for COVID-19 that supports broader development, we plan to fully invest in registrational clinical trials and further scaling of manufacturing capacity. Under this scenario, our research and development expenses are likely to be on the high end of our range, as Lilly is self-funding all of these programs. We believe these investments are important to help combat the impact of the global pandemic.
We currently have efforts ongoing with lie koby five by five which arose from our collaboration with up Celera and with ally Cobi grew 16, which we license from June see biosensors.
The development status is summarized on slide 15.
Both antibodies have completed dosing in their phase one studies with safety and PK results that support advancing molecules. Neither phase one study was designed to collect efficacy data.
5.5 trial only enrolled six patients per dose.
It was 16 enrolled only healthy volunteers.
Five is further along in development and has progressed to a large dose ranging phase two study in ambulatory patients recently diagnosed with Covance 19.
Josh Smiley: Our non-GAAP operating income as a percent of revenue goal, 31%, remains as a reduction in total operating expenses offsets the slightly lower gross margin percentage. We're updating the range for other income and expense to $350 million to $500 million of revenue, reflecting gains in our equity portfolio seen in the second quarter. As I mentioned earlier, this number is, of course, subject to volatility in the capital market. Turning to taxes, we're reducing our GAAP and non-GAAP-affected tax rate guidance to approximately 14%, driven
Here, we are focused on reducing viral load.
The study is enrolling quickly.
We should that data to report Q4.
This will be our first opportunities share human efficacy data from the neutralizing antibody program.
Based on safety and Tolerability data gathered to state as well as taking into account with the gravity of the unmet medical need here, we plan to initiate Registrational studies in the coming weeks, even in advance of having efficacy data.
Josh Smiley: So earnings per share is now expected to be in the range of $7.20 per share to $7.40 per share on a non-gap basis. Our GAAP EPS is expected to be in the range of $6.48 per share to $6. Q2 was certainly an atypical quarter, and as I highlighted earlier, COVID impacted our financial results in a number of ways. However, our confidence in the strength of our underlying business and our demonstrated ability to overcome challenges gives us the conviction to reaffirm our robust outlook for sales, growth, and productivity. So I'll now turn the call over to Dan to provide an update on our ongoing efforts to develop treatments for COVID-19, a summary of key data disclosures in Q2, and a pipeline update.
We envision studies across several different patient populations, including a phase three study for prevention of Cobot 19 in residence Inn staff at long term care facilities.
As well as additional Registrational studies for potential treatments indication in both the ambulatory and hospitalized settings.
That's underway the timing for data disclosures from these trials will be highly dependent on patient enrollment in any interim efficacy and safety data we may seem.
In addition to the monotherapy trials I described for Fivexfive, we intend to test the combination of a 16 with bite size.
It's such a combination is needed to combat viral resistance.
Dan Skovronsky: Thanks, Josh. Since our last call, we've had major life cycle readouts for three of our most important new medicines. Fresenio, Trulicity, and Jardin. All three were positive, all represent clinically meaningful advances for patients, and all should help drive continued growth for these important brands. I'll speak briefly about each, as well as a phase three readout from Mirakizumab, a molecule still under development. In addition to advancing our existing R&D portfolio, we've devoted significant efforts to creating and testing potential therapies for COVID-19. And here too, we have made good progress this quarter. Before I go through the pipeline update, I'll provide an update on our COVID therapy.
We look forward to producing additional data for both programs and will provide updates as we achieve program milestones for data become available.
We continue to invest in manufacturing for these potential therapies at risk than we're focused on ramping up our manufacturing capacity as quickly as possible.
While developing treatments for cobot 19 is an important priority for Lilly right. Now. We also continue to advance the rest of our pipeline to help people with diabetes immune disorders, new generation in cancer.
One, particularly exciting development. This quarter was the positive interim readout of the monarch trial assessing the use of rosendo to reduce the risk of recurrence in HR positive her to negative high risk early breast cancer.
Dan Skovronsky: Moving to slide 14, we provide an overview of the active programs we're pursuing to treat or prevent COVID-19. These programs have moved with unprecedented speed in hopes of finding new medicines to help blunt the impact of the virus. Ferocitinib, our JAK inhibitor, has two ongoing phase 3 clinical trials in patients hospitalized with COVID-19. The anti-inflammatory activity observed by baricitinib in other diseases is thought to be potentially beneficial in treating COVID-19.
There is any is the only CDK for six inhibitor to show a benefit in this setting where another competing product failed at a futility analysis.
Our conviction in the differentiation of hers Ennio from the competition continues to increase based on important data.
Leading safety and Tolerability data and mechanism of action that have allowed for continuous dosing and therefore continuous target inhibition.
The unique feature over them the cycling.
Dan Skovronsky: The first trial is investigating baricitinib in combination with remdesivir as part of the NIAID-adaptive COVID-19 treatment trial, and we expect to have data from this trial within the coming months. The second trial is Lilly sponsored and is assessing baricitinib as monotherapy. We expect results from this trial later this year. Second, we're pursuing a phase two trial of an antibody that targets angiopoietin 2, which has been observed to be elevated in patients with acute respiratory distress syndrome, or ARDS. Based on trial enrollment, we now expect to have data in-house this fall to inform next steps. Well, these two efforts may inform treatment of the symptoms of COVID-19. The approach I'm most excited about is virus neutralizing antibodies for the treatment and prevention of COVID-19, both as single antibody therapies and in combination. We currently have efforts ongoing with LY-CoV-555, which arose from our collaboration with Abcelera, and with LY-CoV-016, which we licensed from June C Biosafety. The development status is summarized on slide 15.
Clinical efficacy that supports use even as a monotherapy in metastatic breast cancer. Another unique feature from within the cycling.
The demonstrated benefit in overall survival in the metastatic setting in combination with divestment something not all CDK for six inhibitors have been able to show.
And most recently positive results in the adjutant setting another unique feature of event of cyclic.
These data continue to support our conviction that not all CDK for six inhibitors are the same.
The positive results in monarchy could significantly increase the opportunity presented you.
Looking at the monarchy study clinical pathological criteria for enrollment we estimate that approximately 20000 patients in the US would match these criteria.
This represents a roughly 50% increase over the current addressable market in metastatic breast cancer.
Our market projected to reach almost 7 billion in 2020.
In addition, we anticipate duration of therapy in the adjutant setting will be longer.
Dan Skovronsky: Both antibodies have completed dosing in their phase one studies with safety and PK results that support advancing the molecule. However, neither phase one study was designed to collect efficacy data as a five by five trial only enrolled six patients per dose, and O-16 enrolled only healthy volunteers. 555 is further along in development and has progressed to a large dose-ranging phase 2 study in ambulatory patients recently diagnosed with COVID-19. Here, we are focused on reducing viral load. The study is enrolling quickly, and we should have data to report soon. Thank you. This will be our first opportunity to share human efficacy data from the Neutralizing Antibody. Based on safety and tolerability data gathered to date, as well as taking into account the gravity of the unmet medical need here, we plan to initiate registrational studies in the coming weeks, even in advance of having efficacy data.
We plan to submit these data by the end of the year to regulators around the world and to present them at a major medical meeting in 2020.
Moving to slide 17, we also presented important trulicity data, that's a virtual Ada in endo meetings. This summer.
In the on treatment analysis, the three milligram and four and a half milligram doses of Trulicity demonstrated statistically significant improvement in hemoglobin aonec reduction and weight loss versus the currently approved 1.5 milligram dose at 36 weeks.
These doses could allow patients to receive additional clinical benefits and stay on trulicity, plus still experiencing trulicity season views.
We look forward to us and you regulatory action on the additional doses of Trulicity later this year.
At the virtual Heydar, we also shared data, which builds upon the existing body of evidence demonstrating the simplicity of the trulicity patient experience combined with its powerful efficacy in this real world analysis of patients after a minimum six months of follow up in the U.S.
Dan Skovronsky: We envision studies across several different patient populations, including a Phase 3 study for prevention of COVID-19 in residents and staff at long-term care facilities, as well as additional registrational studies for potential treatment indications in both the ambulatory and hospitalized settings. Once underway, the timing for data disclosures from these trials will be highly dependent on patient enrollment and any interim efficacy and safety data we may need. In addition to the monotherapy trials I described for 5-5-5, we intend to test the combination of O16 with 5-5-5 in case such a combination is needed to combat viral resistance. We look forward to producing additional data for both programs and will provide updates as we achieve program milestones or data become available.
Trulicity demonstrated significant Lee higher adherence and persistent compared to two other weekly GLP ones.
In addition, significantly fewer people discontinued treatment on trulicity compared to other agents.
This real world evidence complements to robust clinical data generated for Trulicity and provides further support for wide Trulicity is the market leading GLP one.
Moving to slide 18, you can see our select pipeline opportunities as of July 20, Threerd movement. Since our last earnings call includes the previously mentioned us approvals for loom, Jeff retention, though at Talbot.
Dan Skovronsky: We continue to invest in manufacturing for these potential therapies at risk, and we're focused on ramping up our manufacturing capacity as quickly as possible. While developing treatments for COVID-19 is an important priority for Lilly right now, we also continue to advance the rest of our pipeline to help people with diabetes, immune disorders, neurodegeneration and cancer. One particularly exciting development this quarter was the positive interim readouts of the MONARCH-E trial, assessing the use of Resenio to reduce the risk of recurrence in HR-positive, HER2-negative, high-risk early breast cancer. Resenio is the only CDK4-6 inhibitor to show a benefit in this setting where another competing product failed at a futility enough, Our conviction in the differentiation of Resenio from the competition continues to increase based on important data, including safety and tolerability data and mechanism of action that have allowed for continuous dosing and therefore continuous target inhibition. This is a unique feature of a BAMIS-I, Clinical efficacy that supports use even as a monotherapy in metastatic breast cancer. Another unique feature of a dendrocyte.
The us approval of Taltz for non radiographic xpa since our brands for each CFR mutated non small cell lung cancer.
The initiation of the phase three tiers appetite cardiovascular outcome study surpassed Sidoti.
The initial the advancement of three new phase two programs the initiation of three phase one programs and the attrition of our first generation Trs utility molecule.
While we were excited about our initial KRS program, we observed unexpected toxicity in the clinic that precluded further development, we're working to understand the mechanistic basis for the toxicity and we are exploring the backup programming.
Moving to slide 19.
We provide an update on our 2020 key events that have occurred during the quarter. In addition to the previously mentioned approvals initiation and pipeline progress we submitted a looming in the us for atopic dermatitis.
As Dave mentioned earlier, we also announced positive phase three readouts for Jardiance in heart failure and mere kismayu in psoriasis.
Beginning with Jardiance, we were optimistic about the likelihood of success in heart failure based on compelling CV data seen in diabetic patients in the EMPA Reg outcome trial.
Dan Skovronsky: It demonstrated benefit in overall survival in the metastatic setting in combination with fluvestrin, something not all CDK4-6 inhibitors have been able to show, and most recently, positive results in the adjuvant setting, another unique feature of Abamacite. These data continue to support our convictions that not all CDK4-6 inhibitors are the same. The positive results in Monarchy could significantly increase the opportunity for presentation.
We were pleased to see a positive outcome for the first heart failure trial to readout and per reduced and we will present the data in August at the European Society, Cardiology and submit to regulators later this year.
Dan Skovronsky: Looking at the Monarch e-study clinical pathological criteria for enrollment, we estimate that approximately 20,000 patients in the U.S. would match these criteria. This represents a roughly 50% increase over the current addressable market for metastatic breast cancer, a market projected to reach almost $7 billion in 2020.
We look forward to additional jardiance data read outs, including heart failure with preserved ejection fraction to Emperor preserve trial in 2021, and chronic kidney disease and kidney study in 2022.
We also announced a positive readout from Myrtis AMAP phase three in psoriasis, including success on the primary in all key secondary endpoints, which particularly encouraging to see such robust data from your kids a map in a head to head trial. This trial such as these are the gold standard for comparing agents. Indeed, we've had a number of positive head to head.
Dan Skovronsky: In addition, we anticipate duration of therapy in the adjuvant setting will be longer. We plan to submit these data by the end of the year to regulators around the world and to present them at a major meta-analysis. Moving to slide 17, we also presented important Trulicity data at the virtual ADA and ENDO meetings this summer. In the on-treatment analysis, the 3mg and 4.5mg doses of Trulicity demonstrated statistically significant improvement in hemoglobin A1C reduction and weight loss versus the currently approved 1.5mg dose at 36.5mg. These doses could allow patients to receive additional clinical benefits and stay on Trulicity while still experiencing Trulicity's ease of use. We look forward to U.S. and EU regulatory action on the additional doses of At the virtual ADA, we also shared data that builds upon the existing body of evidence demonstrating the simplicity of the Trulicity patient experience combined with its powerful efficacy. In this real-world analysis of patients after a minimum of six months of follow-up in the U.S., Trulicity demonstrated significantly higher adherence compared to two other weekly GLP ones.
I will Smith Taltz in psoriasis and now we're pleased to see mere kitimat demonstrate superiority versus cosentyx at 52 weeks on both passing 90 and passed the 100.
Despite growing competition in psoriasis Telstra remains in excellent option for patients that delivers clear skin fast.
These new data suggest that mere kissam App also has the potential to be a meaningful treatment for people living in psoriasis.
We look forward to submitting their kids map in this indication.
And importantly, these data further our conviction in IBT, where we see the biggest opportunity given the relative priority of indications we have been staging our investments in psoriasis, we have work on going to prepare for the strides this submission and plan to submit in the second half of 2021.
Dan Skovronsky: In addition, significantly fewer people discontinued treatment on Trulicity compared to other age groups. This real-world evidence complements the robust clinical data generated for Trulicity and provides further support for why Trulicity is the market-leading GLP Moving to slide 18, you can see our select pipeline opportunities as of July 23rd. Movement since our last earnings call includes the previously mentioned U.S. approvals for LUMJEV, RETEVMO, and CALVID; the U.S. approval of TALS for non-radiographic AXPA, and SIRAMSA for EGFR-mutated non-small cell lung cancer. The initiation of the Phase 3 terzepatide cardiovascular outcome study surpassed CVOT. The advancement of three new Phase 2 programs, the initiation of three Phase 1 programs, and the attrition of our first-generation KRES-G12C. While we were excited about our initial KRAS program, we observed unexpected toxicity in the clinic that precluded further development. We're working to understand the mechanistic basis for the toxicity, and we are exploring a backup program. Moving to slide 19.
Accordingly, we've also provided an updated timeline for the phase three data of America's method, ulcerative colitis, and Crohns disease. We now expect the topline results for deduction for ulcerative colitis in the spring of 2021 and for Crohns disease in 2022.
Since we announced the pause of new trial starts and enrollment in many programs back in March.
Please to report that we reopened enrollment in the vast majority clinical trials and we are again initiating new trials.
As we partner with clinical trial sites going forward, we've made a number changes to how we run clinical trials that allow for many tests to be completed virtually.
These new capabilities to come from necessity, but are also improvements on the way clinical research is conducted and something we will continue going forward. These are challenging times and joint development, but really has demonstrated we have the creativity to adapt to the new environment, and we're committed to bringing new medicines to patients.
Dave back to you for some closing remarks.
Thanks, Dan.
While mobilizing our resources to pursue treatments of devastating diseases is a natural part of our history in our company's purpose.
Dan Skovronsky: We provide an update on our 2020 key events that have occurred during the quarter. In addition to the previously mentioned approvals, initiations, and pipeline progress, we submitted Illumiant in the U.S. for atopic dermatitis. As Dave mentioned earlier, we also announced positive phase 3 readouts for Jardians and Heart Failure and Myrkizumab and Psoriasis. Beginning with Jardians, we were optimistic about the likelihood of success in heart failure based on compelling CV data seen in diabetic patients in the M5 Reg outcome trial. We were pleased to see a positive outcome from the first heart failure trial to read out Emperor Reduced, and we will present the data in August at the European Society of Cardiology and submit to regulators later this year. We look forward to additional JARDIANS data readouts, including heart failure with preserved ejection fraction, the EMPA preserve trial in 2021, and chronic kidney disease, the EMPA kidney study in 2022.
Separate note I think all major employers are realizing we have a bigger role to play in the fight against systemic racial and justice.
And as a corporate leader and diversity. The inclusion movie is committed to using our platform to speak up speak out and work towards solutions to eliminate the racism and in equities that African Americans and other minorities have experienced before too long.
We are stepping up to bring people in Oregon organizations together to acknowledge the trauma operational injustice understand its many forms and create lasting change.
To underscore our commitment to positive action.
We also announced a pledge of $25 million and 25000 employee volunteer tier hours over the next five years.
The funding and volunteerism will be directed toward combating racial and justice and any quality, primarily here in Indiana, and we plan to partner with other businesses and community groups to achieve our goals.
Theres nothing easy about the road ahead, we can no longer except systemic bias in any of its forms and the time for platitudes is now behind us the time for meaningful action, specifically by the corporate community.
To drive lasting change is in fact now.
So a busy quarter, let me conclude with some closing comments on our progress in the first half of the year as expected our business experienced headwinds this quarter based on reduced new patient starts and changes in inventory we highlighted earlier this year.
Dan Skovronsky: We also announced a positive readout for mirtizumab phase three in psoriasis, including success on the primary and all key secondary ends. It's particularly encouraging to see such robust data from Merikizumab in a head-to-head trial since trials such as these are the gold standard for comparing. Indeed, we've had a number of positive head-to-head trials with TELTS in psoriasis, and now we're pleased to see mirtizumab demonstrate superiority versus costentix at 52 weeks on both PASI-90 Despite growing competition in psoriasis, TELTS remains an excellent option for patients that delivers clear skin fast.
Within a mine we are pleased that in the first half to 2020, we delivered strong volume driven revenue growth of 7% worldwide in constant currency.
We are cautiously optimistic about the recovery about health care activity and prescription trends and expect both to accelerate during the second half of this year.
We continue to find innovative ways to ensure our patients have access to the medicines.
To their medicines and then we can support physicians and hospital systems as they provide care.
Dan Skovronsky: These new data suggest that Mirakizumab also has the potential to be a meaningful treatment for people living with psoriasis. We look forward to submitting Merikizumab for this indication. And importantly, these data further our conviction in IBD, where we see the biggest opportunity. Given the relative priority of indications, we've been focusing our investments in psoriasis. We have work ongoing to prepare for the psoriasis submission and plan to submit in the second half. Accordingly, we've also provided an updated timeline for the phase three data for marikizumab and ulcerative colitis and Crohn's. We now expect the top-line results for induction for ulcerative colitis in the spring of 2021 and for Crohn's disease in 2022. Since we announced the pause in new trial starts and enrollment in many programs back in March, I'm pleased to report that we've reopened enrollment in the vast majority of clinical trials, and we are again initiating new trials.
Our operating margin improved 200 basis points over the first half of 2019, and we made exciting progress on our pipeline. This quarter. We saw three top topline phase three data readouts from important clinical programs, we had five us approvals for enemies and line extensions and achieved another a number of other clinical milestones.
Dan just highlighted.
The covenant team global pandemic continues to be a disruptive force and the way, we all work and live.
Lilly and and the broader pharmaceutical industry are working hard.
To develop new medicines to treat and to prevent the spread of Kobin 19.
We anticipate this disruption will continue till vaccines and new medicines can be used to manage the spread of the infection.
While near term challenges do exist, we remain confident in the long term outlook for our company and the strength of our fundamentals.
Lilly in Lilly people will continue to rise to the challenge and I'm incredibly proud of our efforts to combat the global health crisis, social and economic crises, we currently face.
This concludes our prepared remarks, now I'll turn the call over to Kevin who will moderate the Q and any session.
Thanks, Dave.
Dan Skovronsky: As we partner with clinical trial sites going forward, we've made a number of changes to how we run clinical trials that allow for many tasks to be completed virtually. These new capabilities have come from necessity, but they are also improvements on the way clinical research is conducted, and that will continue going forward. These are challenging times in drug development, but Lilly has demonstrated we have the creativity to adapt to the new environment, and we're committed to bringing new medicines to patients. Dave, back to you for some closing remarks.
We'd like to take questions from as many colors as possible. So we ask that you limit your questions to two per caller.
Kevin If you can please provide the instructions for the Q and a session and then we're ready for the first caller. Thank.
Thank you, ladies and gentlemen, if you wish to ask a question. Please press one zero if you've already press one than zero your offset.
These press one than zero again to remove yourself from the Q.
We will now go to the first question and that will be from Seamus Fernandez Guggenheim.
One moment please sir.
And Sir your line is open.
Yes can you hear me.
Yes, yes, yes, okay great.
Thanks.
A couple of quick question.
Dave Ricks: Thanks. Mobilizing our resources to pursue treatments of devastating diseases is a natural part of our history and our company's purpose. On a separate note, I think all major employers are realizing we have a bigger role to play in the fight against systemic racial injustice. And as a corporate leader in diversity and inclusion, Lilly is committed to using our platform to speak up, speak out, and work toward solutions to eliminate the racism and inequities that African Americans and other minorities have experienced for far too long. To underscore our commitment to positive action, we also announced a pledge of $25 million and 25,000 employee volunteer hours over the next five years. The funding and volunteerism will be directed toward combating racial injustice and inequality, primarily here in Indiana, and we plan to partner with other businesses and community groups to achieve our goals. While there's nothing easy about the road ahead, we can no longer accept systemic bias in any of its forms.
First for Dan Dan can you help us understand a little bit more about the timing of your your koby two antibody.
Data.
And also just wanted to get a little bit of scientific.
Discussion around your choice of pursuing a single.
Single antibody I know that hit Celera.
Technology is unique.
But just wanted to have a little bit more of a discussion.
Around that I.
I think that would be helpful. For investors is we think about the choice of the single antibody.
I know you've talked about manufacturing.
As a as it driving choice there, but obviously the efficacy.
Paramount's, we just wanted to get to a full understanding of that have that dynamic in that choice and how you hope that the studies going to read out and then.
Secondly, just as we think about the.
Margin dynamics in the second half of the year Gosh I was just hoping that you could help us better understand.
The directional trajectory.
How you're expecting the margins to shape up in the second half how much of that is driven by.
Meaningful revenue acceleration versus.
Dave Ricks: And the time for platitudes is now behind us. The time for meaningful action, specifically by the corporate community, to drive lasting change is, in fact, now. So, a busy quarter. Let me conclude with some closing comments on our progress in the first half of the year. As expected, our business experienced headwinds this quarter based on reduced new patient starts and changes in inventory we highlighted earlier this year. With that in mind, we are pleased that in the first half of 2020, we delivered strong volume-driven revenue growth of 7% worldwide in constant currency. We are cautiously optimistic about the recovery of both health care activity and prescription trends and expect both to accelerate during the second half of this year.
Just.
Relative to kind of manage the men's the expense line. Thanks.
Thanks, Seamus, Dan and then Josh.
Great. Thanks, Seamus sort of those questions about the coven 19 antibodies.
Maybe just starting with timing who of course, the timing of data disclosures depends on on how fast the trials enrolling and what the data show.
We are committed to getting important information out to the public.
Scientific community as.
Quickly as it's available.
With respect to the phase two trial. This is focused on viral load.
This is going to be the first and probably a key indicator of potential efficacy.
Dave Ricks: We continue to find innovative ways to ensure our patients have access to their medicines and that we can support physicians and hospital systems as they provide care. Our operating margin improved 200 basis points over the first half of 2019, and we made exciting progress on our pipeline this quarter. We saw three top top line phase three data readouts from important clinical programs. We had five U.S. approvals for NMEs and line extensions and achieved a number of other clinical milestones that Dan just highlighted. The COVID-19 global pandemic continues to be a disruptive force in the way we all work and live. Lilly and the broader pharmaceutical industry are working hard to develop new medicines to treat and prevent the spread of COVID-19.
For this approach and I commented that we expect to have that data to disclose from this 400 patient phase two trial in in Q4, but again that it just depends on how best we can enroll these patients.
Your second question there was around the rationale for single antibody versus two or three year cocktails of even more antibodies that have been proposed.
Specifically you asked to around.
Efficacy.
So I think we and others have looked at monotherapy versus combination therapy in a variety of preclinical models with the season and looking at.
Neutralization of the virus infection infection of human cells for example, and what you find is that combinations don't offer.
Dave Ricks: We anticipate this disruption will continue until vaccines and new medicines can be used to manage the spread of the infection. While near-term challenges do exist, we remain confident in the long-term outlook for our company and the strength of our fundamentals. Lilly and Lilly people will continue to rise to the challenge, and I'm incredibly proud of our efforts to combat the global health crisis, social, and economic crises we currently face. This concludes our prepared remarks. Now I'll turn the call over to Kevin, who will moderate the Q&A session. Thank you, Dave.
Because seat boost a single antibody.
Generally neutralize the buyers just as well as combinations of antibody. The reason that people, sometimes tried combinations of antibodies.
Because they're worried that overtime resistance could emerge so I don't expect to see any efficacy booster efficacy to the duration from having a combo or monotherapy in clinical trials.
We'll be looking for instead is whether or not there is an emergence of resistance.
Operator: We'd like to take questions from as many callers as possible, so we ask that you limit your
There are some factors that make that somewhat less likely here I think the extremely high potency of of Cy five and its ability to effectively utilize fires very very quickly.
Operator: limit your questions to two per caller. Kevin, if you can please provide the instructions for the Q&A session, and then we're ready for the first caller. Thank you.
May decrease the risk of resistance, we've done some primate studies and we've not seen resistance emerging dose studies at all.
Operator: Ladies and gentlemen, if you wish to ask a question, please press 1 then 0. If you've already pressed 1 then 0, you're all set. Please press 1 and 0 again to remove yourself from the queue. We will now go to the first question, and that will be from Seamus Fernandez, Guggenheim. One moment, please, sir. And sir, now your line is open.
But we'll be watching patients carefully and we have.
The combination therapy that will move forward as as a backup.
Resistance.
Is Steve the advantages of monotherapy are obvious and you commented on them. It's simply that if you have one antibody.
Seamus Fernandez: Yeah, can you hear me?
You can manufacture twice as much as a combo to antibodies three times as much as three antibodies.
Operator: Okay, great. Thanks.
Seamus Fernandez: So just a couple of quick questions. First, Dan, can you help us understand a little bit more about the timing of your CoV-2 antibody data, and also just wanted to get a little bit of the scientific discussion around your choice of pursuing a single antibody. I know that the Accelera technology is unique, but I just wanted to have a little bit more of a discussion around that. I think that would be helpful for investors as we think about the choice of a single antibody. I know you've talked about manufacturing as a driving choice there, but obviously, efficacy is paramount. So we just wanted to get a full understanding of that dynamic and that choice and how you hope the study is going to react.
The situation like this I think theres, just idle tradeoffs that might indicate.
Maximizing manufacturing capacity.
Key objectives.
So that's that's for room here.
[music].
Thanks, Dan Josh.
Thanks, Seamus, yes, so if we look at our guidance for the year and think about that margin progression in the second half of the year. Just a reminder, sales on it on an.
Constant currency basis grew 7% in the first half in our operating income percentage was a little bit over 29% so to get to the 31% target. We have for 2020, obviously, we've got to see margin expansion in the second half year, but if it I think it's pretty straightforward on when we look at the sales range that we have.
Picking midpoints or wherever you want to pick we're looking really at something close to seven or 8% growth in the second half of the year. So while we expect an acceleration in sort of absolute sales on a on half to half basis, it's not that that much of a stretch from where we are we expect a little bit of.
Dan Skovronsky: are going to read out. And then, you know, secondly,
Seamus Fernandez: Just as we think about the margin dynamics in the second half of the year, Josh, I was just hoping that you could help us better understand the directional trajectory of how you're expecting the margins to shape up in the second half, and how much of that is driven by, you know, meaningful revenue acceleration versus, you know, just an ability to kind of manage the expense lines. Thanks. Thanks to Seamus, Dan, and then Josh.
Pick up probably in gross margin in basis points, and that's just a function of.
More normalized geographic.
Taxes as you know, we we saw more of an impact in the us in the first half of the year than than outside the U.S., we expect those things normalize a little bit and the second half of the year and we're not anticipating any onetime pricing.
Impact either up or down so, we'll see a little bit of benefit there.
Dan Skovronsky: Great. Thanks, Seamus, for those questions about the COVID-19 antibodies. Maybe just starting with timing, you know, of course, the timing of data disclosures depends on how fast the trials enroll and what the data show. We're committed to getting important information out to the public and the scientific community as quickly as it's available. With respect to the phase two trial that is focused on viral load, I think this is going to be the first and probably a key indicator of potential efficacy for this approach, and I commented that we expect to have data to disclose from this 400 patient phase two trial in Q4. But again, that just depends on how fast we can enroll these patients.
But the big piece will come on the Opex site is not from additional sort of cost savings moves.
Our guidance range, we provide for.
Yes, again picking where wherever you want to pick in the range a couple of hundred billion dollars or so of increased investment in absolute dollars in a in a combination of SDMA in R&D in the second half of the year.
So it's really just absolute sales benefit that we'll see.
In the second half against a lower absolute increase but still an increase in in opex that gets us to something over 31% in the second half of the year, what that together that puts us at 31, we feel like most of these things are certainly in our control as I mentioned.
Earlier.
Dan Skovronsky: The second question there was around the rationale for single antibody versus
And as Dan Dan talked about on co that we're going to invest fully.
And those opportunities that is contemplated in our guidance range in to the extent were higher on Opex. The higher end of the range, it's going to BB, primarily because of.
Dan Skovronsky: have been proposed, and specifically you asked about efficacy. So I think we and others have looked at monotherapy versus combination therapy in a variety of preclinical models.
Good data and continue to move fast there but were.
Dan Skovronsky: looking at neutralization of the virus infection of human cells, for example. And what you find is that combinations don't offer an efficacy boost. A single antibody can generally neutralize the virus just as well as combinations of antibodies. The reason that people sometimes try combinations of antibodies is that they're worried that, over time, resistance could emerge. So I don't expect to see any efficacy boost or efficacy diminution from having a combo or monotherapy in clinical trials. What we'll be looking for instead is whether or not there's an emergence of resistance. There are some factors that make that somewhat less likely here. I think the extremely high potency of 5-5-5 and its ability to effectively neutralize the virus very, very quickly may decrease the risk of resistance.
We're confident in the the margin expansion opportunity into the second half of the year for the reasons I just mentioned.
Thanks, Josh Seamus Thanks for your questions. Kevin next caller, please and then from the line of Jeff.
Of America.
Please go ahead.
Question just had a few.
On Brizendine I know, we have yet to see data details, but can you speak to the real world duration of therapy today in metastatic and then what you would expect.
From the monarch you setting.
And then a quick drug pricing question for Dave I know, obviously, you spent a lot of timing these issues, but what are the hurdles to getting ipi implemented and when you look across the Lilly portfolio.
Can you speak the categories that maybe more impacted.
From an executive order other ipi rebates et cetera. Thank you.
Thanks, Jeff will go to and for the question on presenting and then Dave on Ipi.
Dan Skovronsky: We've done some primate studies, and we haven't seen resistance emerge in those studies at all. But we'll be watching patients carefully, and we have the combination therapy that will move forward as a backup. The advantages of monotherapy are obvious, and you commented on them. It's simply that if you have one antibody, you can manufacture twice as much as a combo of two antibodies, three times as much as three antibodies. In a situation like this, I think there are societal tradeoffs that might indicate that maximizing manufacturing capacity is a key objective. And so that's where we're at.
Well, Jeff Thanks to my question on hers Anyhow and the duration question is an important one and something that we're really excited about as part of the additional opportunity in EBC and so we do expect the duration of treatment to be longer than the metastatic setting into your question. What we've seen an R.W. in the metastatic setting it's about eight months now we'll need to see what that actually is once patients.
Our being treated upon approval in the adamant setting, but obviously we're encouraged the fact is the treatment duration in the study itself was 24 months. So we do expect it to me much longer than the eight months that we see in the metastatic setting.
Thanks, and Dave Yes. Thanks.
Dan Skovronsky: Thanks, Dan.
Well I mean, we all observed last friday's announcements I think mostly these are not particularly new ideas. So my statements repeat from prior calls, but on Ipi specifically this is being proposed under the.
Josh Smiley: Thanks, Seamus. Yeah, so if we look at our guidance for the year and think about the margin progression in the second half of the year, just a reminder, you know, sales on a constant currency basis grew 7% in the first half, and our operating income percentage was a little bit over 29%. So to get to the 31% target we have for 2020, obviously, we've got to see margin expansion in the second half of the year, but I think it's pretty straightforward. When we look at the sales range that we have, you know, picking midpoints or wherever you want to pick, we're looking really at something close to, you know, seven or 8% growth in the second half of the year.
Some of my model Affordable Care Act. So that by itself is probably a problem to seek to regulate the entirety of the U.S. physician infused market.
With that mechanism and you expect the industry to.
Vigorously challenge that authority.
It was don't create new authority.
But if implemented.
We have yet to see the tax by the way.
I'm not sure right has just put that out yet, but let's assume it's something like the 2018 blueprint proposal.
Josh Smiley: So while we expect an acceleration in sort of absolute sales on a, you know, half to half basis, it's not that much of a stretch from where we are. We expect a little bit of a pickup, probably in gross margin, in basis points. And that's just a function of more normalized geographic impacts. As you know, we saw more of an impact in the U.S. in the first half of the year than outside the U.S. We expect those things to normalize a little bit in the second half of the year, and we're not anticipating any one-time pricing impacts, you know, impacts either up or down. So we'll see a little bit of a benefit But the big piece will come on the selling side, and it's not from additional cost savings moves.
We are relatively under exposed to.
To this.
To this idea because.
It effects.
The physician infused drugs today them to material medicines fit that in our portfolio Olympia.
And Saran is of course Olympic.
We expect to patent expiry in spring of 22. So you have a time when new impact is quite quite short.
And ceramics.
Which is obviously longer but but in a meaningful products, but.
Part of our growth story, but not a cornerstone of it.
Going forward of course, if we looked at future medicines in the pipeline there are infuse medicines in immunology and notably in Alzheimer's should those exceed that would you be concerned about.
Josh Smiley: In our guidance range, we provide for, again, picking wherever you want to pick in the range, a couple hundred million dollars or so of increased investment in absolute dollars in combination of SG&A and R&D in the second half of the year. So it's really just the absolute sales benefit that we'll see in the second half against a lower absolute increase, but still an increase in OffX. That gets us to something over, you know, 31% for the second half of the year. Put that together, and that puts us at 31.
But I.
I think drug companies have more ability to navigate on future products and then do on past products launched in the past because you can.
Affect.
Youre, primarily European pricing outlook, perhaps with constrain demand in Europe, but.
Focused on a common floor price for the use for the U.S. So.
We can navigated that said is horrible policy and I think we'll since a wrong message at a time when.
This industry is working literally day and night.
So help us all escape from Kobin 19, do we really want to be talking about this disruptive force and the most.
Josh Smiley: We feel like most of these things are certainly in our control, as I mentioned earlier, and as Dan, you know, Dan's talked about on COVID, we're going to invest fully behind those opportunities that are contemplated in our guidance range. And to the extent we're higher on OffX, you know, the higher end of the range, it's going to be primarily because of, you know, seeing good data and continuing to move fast there. But we're confident in the margin expansion opportunity for the second half of the year for the reasons I just mentioned. Thanks.
Well capitalized companies of at least effective biotech, which we're now part of a small company group, but they will be severely affected and investor interest in many of their companies could drop.
Precipitously I think that would be a real loss for what is an industry. That's basically use.
Based so we will find it hard and hopefully we'll come to be on rebate.
Again. This is an idea we pursued and been for for some time as well as frankly, we're not.
Disappointed by the 340 be pass through idea that was presented as well, we think that the patients who drive the volume that plans negotiate discounts on should benefit from those discounts.
Josh Smiley: Thanks, Josh. Seamus, thanks for your questions. Kevin, next caller, please, and that would be from the line of Jeff at Bank of America. Please go ahead. Questions: On Brasenio, I know we have yet to see dated details, but can you speak to the real-world duration of therapy today in metastatic and then what you would expect from the monarchy setting, and then a quick drug price.
Frankly as they do in every other part of the healthcare system itself, except medicines.
So that we think cost sharing and co pay should be based on net price not list and these ideas for that again lots of barriers to implementation.
Those as well and I'm sure other groups will oppose them.
Geoffrey Meacham: for Dave. I know, obviously, you spend a lot of time on these issues, but...
But we'll continue to to support that concept of sharing the savings.
Thanks, Dave Jeff Thanks for your questions on next caller. Please.
Geoffrey Meacham: You know, what are the hurdles to getting IPI implemented? And when you look across the Lilly portfolio?
Tim Anderson Wolfe Research. Please go ahead.
Geoffrey Meacham: portfolio. Can you speak to categories that may be more impacted?
I have a commercial question on CDK for six class.
Pfizer's Ibrance food market leader.
Geoffrey Meacham: from the executive order, other IPI rebates, et cetera. Thank you.
It is the only CDK for.
The show survival benefit and formal phase three trials in metastatic.
Anne E. White: Thanks Geoff. We'll go to Anne for the question on Bresenio and then Dave on IPI.
Of course of fill the imagine the really think that the metastatic share grants has materially at risk competitors. Like present, you were rover realistically be sticky moves to this segment either so that it's real World Studies show and less benefit will protect that we're wondering.
Anne E. White: Well, Geoff, thanks for the question on Verzenio. And the duration question is an important one and something that we're really excited about as part of the additional opportunity in EBC. And so we do expect the duration of treatment to be longer than in the metastatic setting. And to your question, what we've seen in RWE in the metastatic setting is about eight months. Now, we'll need to see what that actually is once patients are being treated upon approval in the adjuvant setting, but obviously, we're encouraged. The fact is, the treatment duration in the study itself was 24 months, so we do expect it to be much longer than the eight months that we see in the metastatic setting.
And what your view so it's really a question on the metastatic segment has been on terms that peptide how would you characterize your level of confidence that the first.
Upcoming phase three results, we're going to be data that really while as investors like the phase two trial results. It's notable that analysts already carried about a 5 million dollar estimate for two years appetite.
In the consensus model.
Thanks, Tim will go to and for the question on the CDK for six class and then Mike Mason for the question on terms appetite.
Dave Ricks: Thanks, Anne. Dave?
Dave Ricks: Yeah, thanks, Geoff. Well, I mean, you know, we all observed last Friday's announcements. I think most of these are not particularly new ideas. So my statements may be a repeat from prior calls.
Well thanks for the question Tim members Anyhow, and we believe we've seen really positive trends were presenting in the metastatic setting and I think Josh mentioned those in some of the intro and we've really capitalized on the positive overall survival data from monarch, two and the combination will best Trent and so have you seen versus Q2 2019 its worldwide growth of 50.
Dave Ricks: But on IPI specifically, you know, this is being proposed under the CMMI model Affordable Care Act. So that by itself is probably a problem to seek to regulate the entirety of the U.S. physician-infused market via that mechanism. And, you know, I think you should expect the industry to vigorously challenge that authority. EOs don't create new authority.
6% in revenue and us growth at 35% and then if we look globally. We've now had at 49 approvals worldwide and and I think probably an important metric as in Japan and be Rx share of market now at 58%. So we've seen a very strong launch in Japan, and so we believe obviously, that's how with stuff.
Dave Ricks: But if implemented, and we have yet to see the text, by the way, I'm not sure the White House has put that out yet. But let's assume it's something like the 2018 Blueprint proposal. We are relatively underexposed to this idea because it affects... Part B, physician-infused drugs. Today, you know, the two material medicines fit that in our portfolio, Olympta and Seramza. Of course, Olympta, we expect a patent expiry in the spring of 22. So you have a time window for impact that's quite short. And Seramza, which is obviously longer, but also a meaningful product, a part of our growth story but not a cornerstone of it.
Typically significant survival data, that's really the gold standard in this class and so we believe that more and more physicians.
We'll be trying present and that we've seen that in continued increase in the and be Rx and so we'll continue to to share that message. We believe that this is the best in class agent and I think it just goes to that whole picture.
The differentiation that we see with resentful overtime and I, just think that that will shift physicians mines.
Dave Ricks: Going forward, of course, if we looked at future medicines in the pipeline, there are infused medicines in immunology and notably in Alzheimer's, should those succeed, that would, you know, you'd be concerned about. But I think drug companies have more ability to navigate on future products than they do on past products launched in the past because you can affect your primarily European pricing outlook. Perhaps with constrained demand in Europe but focused on a common floor price for the U.S. So, you know, we can deal with that. That said, it's a horrible policy, and I think we'll send the wrong message at a time when this industry is working literally day and night to help us all escape COVID-19. Do we really want to be talking about this disruptive force? And the most well-capitalized companies are the least affected; biotech, which, you know, we're not part of the small company group, but they will be severely affected, and investor interest in many of their companies could drop. I think that would be a real loss for what is basically an U.S.-based industry.
Not positive results from monarchy as Dan mentioned really do differentiated from both CDK for Sixs and then we've got this to simply significant results not just in the overall population, but then in the hard to treat populations those with visceral disease and primary ended endocrine resistance and again, you didnt see that with some of the other CDK for six.
So I think we were starting to feel pretty strongly and I think physicians are starting to agree with us that we have a differentiated agent here and so you'll continue to see us press in the metastatic setting because we have that survival data and now we get to make the move into the regiments setting.
Thanks, Dan Mike.
Okay for drug appetite.
Glad to see that you are wild by our type our phase two data.
And.
For patients living with type two diabetes.
I think the best thing really do as we go back and take a look at the phase two clinical studies I mean, we saw at the 15 milligram dose up to 2.4% a when she reduction and weight loss up to 12.7% versus placebo and just six months of studies. So we're excited.
Dave Ricks: So we'll fight it hard, and hopefully it won't come to be on rebate. Again, this is an idea we've pursued and been for for some time, as well as, frankly, we're not disappointed by the 340B pass-through idea that was presented as well. We think that the patients who drive the volume that plans negotiate discounts on should benefit from those discounts, Frankly, as they do in every other part of the health care system except for medicines, so we think cost sharing and copay should be based on net price, not list price. And these ideas forward that again, lots of barriers to implementation on those as well. And I'm sure other groups will oppose them, but we'll continue to support that concept of sharing the savings.
See how others appetite Ken can perform anticipate patient population and longer studies in phase three there's nothing that tell us that we won't see exciting data coming out of the phase three we don't have been in new information suggests otherwise. So we're incredibly confident about present appetite not only and type two diabetes.
But also we're excited to see its potential and Nash and obesity. So our enthusiasm remains very very high. Thank you for the question.
Thanks, Mike Tim Thanks for your questions next caller please.
That's fine.
Evercore.
Go ahead.
Thanks, so much for taking my questions.
Dave Ricks: Thanks Dave. Geoff, thanks for your questions. Next caller, please. Tim Anderson, Wolf Research. Please go ahead.
Dan I'm, just trying to reconcile the positive commentary around.
Your coal that map heading to Registrational trials versus.
Tim Anderson: I have a commercial question on CDK46. So Pfizer's Ibran, who's the market leader? But it is the only CDK-A46 that failed to show a survival benefit in formal phase 2 trials in metastatic, and it failed in adjuvant. Does Lilly think that the metastatic share iBrands has is materially at risk to competitors like Versenio? Or will there realistically be stickiness to the segment? Pfizer says that its real-world studies that show an OS benefit will protect
Perhaps lack of any data efficacy data visibility from phase, one and if you could possibly speak to any trends you've seen already.
That will be really helpful and then on congrats.
If you could I might've missed it but if you could just add some more color on.
Whether you ran into a therapeutic index challenge before efficacy kicked in.
Tim Anderson: So, it's really a question about the metastatic segment. And then on terzapatide, how did you characterize your level of confidence that the first upcoming Phase 3 results are going to be data that really wows investors?
I could speak to whats the highest dose you actually dose patients with on your Karasch because it seems like other care estimators, who didn't really have any efficacy until a very high dose and all that kicked in and out of certain dose. So we really helpful. Thank you.
Tim Anderson: like the phase 2 trial results.
Anne E. White: It's notable that analysts already carry about a $5 billion estimate for a true Zepetai. Thanks, Tim. We'll go to Anne for the question on the CDK4-6 class and then Mike Mason for the question on terzapotide.
Thanks tumor Dan I think both you'll think both of those.
Yes sure humor. Thanks, Thanks for both discussion so on the coated Matt you sort of asking about the rationale going to Registrational studies without.
Anne E. White: Well, thanks for the question, Tim, on Versenio. And I believe we've seen really positive trends with Versenio in the metastatic setting, and I think Josh mentioned those in some of the intro.
Have you seen efficacy data, that's it's not something we usually do.
You're right of course here, it's as I said, the gravity the situation and that liquidity with which we desire to test. These therapies that have driven us to that decision.
Anne E. White: And we've really capitalized on the positive overall survival data from Monarch 2 in the combinational investment. And so what we've seen versus Q2 2019 is worldwide growth of 56% in revenue and U.S. growth of 35%. And then if we look globally, we've now had 49 approvals worldwide, and I think a couple of the, probably an important metric is that Japan's NBRX share of the market now is 58%. So we've seen a very strong launch in Japan.
You asked about sort of trends that that might have encouraged us from the phase one study and unfortunately answers. This week, we don't have anything to talk about we had one phase one study that was in healthy volunteers.
It didn't pass code 19, nothing to see there. The other was so small and hospitalized patients six patients per dose group and.
Anne E. White: And so we believe, obviously, that with statistically significant survival data, that's really the gold standard in this class. And so we believe that more and more physicians will be trying Versenio. And we've seen that in the continued increase in NBRX. And so we'll continue to share that message. We believe that this is the best agent in its class.
I think.
We will be saw there's this basically where you would expect across doses and placebo all of the patients actually to did really well and got better unless the hospital.
Anne E. White: And I think it just goes to that whole picture of the differentiation that we see with Versenio over time. And I just think that that will shift physicians' minds. The positive results from Monarch E, as Dan mentioned, really do differentiate it from both CDK4-6s. And then we've got statistically significant results, not just in the overall population but then in the hard-to-treat populations, those with visceral disease and primary endocrine resistance. And again, you didn't see that with some of the other CDK4-6s. So I think we're starting to feel pretty strongly, and I think physicians are starting to agree with us, that we have a differentiated agent here. And so you'll continue to see us press in the metastatic setting because we have that survival data, and now we get to make the move into the adjuvant setting.
That's not atypical for phase one study here that the population thats additions typically a pull into those studies or are some of the better patients who might be at the end their disease course, I wouldn't expect.
Antibodies in any case to tap much effect.
People, whose viral load is already low in their immune system is already clearing the disease. So that's where we are I think the phase two study on the other hand. These patients who are early in the disease course, there just within a few days of getting diagnosed.
Expectations, they'll have high and in many cases to increasing viral loads.
In the absence of therapy and the goal here is to show that the therapy decreases of Ireland. So that's the important readout.
But as I said, we'll have started the phase threes by then on KRS. This is the issue of off target toxicity. So it's not to.
Michael B. Mason: Thanks, Anne. Mike?
Michael B. Mason: Okay, for trizepatide, I'm glad to see that you were wowed by our type, our phase two data. And for patients living with type two diabetes, you know, I think the best thing really to do is to go back and take a look at the phase two clinical studies. I mean, we saw up to 2.4% A1C reduction and weight loss of up to 12.7% versus placebo in just six months of studies. So we're excited to see how trizepatide performs in this patient population and longer studies in phase three. There's nothing to tell us that we won't see exciting data coming out of phase three; we don't have any new information that suggests otherwise. So we are incredibly confident about trizepatide, not only in type two diabetes, but also excited to see its potential in NASH and obesity. So our enthusiasm remains very, very high. Thank you for the question.
Related to the clearest target itself is our view.
That does therefore.
Killed the therapeutic index and.
Not not possible to proceed with that.
Drug.
I don't think we at this moment give details on on the exact nature of the prices Dior or is the highest dose that we tested.
But we Didnt feel we could proceed based on the doses, which we saw that talks and we're trying to resolve that the back of program. We have some preclinical models for the talks we'll see if they bear out or not.
Thanks, Dan and where thanks for your questions next caller. Please Andrew Baum of Citi. Please go ahead.
Mr Bomb your line is open now.
And then can you hear me.
Yes, Yep Yep Okay.
Question on Us drug price reform.
Michael B. Mason: Thanks, Mike. Tim, thanks for your questions. Next caller, please, and that's Umar Rafat of Evercore. Please go ahead. Thanks so much for taking my questions.
A number of life propositions, obviously, the effective awards.
Referencing eight reform.
Which obviously liddy has supported that it requires a positive CPM school.
Umer Raffat: Dan, I'm just trying to reconcile the positive commentary around your COVID MABs heading to registrational trials versus perhaps the lack of any efficacy data visibility from phase one. And if you could possibly speak to any trends you've seen already, that would be really helpful. And then on KRAS, I might have missed it, but if you could just add some more color on whether you ran into a therapeutic index challenge before efficacy kicked in, and if you could speak to what's the highest dose you actually...
In order to move forward first question is do you think this any possibility that could be achieved given the history of the CB eight school and the police required to have an overall reduction and pricing through market based competition is to get there in the CBS reflect that so thats number one.
But to animal tenant proposition has got bipartisan support incentives that is stopping from reaching the Senate fueled by Mitch Mcconnell.
Umer Raffat: I'm going to give you a quick rundown of what you can actually dose patients with on your KRAS because it seems like other KRAS inhibitors didn't really have any.
No you have some concerns over that build that as a potential wasteful, which mitigates a more to that serious solution.
Umer Raffat: have any efficacy until a very high dose, and all have kicked in at a certain dose.
Hi, the offset potential options going forward.
Dan Skovronsky: Thanks, Umer. Dan, we'll take both...
Can you see this progressing many thanks.
Dan Skovronsky: Yeah, sure. Umar, thanks.
Thanks, Andrew we're going to Dave for both of those yes. Thanks Hunter.
Dan Skovronsky: Thanks for both of those questions. So on the COVID map, you're sort of asking about the rationale for going to registrational studies without having seen efficacy data. It's not something we usually do.
On the iOS, you're talking about rebate reform and the idea pass through in the history. Here is as you pointed out the Cvs score was extremely negative.
Dan Skovronsky: You're right. Of course, here, it's, as I said, the gravity of the situation and the rapidity with which we desire to test these therapies that have driven us to that decision. You asked about any sort of trends that might have encouraged us from the phase one study, and unfortunately, the answer is, we don't have anything to talk about.
In our mass largely driven by the one assumption you noted which is that.
Rebate value with essentially crew back to manufacturers.
And thus raise premiums.
Deeply flawed assumption of course will compete.
But the whole idea would be to move the basis competition from.
Sort of discriminated prices that are private too.
Dan Skovronsky: We had one phase one study that was in healthy volunteers, so they didn't have COVID-19, so there was nothing to see there. The other was so small in the hospitalized patients, six patients per dose group. And I think what we saw there is basically what you would expect across doses and placebo. All of the patients actually did really well and got better and left the hospital.
List price.
Or other means to deliver pricing directly to consumers.
Discounts that pass through for instance, so.
That of course requires industry actors to change their practices and that's not something that can be coordinated or messaged very well due to antitrust laws. So we're sort of in this catch 22 on committing to deliver on sharing the savings, but not being.
Able to do that publicly I think thats a problem and this particular problem for legislation.
Dan Skovronsky: That's not atypical for a phase one study here. The population that physicians typically pull into those studies are some of the better patients who might be at the end of their disease course. I wouldn't expect antibodies, in any case, to have much effect in people whose viral load is already low and whose immune system is already clearing the disease. So that's where we are.
Of course, the executive order method has other problems in terms of legal power, but if enacted under administrative rules.
There isn't necessarily.
A requirement to square the budget so.
Savings can be assumed in other ways and there is a different authority doing the math.
That said I think there are headwinds on this point both within the administrative.
Dan Skovronsky: I think the phase two study, on the other hand, is patients who are early in the disease course. They're just within a few days of getting diagnosed. My expectation is that they'll have high and, in many cases, increasing viral loads in the absence of therapy, and the goal here is to show that the therapy decreases the viral load. So that's the important readout. But, as I said, we'll have started phase three by then.
Executive branch as well as on the Hill. Nonetheless, it's the right thing to do and I think we need to continue to push for ways that.
Everyone would have confidence that the industry would compete in a way that would lower consumer out of pocket costs.
I can tell you.
That's.
Dan Skovronsky: On KRAS, this is an issue of off-target toxicity, so it's not related to the KRAS target itself, in our view. That does, therefore, kill the therapeutic index, and it is not possible to proceed with that drug. I don't think we can at this moment give details on the exact nature of the toxicity or the highest dose that we tested, but we didn't feel we could proceed based on the doses at which we saw that toxic effect. And we're trying to resolve that in the backup program. We have some preclinical models for the tox. We'll see if they bear out or not.
The goal when we advocate for this policy.
And we need to find ways to provide that assurance I think to get movement.
You talked about Senate finance and Grassley reintroduced a version of is built to try to make one last push I.
I believe has chairmanship as ending in any case at the end of this Congress. So it's understandable why is doing that.
I don't think that.
That package has much of a chance to advance.
There are always ways stars get aligned and there's a number of health extended hours due at the end of this Congress, but it's a pretty big piece of legislation to throw in an extended package. The only possible way is is that it does produce.
Dan Skovronsky: Thanks, Dan. Umer, thanks for your questions. Next caller, please.
Andrew Baum: Andrew Baum of Citi. Please go ahead. Mr. Baum, your line is open now. Hello, can you hear me? Yes.
Positive budget impact so in terms of used to pay for other things, but probably we don't need the whole package. So.
Andrew Baum: You know?
Andrew Baum: Question on U.S. drug price reform. There are a number of live propositions, obviously the executive order referencing rebate reform, which obviously Lilly has supported, but it requires a positive CBO score in order to move forward. The first question is, do you think there's any possibility that this could be achieved given the history of the CBO score and the belief required of an overall reduction in pricing through market-based competitions to get there and the CBO to reflect this?
I think thats still a narrow path and the most likely scenario is that these egos can't take a force and don't take force prior to.
A new presidential term, new congressional Congress sitting and that Senate finance doesn't go anywhere either nor does HR three I think thats sort of probable planning scenario.
Thanks, Dave.
Andrew Thanks for your questions next caller please.
And that will be from the line of Louise Chen of Cantor. Please go ahead.
Hi, Thanks for taking my questions. So my first question is is there anyway to quantify the operating margins. What we would have seen in the first half 20 without R&D cobot spending and also headwind sales from the pandemic.
Andrew Baum: reflect that. So that's number one. And number two, an alternate proposition has got bipartisan support.
Andrew Baum: I want to ask you about the bipartisan support of the Senate, but it's being stopped from reaching the Senate floor by Mitch McConnell. I know you have some concerns over that bill, but as a potential way forward to mitigate a more debaterious solution under either of the potential options going forward, can you see this progressing?
And then second question I had with you how do you think about terms appetite is a single solution for diabetes Nash VC. Thank you.
Thanks, Luis will go to Josh for the first question and then Mike for the second one.
Thanks, Louise I think in the first half as I mentioned, our operating in.
Andrew Baum: Many thanks.
Dave Ricks: Thanks Andrew, we'll go to Dave for both of those. Yeah, thanks Andrew.
Margin was 29.1%.
If you add back some of the the lost prescriptions, but then also keep in mind, we had some savings associated with promotion, what probably closer to 30% I. When we said as we came into the year, we expected margin expansion through the year. So so thats still in track.
Dave Ricks: On the EEOs, you're talking about rebate reform and the idea of pass-through, and the history here is, as you pointed out, the CBO score was extremely negative. In our math, we are largely driving by the one assumption you noted, which is that rebate value would essentially accrue back to manufacturers and thus raise premiums. It's a deeply flawed assumption. Of course, we'll compete, but the whole idea would be to move the basis of competition from sort of discriminated prices that are private to list price or other means to deliver pricing directly to consumers, discounts that pass through, for instance. So that, of course, requires industry actors to change their practices, and that's not something that can be coordinated or messaged very well due to antitrust laws.
On track, but yeah, we'll probably off by somewhere in the range of.
At 52.
Two for 100 basis points or something something there.
Thanks, Josh Mike.
Now it's a great question on comes up the tide and I think we have just a phenomenal opportunity not just be able to provide glucose control for those living with type two diabetes, but really affects their overall metabolic health and so the contributions of both GLP.
And GE IP.
Can provide the opportunity to really provide improved metabolic helpful. Slick cross type two diabetes obesity.
Dave Ricks: So we're sort of in this catch-22 on committing to deliver on sharing the savings but not being able to do that publicly. I think that's a problem, and it's particularly a problem for legislation. Of course, the executive order method has other problems in terms of legal power, but if enacted under administrative rules, you know, there isn't necessarily a requirement to square the budget. So savings can be assumed in other ways, and there's a different authority doing the math.
And Nash that are related and so it's a great question I think it's a good opportunity for us.
To expand our focus beyond just helping someone living with type two diabetes.
Better controller glucose so great question, and obviously is an area that that we will focus on there will be people living with type two diabetes that are in our Nash and obesity studies.
Maybe just to add to that it goes goes without saying, let's say.
Current utilization of Geo piece in the total diabetes population in developed markets is something like one and aid or one in 10 patients.
Dave Ricks: That said, I think there are headwinds on this point, both within the administrative executive branch as well as on the Hill. Nonetheless, it's the right thing to do, and I think we need to continue to push for ways that everyone would have confidence that the industry would compete in a way that would lower consumer out-of-pocket costs. I can tell you that's the goal when we advocate for this policy, and we need to find ways to provide that assurance, I think, to get movement. You talked about Senate Finance, and Grassley reintroduced a version of his bill to try to make one last push. I believe his chairmanship is ending in any case at the end of this Congress, so it's understandable why he's doing that.
And so the hope here is that we can rearrange the.
The priorities and the and the and the sequence of treatment in a way where this powerful category and HERA dual acting GRP GLP could be used earlier and more broadly.
To manage disease outcomes in a very different way today type two diabetes.
As disease a failure.
And.
Perhaps this technology could help doctors and patients find success.
Much earlier in the disease course.
Thanks, Mike Dave Louise Thanks for your questions next caller please.
Fronts Flynn Goldman Sachs. Please go ahead.
Dave Ricks: I don't think that... That package has much of a chance to advance. There are always ways the stars get aligned, and there are a number of health extenders due at the end of this Congress, but it's a pretty big piece of legislation to throw on an extenders package. The only possible way is that it does produce a positive budget impact, so in terms of use to pay for other things, but probably you don't need the whole package. So I think that's still a narrow path, and the most likely scenario is that these EOs can't take effect and don't take force prior to a new presidential term, a new congressional Congress sitting, and that Senate finance doesn't go anywhere either, nor does HR I think that's sort of the probable planning scenario. Dave
Great. Thanks for taking the questions.
Was wondering on another one on for Zinio, if the market data is going to be at ESMO or San Antonio breast and then if you think penetration in the ads you've been setting will be higher or lower the same as in the metastatic setting overtime and then Josh just on contracting you talked about how those discussions are wrapping up now anything.
Being notable in terms of trulicity or targets that we should consider as we think about those contracts for for 2021. Thank you.
Thanks parents will go to and for the question on monarchy in than Josh around the contracting.
Yes. Thanks My question not tariff so on the presentation, we will be presenting at a medical meeting later this year, Unfortunately can't come from which one yet, but we will be presenting at a meeting this year as far as on the penetration.
Dave Ricks: Thank you. Andrew, thanks for your questions. Next caller, please.
I think what's exciting about this opportunity is that we are the only CDK for six to have positive results in the agile and setting and so I think our penetration for the high risk patients, which is the population that we had in monarchy will be extremely high. So this as we're hearing people RAF even to the topline opportunity we're seeing that there's a lot of.
Louise Chen: And that will be from the line of Louise Chen of Cantor. Please go ahead. Hi, thanks for taking my questions. So my first question is, is there any way to quantify the operating margins that we would have seen in the first half of the year without R&D COVID spending and also headwinds from the pandemic?
Louise Chen: And the second question I had was, how do you think...
Louise Chen: Please think about Terezepatide as a single solution for diabetes, NASH, and obesity. Thank you.
Enthusiasm for having.
CDK for six in the setting and so we look forward to sharing those results.
As I said later this year.
Josh Smiley: Thanks, Louise. Yeah, I think in the first half, as I mentioned, our operating margin was 29.1%. I think if you add back, you know, some of the loss prescriptions, but then also keep in mind we had some savings associated with promotion, you know, we're probably closer to 30%. We said as we came into the year that we expected margin expansion through the year. So that's still on track, you know, on track. But yeah, we're probably off by somewhere in the range of, you know, 50 to 100 basis points or something.
Again, we see and I think Dan and others mentioned in the introduction. We see this is an opportunity and probably about 20000 patients here in the us as we matched our criteria in the study to this year database. So I think we see a pretty significant opportunity, it's really probably half again of what we have in the metastatic setting which has been significant so we do.
To answer a question, we do expect strong penetration in this space over time.
Thanks, and Josh Yes.
As you know Terence we won't sort of talk specifically about.
Individual contracts or anything at this point, but I think for what we have seen first I go back to the earlier comments that we see a pretty similar pricing environment in 2021 to what we're seeing here, which would be modest net net price decline, meaning we're providing.
Josh Smiley: Thanks, Josh. It's a great question on transeptide, and I think we have just a phenomenal opportunity to not just be able to
Michael B. Mason: [inaudible]
Michael B. Mason: The contributions of both GLP and GIP can provide the opportunity to really improve metabolic health.
Slightly more rebates and what we're anticipating in terms of list price increases and and we know couple that with the other dynamic factors that we've mentioned I think for if you think about Trulicity, we've said sort of expect.
Michael B. Mason: and Nash, who, you know, are related, and so it's
Michael B. Mason: It's a great question, and I think it's a good opportunity for us to expand our focus beyond just helping someone living with type 2 diabetes.
Something plus or minus 5% net price declined over time, I think thats says that our viewing next year, it's very competitive environment of course, but we're focused on maintaining access.
Michael B. Mason: Diabetes Better Control Their Glucose So, great question, and I'll answer it.
Dave Ricks: is an area that we will focus on. There will be people living with type 2 diabetes that are in our NASH and obesity studies.
Not looking to trade price for share or anything like that so I think those those negotiations are going as expected with targets we've been focused on upgrading.
Dave Ricks: Maybe just to add to that, it may go without saying, but I'll say it anyway, the current utilization of GLPs in the total diabetes population in developed markets is something like 1 in 8 or 1 in 10 patients. And so the hope here is that we can rearrange the priorities and the sequence of treatment in a way where this powerful category here, a dual-acting GFP, and GLP, could be used earlier and more broadly to manage disease outcomes in a very different way today, type 2 diabetes, the disease of failure, and perhaps this technology could help doctors and patients find success much earlier in the disease course.
Our access and.
So to the extent that we're able to do that you'll see that did not as a net net price decline potentially but but compensated for by increased access again I think we're happy with the progress we're making this year and continue to focus on improving where we can for next year, but overall again I'd say the general trend.
As we have.
Fierce competition in the classes were in but we're focused on maintaining at least the access we have the today and.
When we had the chance upgrading in areas like immunology.
Thanks, Josh Terrace. Thanks for your questions next caller please.
Next we'll be Chris Schott Jpmorgan. Please go ahead.
Terence Flynn: Thanks Mike and Dave. Louise, thanks for your questions. Next caller please. Great, thanks for taking the questions. I was wondering on another one on Virginio, if the monarchy data is going to be at ESMO or San Antonio breast, and then if you think penetration in the adjuvant setting will be higher, lower, or the same as in the metastatic setting over time. And then, Josh, just on contracting, you talked about how those discussions are wrapping up now. Anything notable in terms of trulicity or talts that we should consider as we think about those contracts for 2021? Thank you. Thanks, Terence. We'll go to Anne for the question on the monarchy and then Josh for the question on contracting.
Great. Thanks, so much for the questions just maybe first on on versus any you highlighted 20000 patients potentially in the US maybe just a similar metrics about how you're thinking about the size of the eligible population and developed ex us markets.
And then second question very helpful color in terms of kind of the mix unemployment headwinds for 2021 any updates in terms of how you're thinking about potential international price pressures from the some of the budget deficit. We're seeing globally is that is that a 21 headwind to think about as well or is not going to take a bit longer to manifest itself. Thanks. So much.
Thanks, Chris will go to and for versus any deal and then two to Dave on the international question.
Terence Flynn: Yes, so thanks for the question, Terence. As for the presentation, we will be presenting it at a medical meeting later this year. Unfortunately, I can't confirm which one yet, but we will be presenting at a meeting this year. As far as penetration, well, I think what's exciting about this opportunity is that we are the only CDK4-6 to have positive results in the adjuvant setting. And so I think our penetration for the high-risk patients, which is the population that we had in Monarchy, will be extremely high. And so, as we're hearing people react even to the top-line opportunity, we're seeing that there's a lot of enthusiasm for having a CDK4-6 in this setting. And so we look forward to sharing those results, as I said, later this year.
Great. Thanks, so much for that question on the present.
Eligible population and so as I said and you asked about 20000 eligible patients, which is about 10% to 15% of the each are positive hertwo negative EBC population outside the U.S. The pathologies similar we estimate and so we estimate patient numbers in Europe about 10% larger than the U.S. and then Japan is about.
One fourth of the size the U.S., so I hope that answers the estimate questions outside the us.
Great and on international pricing and I think Youve talked about this before but.
Yes, if we don't have that many proxies for this kind of situation, but what we do know is economic activity, particularly in Europe, and Japan has fallen like in the us tax receipts accordingly.
Terence Flynn: Again, we see, as Dan and others mentioned in the introduction, we see this as an opportunity for probably about 20,000 patients here in the U.S., as we matched our criteria in the study to the SEER database. So I think we see a pretty significant opportunity. It's really probably half, again, of what we have in the metastatic setting, which has been significant. So to answer your question, we do expect strong penetration in this space.
And if we use 22 dozen age as a proxy really took off.
Almost three years for the policy implications of that to show up in drug pricing health budgets, and Thats natural because theres, a lag and tax receipts and then there's a lag and policy, making in response to it I would expect that to happen.
Anne E. White: Thanks, Anne.
Josh Smiley: ........
Josh Smiley: As you know, Terence, we won't sort of talk specifically about, you know, individual contracts or anything at this point, but I think for what we have seen, first, I go back to my earlier comments. We see a pretty similar pricing environment in 2021 to what we're seeing here, which would be, you know, a modest net price decline, meaning we're providing, you know, slightly more rebates than what we're anticipating And then we, you know, couple that with the other dynamic factors that we've mentioned. I think for, you know, if you think about Trulicity, we've said sort of, you know, expect, you know, something like, plus or minus 5% net price declines over time.
And the normal things that occur clawback mechanisms and methods to keep.
The medicines budget within some proportion of the health budget.
I think that will be a headwind the industrial face over the next two or three years I would say, though that.
If history follows and I didn't see any reason why wouldn't because Europeans and particularly were successful it.
Capping drugs spending growth in the early part of the last decade.
The burden of that tends to follow fall disproportionately on.
Older products that are scaled.
And perhaps with more competition in the categories Where's newer products I think actually we're really affected there more driven by helping analogy assessment and the procedures to get an initial price and they don't really drive much budget pressure versus end of life. As you know we continually advocate for more biosimilar and.
Josh Smiley: I think that's how we view next year. It's a very competitive environment, of course, but we're focused on maintaining access, not looking to trade price for share or anything like that. So I think those negotiations are going as expected. With TALS, we've been focused on upgrading our access. And so to the extent that we're able to do that, you'll see that as a net price decline, potentially, but compensated for by increased access. Again, I think we're happy with the progress we're making this year and will continue to, you know, focus on improving where we can for next year. But overall, again, I'd say that the general trend is that we have fierce competition in the classes we're in, but we're focused on maintaining at least the access we have today and, you know, when we have the chance, upgrading in areas like immunology. Thanks, Josh.
Eric adoption in these markets as the first lever to pull and so I think also for for products are supposed to biosimilars in generics you probably would see more pressure on the back end of this as well.
Thanks, Dave Chris Thanks for your questions next caller please.
And next question is from a meal Yvonne.
Please go ahead.
Great. Thank you and thanks for taking my question. So couple of I can one on just on the margin discussion.
Today, let me be any comments you could share just in terms youre sort of more virtual promotional efforts here. This past few months in a sense of how productive they've been in what you're trying to get a sense and you think about going forward.
Josh Smiley: Thanks, Josh. Terence, thanks for your questions. Next caller, please. Chris Schott of J.P. Morgan. Please go ahead. Great. Thanks so much for the questions.
Is your spending initiatives that you're getting less and what you're thinking before if you go to more of a hybrid model or do you expect within a year. So U.S.J. spending would be essentially what it would have been before the pandemic.
Chris Schott: ..........
Chris Schott: And the second question, very helpful color in terms of kind of the mix and unemployment headwinds for 2021. Any updates in terms of how you're thinking about potential international price pressures from some of the budget deficits we're seeing globally? Is that a headwind to think about as well, or is that going to take a bit longer to manifest itself?
The second one is just maybe one of the business development side, just given the volatility are seeing it let me answer here I was hoping also drug pricing.
Got any changes to how you're thinking about potential licensing or acquisitions.
Anne E. White: Thanks so much. Thanks, Chris. We'll go to Anne for Verzenio and then to Dave on the international question.
In terms of slides or so curious in terms of therapeutic areas are there any sort of areas more need or desire or capacity to bring in additional assets.
Anne E. White: Great, so thanks so much for that question on the Virginio eligible population. And so, as I said, in the U.S., about 20,000 eligible patients, which is about 10 to 15 percent of the H.R. positive, HER2 negative, EBC population. Outside the U.S., the pathology is similar, we estimate, and so we estimate patient numbers in Europe are about 10 percent larger than the U.S., and then Japan is about one-fourth of the size of the U.S. So I hope that this answers the estimation questions outside the U.S.
Thanks, so much.
Thanks, Tom will go to date for your first question and then Josh for the second on BD.
Yes.
Some years now we've been on a journey to build out the capabilities to reach customers, where they want to be reached.
And havent relevant information.
At that time as well as around launches and key data readouts to be able to.
Expand our capacity beyond just the sales channel.
To reach reach customers.
Dave Ricks: Great And on international pricing, I think we've talked about this before, but we don't have that many proxies for this kind of situation, but what we do know is economic activity, particularly in Europe and Japan, has fallen, as in the U.S., tax receipts accordingly, and if we use 2008 as a proxy, really, it took almost three years for the policy implications of that to show up in drug pricing health budgets, and that' I would expect that to happen, and the normal things that occur are clawback mechanisms and methods to keep the medicine budget within some proportion of the health budget. I think that will be a headwind the industry faces over the next two or three years.
That has proven pretty useful.
This pandemic and I'd say overall, the conditions, which as I mentioned in my prepared remarks are variable around the world in terms of being able to.
Safely send reps into the field and and actually even be able to be let into medical buildings and facilities I think there's constraint there.
So weve lean into this weve accelerated some of the plans we had to increase volume and.
The richness of this capability.
Overall I think the results are.
Yes, I think we prefer to run the hybrid model everywhere, we have sales reps and these capabilities.
Where we can't send sales reps. These capabilities have been useful is it as productive I think it certainly more efficient.
And it's more scalable whether it's as impactful I think we'll need to watch through time.
Dave Ricks: I would say though that if history follows, and I don't see any reason why it wouldn't because Europeans in particular were successful at capping drug spending growth in the early part of the last decade, the burden of that tends to fall disproportionately on older products that are scaled and perhaps with more competition in the categories, whereas newer products, I think, actually weren't really affected. They're more driven by health technology assessment and procedures to get an initial price, and they don't really drive much budget pressure versus end of life. As you know, we continually advocate for more biosimilar and generic adoption in these markets as the first lever to pull. And so I think also for products that are exposed to biosimilars and generics, you probably would see more pressure on the back end of this as well.
We have different markets, we serve and I can say that in specialty markets, where you've got a smaller number physicians and you can target your efforts extremely well.
We mentioned Retailo launch on this call, which is of kind of a first thing for us was.
Approval and launch during the pandemic I think we're pretty pleased with the progress there on the other hand primary care brands, it's a little more challenging because the way. These practices are run the variability and.
Physicians accessibility. So I think the whole industry is probably learning this but on the other side of this will have a much more enhanced capability and you can bet, we're spending huge amounts of time on a global basis.
Lifting that up now in a way that's pretty rigorous so.
More to more to come their productivity to be seen efficiency, yes effectiveness.
Dave Ricks: Thanks, Dave. Chris, thanks for your questions. Next caller, please. Our next question is from Vimeo Divan from Mizzou. Please go ahead.
We probably see a lot of variability right now.
Yes, Dave Josh Yes.
Chris Schott: Great, thank you, and thanks for taking my questions.
Development, our strategy hasn't changed we continue to focus on acquiring potential first in class are best in class.
Chris Schott: A couple of
Chris Schott: A couple if I can, so one on, just on the margin discussion.
Chris Schott: I'm wondering if you have any comments you could share.
Our pride projects are products in our therapeutic areas.
Chris Schott: I wanted to talk about your virtual promotional efforts over the past few months and how productive they've been. And I just want to get a sense, as you think about going forward.
As a high bar there we've had great progress in our internal pipeline, we remain committed to finding those kind of opportunities we have generating very strong cash flow. We've got good investment grade ratings and good liquidity good access to capital markets. So.
Chris Schott: are going to be left.
Chris Schott: and what you were thinking before you go to more of a
Chris Schott: [inaudible]
Chris Schott: and also curious in terms of...
Even with all the disruption related to covert I don't see any any change for us and our ability to.
Chris Schott: Any of yours, are there any specific areas where you feel you need more?
Interact with.
Chris Schott: Need or desire or
Smaller companies or access potential projects hasn't hasn't changed.
Chris Schott: the capacity to bring in additional athletes. Thanks so much.
Patrik Jonsson: Thanks, Bob. We'll go to Dave for your first question and then Josh for the second one on BD.
It's not impacted by echo that so it's really just a function of finding the right opportunities and ensuring that we can structure the deals in ways that create value for for both sides and we'll continue to focus on that.
Dave Ricks: Yeah, for some years now, we've been on a journey to build out the capabilities to reach customers where they want to be reached and have relevant information at that time, as well as around launches and key data readouts to be able to, you know, expand our capacity beyond just the sales channel to reach customers. That has proven pretty useful during this pandemic. And I would say overall, the conditions which, as I mentioned in my prepared remarks, are, you know, variable around the world in terms of being able to safely send reps into the field and actually be able to be let into medical buildings and facilities. I think there's a constraint there.
Thanks, Josh Vamil. Thanks for your questions next caller please.
Next is kind of go Barclays. Please go ahead.
Good morning, Thanks for taking the questions I guess two for Dan first.
On the Baricitinib studies in Cobot can you, maybe just sort of.
Frame sort of.
Hi, how youre thinking about these studies your level of confidence in light of some of the other.
Agents re purpose from our a.
That said a failed, albeit upstream of JAK inhibition, and then as far as on the Nthreepg antibody side.
Dave Ricks: So we've leaned into this, and we've accelerated some of the plans we had to increase volume and the richness of this capability. Overall, I think the results are, I think we'd prefer to run the hybrid model everywhere where we have sales reps and these capabilities. Where we can't send sales reps, these capabilities have been useful. But is it as productive? I think it's certainly more efficient, and it's more scalable. Whether it's as impactful, I think we'll need to watch over time. We have different markets we serve, and I can say that in specialty markets where you've got a smaller number of physicians, and you can target your efforts extremely well. We mentioned Retevmo's launch on this call, which is kind of a first thing for us, was an approval and launch during the pandemic. I think we're pretty pleased with the progress there. On the other hand, primary care brands, you know, it's a little more challenging because of the way these practices are run and the variability in physicians' accessibility.
Our it's sort of timeline still on tax should we still expects that data read out early next year and any commentary on how you're thinking about the hurdle.
Thank you.
Thanks Cotter Dan.
Yes sure. Thanks on Baricitinib of course, we encouraged the reason we did this Charles based on.
Preclinical data around the mechanism of action Barry.
I think the.
Clinical effects of the immune modulation in hospitalized patients with Covidien has been next as you pointed out that some failures have also been some promising.
Efficacy signals and even success. So of course was dexamethasone. So I think it we just have to wait and see how this works treating patients in the hospital setting is important if we can reduce length of stay or decrease mortality.
Dave Ricks: So I think the whole industry is probably learning this, but on the other side of this, we'll have a much more enhanced capability, and you can bet we're spending huge amounts of time on a global basis lifting that up now in a way that's pretty rigorous. So, you know, more to come there. Productivity to be seen. Efficiency, yes. Effectiveness, you know, we probably see a lot of variability right now. Thanks Dave. Josh?
That will be an exciting results and maybe stopgap measure until we have.
Medicines that actually can fight off the buyer so like I hope the neutralizing antibodies will.
As for Nthreepg, yet, we're still on the same timeline as we've always been.
Dave Ricks: Yeah, so on business development, our strategy hasn't changed. We continue to focus on acquiring potential first-in-class or best-in-class projects or products in our therapeutic areas. There's a high bar there. We've had great progress in our internal pipeline, but we remain committed to finding those kinds of opportunities. We have, you know, we're generating very strong cash flow. We've got good investment-grade ratings, and
The trial will wrap up at the very ended this year, which brings rollouts.
Data internally and.
At least some kind of topline.
Just in the very started of both next year.
Hey, you think.
Given the size of the study we.
Reasonably high hurdle rate.
We're hoping to see a large effect size we base that.
Josh Smiley: and good liquidity, and good access to capital markets. So even with all the disruption related to COVID, I don't see any change for us. And then our ability to interact with smaller companies or access potential projects hasn't changed. That's not impacted by COVID. So it's really just a function of finding the right opportunities and ensuring that we can structure the deals in ways that create value for both sides, and we'll continue to focus on that.
The lease on the level of plaque cleaners, we can get we get deeper into faster.
Plaque clearance than has been shown with any other agents. So it is clear and KLAX is important to stopping disease progression, we should have a strong effect.
Noteworthy that we also designed this trial to selective very careful patient population based on their tile levels that at baseline. So we also expect smaller standard deviation.
Josh Smiley: Thanks, Josh. Vamal, thanks for your questions. Next caller, please. This is Carter Gould, Barclays. Please go ahead. Good morning.
Because the population should have a more more uniform progression.
Carter Gould: Thanks for taking the questions. I guess two for Dan. First, on the baricitinib studies in COVID, can you maybe just sort of frame sort of how you're thinking about these studies, your level of confidence in light of some of the other agents repurposed from RA that have failed, albeit, you know, upstream of JAK inhibition. And then as far as on the N3PG antibody side, are timelines still intact? Should we still expect that data to come out early next year? And any commentary on how you're thinking about the hurdles? Thank you. Thanks, Carter. Dan?
I also note that.
We started.
Second.
Trial with Nthreepg.
Already.
Thanks, Dan Carter. Thanks for your questions next caller. Please next Steve Scala of Cowen. Please go ahead.
Thank you when we see the data from monarch. He can you reassure us that the disease free survival improvement won't be in underwhelming, 1% to 2% really seems excited about the data. So I would assume it's going to be stronger than 1% to 2%, maybe three four or 5% and.
Then secondly, Roche announced last week that it will have data from a large phase two trial of a tower antibody very soon.
Carter Gould: Yeah, sure. Thanks.
Dan Skovronsky: On baricitinib, of course, we're encouraged, and the reason we did this trial is based on preclinical data around the mechanism of action of baricitinib. And I think the clinical effects of immune modulation in hospitalized patients with COVID-19 have been mixed. As you pointed out, there have been some failures. There have also been some promising efficacy signals and even success, of course, with dexamethasone. So I think we just have to wait and see how this works.
The Roche study fail.
Can you highlight any differences between the Lilly and Roche molecules.
Under the study design that could sustain optimism for the loyalty program or if the Roche molecule sales should we assume that.
Lilly molecule likely will follow a similar fake thank you.
Thanks, Steve will go to an for the question on monarchy in the Dan for the question on town.
Let's see thanks for the question obviously, we just here at the top line at this time, so I can't go into detail data as you know prior to the data disclosure, but what I can tell you is that we do believe that deposit results of monarchy are clinically meaningful and will add to the existing body of evidence that presenting a differentiated from other CDK for Sixs and this is.
Dan Skovronsky: Treating patients in the hospitalized setting is important. If we can reduce length of stay or decrease mortality, that'll be an exciting result and maybe a stopgap measure until we have medicines that actually can fight off the virus, like I hope that the neutralizing antibodies will. As for N3PG, yeah, we're still on the same timeline as we've always been.
A major milestone for presenting and we believe does have the potential to change the paradigm of how early breast cancer is treated so we really look forward to sharing the data with you at a meeting later this year.
Dan Skovronsky: The trial will wrap up at the very end of this year, which means we'll have data internally and likely some kind of top line just at the very start of next year. I think given the size of the study, we have a reasonably high hurdle rate, hoping to see a large effect size. We base that belief on the level of plaque clearance we can get. We get deeper and faster plaque clearance than has been shown with any other agent. So if clearing plaques is important to stopping disease progression, we should have a strong effect. It's noteworthy that we also designed this trial to select a very careful patient population based on their tau level at baseline. So we also expect a smaller standard deviation because the population should have a more uniform progression. I also note that we have started a second trial with N3PG already.
Thanks, Andrew and.
Yeah, Thanks, and with respect to the tower antibody again here I'd just say, we're still on track for that data read out this will come in the second half of.
Next year.
I'm excited about this mechanism, but we don't have a clinical data yet the Roche readout will will be important.
We'll be watching it carefully and of course.
On behalf of patients and the mechanism will be hoping for their success, but there are some differences as you pointed out.
Both in molecule and trial design that make feed through more complicated.
Dan Skovronsky: Thanks, Dan. Carter, thanks for your questions. Next caller, please. Thank you. When we see the data from Monarch E, can you reassure us that the disease-free survival and
One I think important aspect of molecule design is that there's lots of different species of touting the brain.
Dan Skovronsky: The level of improvement won't be an underwhelming 1 to 2 percent.
There's a lot of soluble tower that is monomeric, probably not involved in the pathogenesis of Alzheimer's disease that can sop up antibody and sort of reduce the effective amount of antibody available to get the bad kinds of Tao.
Dan Skovronsky: Lilly seems excited about the data, so I would assume it's going to be good.
Dan Skovronsky: are going to be stronger than 1% to 2%, maybe 3%, 4%, 5%.
Dan Skovronsky: 5%. And secondly, Roche announced last week that it will have data from a large study.
Our antibodies designed specifically to bind to aggregated Tao So we think that should improve.
Dan Skovronsky: Will be in a large Phase II trial of a Tau antibody very soon.
Its ability to actually hit the target.
Dan Skovronsky: If the Roche study fails, can you highlight any differences between the Lilly and Roche molecules and or the study design that could sustain optimism for the Lilly program? Or if the Roche molecule fails, should we assume that the Lilly molecule likely will follow a similar fate?
Very high doses of these antibodies are generally use to overcome this soluble monomeric Tao problem.
So thats one difference between that.
Roche antibody.
That's all the competitors and ours.
Dan Skovronsky: Thank you. Thanks Steve. We'll go to Anne for the question on the monarchy and then Dan for the question on Tao.
Second differences is there on trial design and here again, we use or unique expertise in town imaging and.
Anne E. White: Well, Steve, thanks for the question. Obviously, we just shared the top line at this time, so I can't go into the detailed data, as you know, prior to data disclosure. But what I can tell you is that we do believe that the positive results of Monarchy are clinically meaningful and will add to the existing body of evidence that Bresenio is differentiated from other CDK4-6s. And this is a major milestone for Bresenio, and we believe it has the potential to change the paradigm of how early breast cancer is treated. So we really look forward to sharing the data with you at a meeting later this year.
Biomarkers to select a patient population that we think they will be more.
Uniform and its disease progression, allowing us to see signal better and B.
The more likely to be responsive to tout therapeutic it's likely these therapies will be effective if they are effective it had stopping the spread of cow.
Rather than removing preformed cow and so I think it's important to have patients who are in the midst of spreading town not patients child spread throughout the entire great. So we'll watch Sinclair fleet, but they'll be cautious on readers.
Anne E. White: Thanks Anne. A great ending.
Dan Skovronsky: Yeah, thanks. And with respect to the tau antibody, again, I just say we're still on track for a data readout. This will come in the second half of next year.
Thanks, Dan Steve Thanks for your questions next caller please.
Jay could.
Yes. Please go ahead.
Dan Skovronsky: I'm excited about this mechanism, but we don't have clinical data yet. The Roche readout will be important, and we'll be watching it carefully. And, of course, on behalf of patients and the mechanism, we'll be hoping for their success.
Hi, Thanks for taking my questions just a couple on some launch products.
Talk Mo.
So look out and I'm, just wondering how that launches going Oh, what does the diagnosis rate for rep, right now and where do you see that will reach over the next one to two years.
Dan Skovronsky: But there are some differences, as you pointed out, both in molecule and trial design that make read-through more complicated. One, I think, important aspect of molecule design is that there are lots of different species of tau in the brain. There's a lot of soluble tau that is monomeric and probably not involved in the pathogenesis of Alzheimer's disease that can sop up antibody and sort of reduce the effective amount of antibody available to get the bad kinds of tau. Our antibody is designed specifically to bind to aggregated tau, so we think that should improve its ability to actually hit the target. Very high doses of these antibodies are generally used to overcome this soluble monomeric tau problem. So that's one difference between that Roche antibody and, in fact, all of the competitors and ours.
And then.
Well, just timelines for which have mode and ex us markets and then separately with regards to your migraine franchise, just want to get some color on.
How you view.
Do you see GRP market.
Growing from here going forward.
As well as the tied to that limited time I know, it's still early in the launch, but but the launch does seem to be a little bit slower than than some of the competitors out there just wondering.
What the dynamics, you're seeing in their understanding that it's a that kogan 19 is also.
Making things a little bit challenging and than usual in urology setting. Thank you so much.
Dan Skovronsky: The second difference is around trial design, and here again we've used our unique expertise in tau imaging and biomarkers to select a patient population that we think, A, will be more uniform in its disease progression, allowing us to see the signal better, and B, will be more likely to be responsive to a tau therapeutic. It's likely these therapies will be effective, if they are effective, at stopping the spread of tau rather than removing preformed tau. And so I think it's important to have patients who are in the midst of spreading tau, not patients in whom tau is spread throughout the entire brain. So we'll watch them carefully, but they'll be cautious.
Thanks, and then we'll go to answer the question or whatever and then Patrick on migraine.
Well thanks for the questions on rents have no. So the launch is going well as Dave mentioned in his introduction and so we're encouraged by the early demand signals that we have seen with rates have now and the initial customer feedback on the data has been very positive. So they are impressed by the efficacy in the safety data across multiple indications and lines of.
They are happy that we're able to get into the label and it's the largest obviously rep inhibition population has been studied and 700 patients.
We don't have Rx data to report yet, but we're aware of patient starts in a number of our top accounts, which is supported by the downstream channel orders. So it's clear that our first to market advantages, resulting in the treatment of patients who have identified right. Even in previous testing so that kind of leads to your question around diagnostic testing so what we've seen history.
Dan Skovronsky: Thanks, Dan. Steve, thanks for your questions. Next caller, please. UBS. Please go ahead. Hi. Thanks for taking my questions. Just a couple of the launch products, Retevmo, and Soprocatinib. Just wondering how that launch is going. What is the diagnosis rate for RET right now? And where do you see that will reach over the next one to two years? And then just time.
Barkley is that rent is showing up on panels to probably about 30% of the time. So you've hit on one of the key criteria as of the launches to continue to drive that testing rate up and so it's been very much a focus of our efforts both to work with pathologists out in the us on making sure that they have rent on their panels now we have an action.
Dan Skovronsky: Tim Lines for Retevmo and Exxon
Dan Skovronsky: for the U.S. market
Very actionable biomarker for them to test against.
Dan Skovronsky: with regard to
Dan Skovronsky: I just want to get some color on how you view the CGRP market growing from here going forward, as well as tied to that LISMIDITAN. I know it's still early in the launch, but the launch does seem to be a little bit slower than some of the competitors out there. Just wondering what the dynamics are.
Our goal is essentially to eventually see testing rates like we see in some of the other targeted therapies, which approach 80% now the question that will have to assess how quickly we can get there, but our goal is to drive that up as quickly as we possibly can and so thats a big focus of the launch and we have partnerships that thermo Fisher and alumina and other things in the works to really drive that up.
Dan Skovronsky: are understanding that COVID-19 is also making things a little bit challenging in the neurology setting. Thank you so much. Thanks Naveen. We'll go to Anne for the question about Tevmo and then Patrik on Migraine.
Anne E. White: Well, thanks, Naveen, for the questions on Retevmo. So the launch is going well, as Dave mentioned in his introduction, and we're encouraged by the early demand signals that we've seen for Retevmo. And the initial customer feedback on the data has been very positive.
Across the.
The industry, because we do believe that Thats actually the best care for patients regardless of the retreated with the tempo or other targeted therapies that we want to patients to get the right therapy for them as far as the timelines. So as you know weve submitted in Europe, and so we're awaiting regulatory action. There that submission was accepted at the beginning of this year and then we look to submit in Japan and China either.
Anne E. White: So they're impressed by the efficacy and the safety data across multiple indications and lines of therapy that we're able to get into the label. And it's the largest, obviously, RET inhibition population that's been studied in 700 patients. We don't have Rx data to report yet, but we're aware of patient starts in a number of our top accounts, which is supported by downstream channel orders. So it's clear that our first to market advantage is resulting in the treatment of patients who have been identified from RET even in previous testing. So that kind of leads to your question around diagnostic testing.
Late this year early next so still working with regulatory regulatory authorities there.
Thanks and Patrick.
Yes. Thank you very much wed be overall cgmp market continued to grow very nicely and when we look up on the market growth year over year, we're talking about the growth of 64% versus last year wine and got it actually contagion significantly outperformed the market with growth of 151% and even if we look at the last quarter.
We see but that could you at the market continues to grow with 20%. Despite the significant decline in terms of new to brand.
Anne E. White: So what we've seen historically is that RET is showing up on panels probably about 30% of the time. So you've hit on one of the key criteria of the launch is to continue to drive that testing rate up. And so it's been very much a focus of our efforts, both to work with pathologists out in the U.S. on making sure that they have RET on their panels now that we have a very actionable biomarker for them to test against. Our goal is, essentially, to eventually see testing rates like we see in some of the other targeted therapies, which approach 80%. Now, the question that we'll all have to assess is how quickly we can get there, but our goal is to drive that up as quickly as we possibly can.
And today, we continue to remain medical confident in the in the future of them Galaxy and aiming for a market leadership in that prevented market and.
We.
We see oil as a strong market leadership I think that in primary care well mix well, we have expanded our efforts in twentytwenty and with it quite a few new trials. So that is very optimistic in terms of this Egypt, the market thoughtful and thought and Gadaffi.
Look I'm wondering about launch I think south statements, we are not piece with the performance so far but we need to have in mind, but we had approximately one month in the marketplace Pride that we were hit by 12 at 19, and we made then conscious decisions actually.
Anne E. White: And so that's a big focus of the launch, and we have partnerships with Thermo Fisher and Illumina and other things in the works to really drive that up across the industry because we do believe that that's actually the best care for patients, regardless of whether they were treated with Retevmo or other targeted therapies. We want patients to get the right therapy for them.
Going back to and from our promotional efforts both in the theme that's when I say and Tom sub seizing promotion overall, we have started to and start up proactive retaining and we remain very confident in the molecule taking into account that we own a vomitoxin can can offer.
Anne E. White: As far as the timelines, so as you know, we've submitted in Europe, and so we're awaiting regulatory action there. That submission was accepted at the beginning of this year. And then we look to submit in Japan and China, either late this year or early next. So still working with regulatory authorities there. Thanks Anne. Patrik?
How long it really from the most painful.
Got it seems sums as well that's the most pop is I'm symptoms associated with migraine and we know about but it's a huge opportunity out of it takes me to MPMP of being treated in the U.S today, 35% to 40% of those are not responding to the great stones and in terms of efficacy and really wanting to know we believe whether unique value proposition.
Patrik Jonsson: Thank you very much.
Patrik Jonsson: Thank you very much. Well, the overall GDP market continued to grow very nicely, and when we
Patrik Jonsson: And when we look at market growth year-to-year, we're talking about a growth of 64% versus last year, while MGallity actually continued to significantly outperform the market with a growth of 151%.
To be down on health and work to be done.
Thanks, Patrick Navient. Thanks for your question I think we have time for one more color. Please.
And that is from the line of David Risinger Morgan Stanley. Please go ahead.
Patrik Jonsson: And in the last quarter, we see that the TGRP market continued to grow by 12% despite the significant decline in terms of new-to-brand.
Thanks, very much so two questions. Please first for them.
If you could.
Just help us understand a little bit better regarding the.
Patrik Jonsson: We continue to be very confident in the future of MGalaxy and
Solar.
Patrik Jonsson: We are naming for market leadership in the preventive market, and we also see strong market leadership, particularly in primary care, where we have expanded our effort in 2020 and with quite a few new trialists. So very, very optimistic in terms of the future.
Antibody 400 patient phase two which was initiated mid June.
Just curious given the primary end point is that day 11, why would results not be revealed until the fourth quarter.
Patrik Jonsson: at the CGOP market and for MGALA-P. If we look up on Ray Baolong, I think it's fair to say that
And then second for Josh could you comment on.
Patrik Jonsson: Thank you all very much for joining us today. We are not very pleased with the performance so far, but we need to keep in mind that we had approximately one month in the marketplace prior to being hit by COVID-19. And we made the conscious decision to actually pull back from our promotional efforts, both in the field as well as in terms of seat promotion overall. We have started to start up virtual proactive detailing, and we're
The swings and in other income I guess, it's really more on a go forward basis. Since you already discussed what happened in the second quarter just to maybe provide any any modeling suggestions to us for modeling.
Other income in future quarters, thanks very much.
Thanks, Dave.
We'll go to Dan and then Josh.
Yes. Thanks for the question on the timing of fees to you're right. It's a 400 fished studies that initiated last month.
Patrik Jonsson: And we remain very confident in the molecule, taking into account that it's the only one that can offer a strong effect.
It got off to a bit of a slow start I think as we saw at that time in the country that pandemic shifted in geographies.
Patrik Jonsson: [inaudible]
Patrik Jonsson: efficacy relief with one single dose. We believe we have a unique value proposition but still a lot of work to be done.
We shifted our efforts accordingly, it's now enrolling very very quickly.
Patrik Jonsson: Thanks, Patrick. Naveen, thanks for your question. I think we have time for one more caller, please, from the line of David Risinger, Morgan Stanley. Thanks very much. So I have two questions, please. First, for Dan, if you could just help us understand a little bit better regarding the Apsalara antibody 400 patient phase two, which was initiated in mid June. Just curious, given the primary endpoint is that day 11, why would results not be revealed until the fourth quarter? And then, second for Josh, could you comment on the swings in other income? I guess it's really more on a go forward basis that you already discussed what happened in the second quarter just to maybe provide any modeling suggestions to us for modeling other income in future quarters.
The timing of data disclosure depends on on that rate of enrollment, though so.
It could in fact de sooner than that in Q4, I think I'm confident it will be by of course sometime during two reports at the latest.
As you point out the day 11 time point is a critical point so.
400 patients are rolled and then 11 days later in his differential swabs.
End.
Viral assessment and database lock and.
Pluses and reporting all that ill just take probably a couple of weeks.
From the end of the study so we'll we'll keep investors updated the community updated on on the progress of the studies, that's where we're at today.
David R. Risinger: Thanks very much. Thanks Dave. We'll go to Dan and then Josh.
Thanks, Dan Josh Thanks, Yes on our Oh I D course in the first half of the year in particular in second quarter as I mentioned, what we're seeing there is the mark to market gains from the roughly $2 billion up of investment Securities. We hold again, we hold these as a function of.
David R. Risinger: Yeah, Dave, thanks for the question on the timing of Phase 2. You're right, it's a 400 patient study that was initiated last month. It got off to a bit of a slow start, but I think, as we saw at that time in the country, the pandemic shifted in geographies, and we shifted our efforts accordingly.
Business development deals and venture capital deals to stay abreast of breaking science, and obviously, we're making good decisions there at least as of as of Q2, we don't anticipate overnight, we don't forecast gains going forward. There. So really if you keep that neutral.
David R. Risinger: It's now enrolling very, very quickly. The timing of data disclosure depends on that rate of enrollment, though. So it could, in fact, be sooner than Q4. I think I'm confident it will be by, of course, sometime during Q4 at the latest. As you point out, the day 11 time point is a critical point. So 400 patients enrolled and then 11 days later, nasopharyngeal swabs and viral assessment, and then database loss. All that will probably take a couple of weeks from the end of the study. So we'll keep investors updated and the community updated on the progress of the study. That's where we are today.
Dave what we're really thinking about that is where in a.
Net debt position, so we pay interest costs on the on the debt.
And then the only way we see anything that's positive as if we see investment gains change. So I think for modeling purposes look at our.
Sort of net net debt position, we've got great.
It's against the debt, so it's pretty pretty modest negative cost, but that's sort of what we assume and then any unusual items that flow through there of course will report and we tend to just as you saw in Q2, let those that flow through but we're not anticipating anything significant in the second half of the year. So mostly are just going to see the negative impact.
David R. Risinger: Thanks, Dan. Josh?
Dan Skovronsky: Thanks. On our OID, of course, in the first half of the year and, particularly, in the second quarter, as I mentioned, what we're seeing there is mark-to-market gains from the roughly $2 billion of investment securities we hold. Again, we hold these as a function of business development deals and venture capital deals to stay abreast of breaking science. Obviously, we're making good decisions there, at least as of Q2. We don't anticipate or we don't forecast gains going forward there. So really, if you keep that neutral, Dave, what we're really thinking about then is we're in a net-debt position, so we pay interest costs on the debt, and then the only way we see anything that's positive is if we see investment gains change. So I think for modeling purposes, look at our net-debt position. We've got great rates against the debt, so it's a pretty modest negative cost, but that's sort of what we assume. And then any unusual items that flow through there, of course, we'll report them, and we tend to just,
Most of our net debt position.
Thanks, Josh David Thanks for your questions and I will go to Dave for the close thanks, Kevin well. We appreciate your participation in our earnings call today at a remarkable quarter and thank you for your interest in Eli Lilly.
Please follow up with our IR team. If you have any additional questions that we didnt address today and hope everyone stays well, we'll talk to you soon.
Thank you ladies and gentlemen that does conclude your conference. We think do thank you for joining you may now disconnect have good day.
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Josh Smiley: We're not anticipating anything significant in the second half of the year, so mostly you're just going to see the negative impacts of our net debt position.
Josh Smiley: Thanks, Josh. David, thanks for your questions, and we'll go to Dave for the close. Thanks, Kevin. Well, we appreciate your participation in our earnings call today, a remarkable quarter, and thank you for your interest in Eli Lilly. Please follow up with our IR team if you have any additional questions that we didn't address today. We'll talk. Thank you. Ladies and gentlemen, that does conclude your conference.
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