Q3 2020 Eli Lilly and Co Earnings Call

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Ladies and gentlemen, thank you for standing by and welcome to Lilly.

Operator: Ladies and gentlemen, thank you for standing by, and welcome to Lilly. Q3 2014 At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Instructions will be given at

Q3, 2020 earnings call at this time, all participants are in a listen only mode. Later, we will conduct a question and answer session instructions will be given at that time.

Operator: If you should require assistance during the call, please press star then. And as a reminder, your conference is: I would now like to turn the conference over to your host, Mr. Kevin Hearn. Please go ahead. Morning. Thank you for joining us for Eli Lilly and Company's Q3 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 USA, Mike Mason, President of Lilly Diabetes, and Ilya Yuffa, President of Li We're also joined by Sarah Smith and Mike Zappar of Investor Relations. During this conference call, we anticipate making projections and forward-looking statements based on our current expectations.

If you should require assistance during the call. Please press Star then zero in.

And as a reminder, your conference is being recorded I would now like to turn the conference over to your host Mr. Kevin Harris. Please go ahead.

Good morning, Thank you for joining us for Eli Lilly and company's Q3, 2020 earnings call I'm, Kevin Hernan, Vice President of Investor Relations Joe.

Joining me on today's call are Dave Ricks, Lilly's, Chairman and CEO, Josh Smiley, Chief Financial Officer, Dr., Danskin, Roski, Chief Scientific officer, and White President of Lilly Oncology, Patrick Johnson, President of Lilly USA, Mike Mason President of Lilly diabetes, and you know you for president of Lilly.

Bio medicines, we're also joined by Sarah Smith, and makes it more of the Investor Relations team.

During this conference call, we anticipate making projections and forward looking statements based on our current expectations. Our actual results could differ materially due to a number of factors, including those noted on slide three.

Operator: Our actual results could differ materially due to a number of factors, including those noted on slide three. Additional information concerning factors that could cause actual results to differ materially is contained in Lilly's latest form 10-K and subsequent forms 10-Q and 8-K. 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.

Additional information concerning factors that could cause actual results to differ materially is contained in one of these latest form 10-K, and subsequent forms 10-Q and 8-K.

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.

Kevin Hearn: As we transition to our prepared remarks, a reminder that our commentary will focus on non-GAAP financial measures, which exclude the financial contribution for Milenko during 2019 and present earnings per share as though the full disposition via the exchange offer was complete on January 1, 2019. Now, I'll turn the call over to Dave for some opening comments. Thanks, Kevin.

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 a full disposition via the exchange offer was complete on January 1st 20 Nike.

Now I'll turn the call over to Dave for some opening comments.

Thanks, Kevin Q3 was another important quarter for Lilly and the pharmaceutical industries progress in developing new medicines to treat COVID-19.

Dave Ricks: Q3 was another important quarter for Lilly and the pharmaceutical industry's progress in developing new medicines to treat COVID-19. I'm very proud of Lilly's work, and we'll go into detail about the promising advancements made this quarter. However, I'd like to start by summarizing our overall business performance. Clearly, this quarter's financial results came in below sell-side analysts' projections.

I'm very proud of Lilly's work and will go into detail of the promising advancements made this quarter. However, I'd like to start by summarizing our overall business performance.

Clearly this quarter's financial results came in below sell side analyst projections.

Dave Ricks: While we don't provide quarterly guidance, I'll make a few high-level comments on several factors that did impact our Q3 results, and then Josh will go into more detail later. First, as we've discussed in the past, the impact of price on revenue can be volatile in the U.S., as we make estimates for rebates and discounts, obligations during the coverage gap of Medicare Part D, patient assistance programs, and other liabilities.

Well, we don't provide quarterly guidance I'll make a few high level comments on several factors that did impact our Q3 results and then Josh will go into more detail later.

First as we've seen as we've discussed in the past the impact of price on revenue can be volatile in the U.S.

As we make estimates for rebates and discounts.

Obligations during the coverage gap of Medicare part D patient assistance programs and other liabilities.

Dave Ricks: During Q3, the magnitude of adjustments was meaningful, predominantly related to our assumptions regarding our obligation during the coverage gap in Medicare Part D for trulicity. While the impact was notable in Q3, this source of volatility normalizes when analyzing our results over the first nine months, as well as for the full year. In addition, while we are encouraged that new prescriptions are trending toward pre-COVID levels, the recovery varies by class. We view this impact as transient, remain confident in the underlying business, and continue to manage our operations to deliver success over the long term. From an operating expense standpoint, we made significant investments in R&D to develop COVID-19 treatment. While we've spoken before about our efforts to develop COVID-19 treatments, we've not quantified that investment level.

During Q3, the magnitude of adjustments was meaningful predominantly related to our assumptions regarding our obligation during the coverage gap in Medicare part D for Trulicity.

Well the impact was notable in Q3 this source of volatility normalizes when analyzing our results over the first nine months as well as for the full year.

In addition, while we are encouraged that new prescriptions are trending toward pre covert levels. The recovery varies by class. We view. This important this impact is transient.

I remain confident in the underlying business and continue to manage our operations to deliver success over the long term.

From an operating expense standpoint, we made significant investments in R&D to develop koby 19 treatments.

Well, we spoken before about our efforts to develop koby 19th treatments, we've not quantified that investment level.

In Q3, we were fortunate to see positive clinical data from multiple trials and this activity had an impact of about 12 cents on Q3 earnings per share.

Dave Ricks: In Q3, we were fortunate to see positive clinical data from multiple trials, and this activity had an impact of about 12 cents on Q3 earnings per share. Finally, after taking a pause on active promotion in Q2 to respect the impact COVID-19 had on medical practices, we increased our investments in customer-facing activity and direct-to-consumer marketing in Q3 in order to accelerate our growth. While this did create a step-up compared to our investment level in SG&A in Q2 2020 and versus Q3 2019, we believe our progress in Q3 sets us up for a strong finish to the year and to provide meaningful momentum into 2021. We have a number of opportunities to drive this growth through these investments in our existing commercial portfolio.

Finally, after taking a pause on active promotion in Q2 to respect the impact of COVID-19 had on medical practices, we increased our investments in customer facing activity and direct to consumer marketing in Q3 in order to accelerate our growth well.

While this did create a step up compared to our investment level on SGN Inc. Q2, 2020 and versus Q3 2019, we believe our progress in Q3 sets us up for a strong finish to the year and to provide meaningful momentum into 2021.

We have a number of opportunities to drive this growth through these investments in our existing commercial portfolio. These include our unique CV indication for Trulicity and the recently launched higher doses pull.

Dave Ricks: These include our unique CD indication for tulicity and the recently launched higher doses, pulling through Access Wins for TALS and launching the recently-approved non-radiographic Axe-by indication, and driving increased uptake of Resenio through our differentiated data package, just to highlight a few. Looking at the underlying trends in Q3, we delivered revenue growth of 5% or 4% excluding the impact of foreign exchange. Despite disruptions on new patient charts from the global pandemic, volume growth was solid, increasing by 9% versus Q3 2019. Our key growth products continue to be the catalyst for our business performance and made up over half of our revenue during the quarter. International performance in Europe and in China was particularly strong, as constant currency revenue grew 9% and 10%, respectively, driven by our newest product. For the first nine months of the year, our revenue grew by 6%, driven by 12% volume growth. This growth was delivered during a period of significant disruption.

Pulling through access wins for tolls and launching the recently approved non radiographic acts by indication.

And driving increased uptake in Brazil through our differentiated data package just to highlight.

Phew.

Looking at the underlying trends in Q3, we delivered revenue growth.

5% or 4%, excluding the impact of foreign exchange.

Despite disruptions on new patient starts from the global pandemic volume growth was solid increasing by 9% versus Q3 2019.

Our key growth products continue to be the catalyst for our business performance and made up over half of our revenue during the quarter.

International performance in Europe, and in China was particularly strong as constant currency revenue grew 9% and 10% respectively, driven by our newest products.

For the first nine months of the year, our revenue grew by 6% driven by 12% volume growth. This growth was delivered during a period of significant disruption.

Dave Ricks: The ways we launch new medicines, execute clinical trials, and manufacture our products have all been meaningfully changed during the pandemic, with some adjustments likely to remain as our business continues to evolve. We are proud of our efforts to ensure patients have access to medicines by maintaining our manufacturing plants in continuous operation and by developing potential new treatments for COVID-19. Operating margin as a percent of revenue was 26.2% for the third quarter. This was a decline of 230 basis points versus Q3 2019, but was depressed by 125 million that we invested in COVID-19 therapies during the quarter. Excluding these exceptional activities, the operating margin was 28.4%.

The ways, we launched new medicines execute clinical trials and manufacture our products have all been meaningfully changed during the pandemic with some adjustments likely to remain as our business continues to evolve.

We are proud of our efforts to ensure patients have access to medicines by maintaining our manufacturing plants in continuous operation and by developing potential new treatments for COVID-19.

Operating margin as a percent of revenue was 26.2% for the third quarter. This is a decline of 230 basis points versus Q3, 2019, but was depressed by 125 million that we invested in COVID-19 therapies during the quarter.

Excluding these exceptional activities operating margin was 28.4%.

Dave Ricks: We have confidence in our outlook and expect to deliver financial results within our updated guidance range, with all lines at or above our original 2020 guidance, to achieve our operating margin expansion plans, excluding our investments in COVID-19 treatment. The fundamentals of our business are strong, and we remain well-positioned for a period of sustained growth and margin expansion. Turning to the pipeline, in Q3, we made meaningful progress advancing our late-stage pipeline and developing potential COVID-19 treatments, including FDA approval of additional doses for Trulicity for the treatment of type 2 diabetes, an important data readout for Resenio and early breast cancer. Approval in Europe for Illumiant in adults with moderate to severe atopic dermatitis

We have confidence in our outlook and expect to deliver financial results within our updated guidance range with all lines at or above our original 2020 guidance.

And to achieve our operating margin expansion plans, excluding our investments in koby 19 treatments.

The fundamentals of our business are strong and we remain well positioned for a period of sustained growth and margin expansion.

Turning to the pipeline in Q3, we made meaningful progress advancing our late stage pipeline and developing potential koby 19 treatments, including FDA approval of additional doses for trulicity for the treatment of type two diabetes.

An important data readout for presenting in early breast cancer.

Approval in Europe for aluminum in adults with moderate to severe atopic dermatitis.

Dave Ricks: We presented positive phase 3 results from the ACT-II trial of baricitinib in combination with remdesivir in hospitalized COVID-19 patients, positive results from our COVID-19 neutralizing antibody monotherapy and combination therapies, and we presented new data on a potential new indication for Jardian, in collaboration with Beringer-Engelheim. I'm encouraged by our company's efforts to develop potential new therapies to treat COVID-19 and work at unprecedented speed. This work would not have been possible without the tireless efforts of many employees at Lilly and the collaborative efforts across industry, regulators, and government. We continue to utilize external innovation and collaboration to augment our internal capabilities. This quarter, we signed a number of business development transactions, including the global expansion of our Tyvek collaboration with InnoVent. At the same time, we utilized our strong cash flow to return nearly $700 million to shareholders via the debit.

Positive phase three results from the App to trial Baricitinib in combination with Rem disappear in hospitalized koby 19 patients.

Positive results of our COVID-19, neutralizing antibody monotherapy and combination therapies.

And we presented new data on a potential new indication for Jardiance in collaboration with barrier Ingelheim.

I'm encouraged by our company's efforts to develop potential new therapies to treat koby 19, and working at unprecedented speed.

This work would not have been possible without the tireless efforts of many employees of Lilly and the collaborative efforts across the industry regulators and governments.

We continue to utilize external innovation and collaboration to augment our internal capabilities.

This quarter, we signed a number of business development transactions, including the global expansion of our Tyvek collaboration within event.

At the same time, we utilized our strong cash flow to return nearly $700 million to shareholders via the dividends.

Dave Ricks: Moving to slides five and six, you'll see the full list of key events since our last earnings call. I would like to welcome Ilya Yuffa to our executive team as he assumes leadership for our Biomedicines Business Unit. A 25-year veteran with a tremendous breadth of experience across our organization, from finance, business development, and sales to Six Sigma, ethics, and compliance, and general management. Ilya has consistently delivered impressive results in successfully larger roles, which have prepared him well to lead Lilly Biomedicine. After serving as General Manager of Italy since 2018, Ilya has been leading Lilly's largest franchise, U.S. Diabetes, where he played a critical role in the continued success of the market-leading medicine, Trulicity, as well as Jardians, and the two fastest-growing classes in diabetes. Ilya, it's great to have you on our leadership team.

Moving to slides five and six you will see the full list of key events since our last earnings call.

I would like to welcome you to our executive team as he assumes leadership for a bio medicines business unit.

A 25 year veteran with a tremendous breadth of experience across our organization from finance business development and sales to six Sigma ethics, and compliance and general management.

Has consistently delivered impressive results and successful larger roles.

Net successively larger roles, which are prepared and well to lead Lilly bio medicines.

After serving as general manager of Italy. Since 2018 has been leading lilly's largest franchise us diabetes, where he played a critical role and the continued success of mark of the market, leading medicine, trulicity as well as Jardiance and the two fastest growing classes in diabetes.

Really it's great to have you on our leadership team.

Dave Ricks: I'd also like to thank Patrik for his energy, focus, and execution that he brought to his time as president of Lilly Biomedicines. Given Patrik's strong record of successfully managing Lilly businesses in complex markets around the world, he is the right enterprise leader to lead Lilly USA and our global customer-focused functions during this exciting period of opportunity and growth as we look to continue to deliver new medicines to patients. Before I turn the call over to Josh to review our Q3 results and to provide an update on our financial guidance for 2020, I want to discuss briefly certain events at one of our manufacturing facilities located in Branchburg, New Jersey. Late last year, our Branchburg plant underwent a routine FDA general surveillance inspection. The inspectors identified findings related to data handling, and we received an official action indicated notice, as well as a follow-up inspection this year.

I'd also like to thank Patrick for his energy focus and execution that he brought to his time as president of Lilly Bio medicines, given patricks strong record of successfully managing Lilly businesses in complex markets around the world. He is the right enterprise leader to lead little USA and our global customer focused functions. During this exciting period of our.

Opportunity and growth as we look to continue to deliver new medicines to patients.

Before I turn the call over to Josh to review, our Q3 results and to provide an update on our financial guidance for 2020, I want to discuss briefly certain events in one of our manufacturing facilities located in Branchburg New Jersey.

Late last year, our branch for plant underwent a routine ft general surveillance inspection.

Inspectors identified findings related to data handling and we received an official action indicated notice as well as a follow up inspection this year.

Dave Ricks: We have not received a warning letter or other enforcement letter from the FDA at this time. Given that this plant is among several worldwide that produce Bamlanivimab or Lilly SARS-CoV-555, one of our COVID-19 neutralizing antibodies, I want to share more information about our response to these inspections. First, we are confident the issues raised during the inspections did not impact product quality or patient safety for bamelinivimab or for any other product manufactured at the Branchburg plant. Having said that, we, and I, take remediation of these data handling issues and our commitment to quality and safety very seriously. We engaged an external firm to conduct a comprehensive, independent review of systems at the Branchburg site, and we are working diligently to incorporate suggestions for improvement into our process.

We have not received a warning letter or other enforcement letter from the FDA.

This time.

Given that this plan is among several worldwide that produces family Nivolumab or Lily Sars code five one of our COVID-19, neutralizing antibodies I want to share more information about our response to these inspections.

First we are confident the issues raised during the inspections did not impact product quality or patient safety for band whenever map.

Or for any other product manufactured at the branch per plan.

Having said that we and I take remediation of these data handling issues and our commitment to quality and safety very seriously we.

We engaged an external firm to conduct a comprehensive independent review of systems at the branch for excite and we're working diligently to incorporate suggestions for improvement to our procedures.

We have also had this from perform independent reviews of our manufacturing of family Nivolumab at branch for to examine our manufacturing batch records and quality documentation to corroborate our own batch release decisions.

Dave Ricks: We have also had this firm perform independent reviews of our manufacturing of Bamylin-Ivamab at Branchburg to examine our manufacturing batch records and quality documentation to corroborate our own batch release decisions. As we submit for supply of Bamlanivimab from Branchburg for the emergency use authorization we requested, We are confident in the material at this facility and, frankly, at all of our sites. Finally, for our neutralizing antibodies, we have a robust global supply chain in place with five active ingredient manufacturing sites worldwide, in addition to five additional drug product sites worldwide. Branchburg is one of the active ingredient sites. Once we are approved to do so, our resilient global network is well positioned to begin the supply as we help battle this global pandemic. Now, let me turn it over to Josh.

As we submit for supply of Bam Bam whenever mab from branch FERC for the emergency use authorization we requested.

We are confident in the material at this facility.

And frankly at all of our sites.

Finally for our neutralizing antibodies, we have a robust global supply chain in place with five active ingredient manufacturing sites worldwide in.

In addition to five additional drug product sites worldwide.

Branchburg is one of the active ingredient sites. Once we are approved to do so our resilient global network is well position to begin the supply as we help battle this global pandemic.

Now, let me turn it over to Josh Thanks.

Josh: Thanks, Dave, and good morning, everyone. Moving to slides seven and eight, you will see our non-GAAP financial performance in Q3 and during the first nine months of 2020. As Dave mentioned, revenue increased 5% this quarter compared to Q3 2019 as key growth products drove volume growth. Gross margin as a percent of revenue in Q3 was 79.1 percent, a decline of 50 basis points versus Q3 2019, driven primarily by the unfavorable effect of foreign exchange rates on international inventories sold and lower realized prices, partially offset by favorable manufacturing efficiencies and product mix, Moving down the P&L, selling general and administrative expenses increased 11% this quarter compared to Q3 2019 as we invested meaningfully in direct-to-consumer marketing to augment our virtual tactics, increasing promotion to physicians and consumers in connection with increases in healthcare utilization around the world.

Thanks, Dave and good morning, everyone moving.

Moving to slide seven and eight you will see our non-GAAP financial performance in Q3 and during the first nine months of 2020.

As Dave mentioned revenue increased 5% this quarter compared to Q3 2019 as key growth products drove volume growth.

Gross margin as a percent of revenue in Q3 was 79.1% a decline of 50 basis points versus Q3, 2019, driven primarily by the unfavorable effect of foreign exchange rates on international inventories sold and lower realized prices, partially offset by favorable manufacturing efficiencies and product mix.

Moving down the CNL selling general and administrative expenses increased 11% this quarter compared to Q3 2019, as we invested meaningfully in direct to consumer marketing to augment our virtual tactics, increasing promotion to physicians and consumers in connection with increases in health care utilization around the world.

As I will discuss in our guidance in a few minutes, we see the absolute level of third quarter SGN expenses as indicative of our fourth quarter expenditures as well, which keeps us on track for our full year ranges and modest full year growth.

Research and development expenses increased by 6% in the quarter driven primarily by our efforts to develop COVID-19, neutralizing antibodies and Baricitinib for hospitalized COVID-19 patients, partially offset by lower development expenses for late stage assets.

In total operating income decreased 4% compared to Q3 2019 as increased investments, including COVID-19 related R&D expenses exceeded revenue growth during the quarter.

Josh: As I will discuss our guidance in a few minutes, we see the absolute level of third quarter SG&A expenses as indicative of our fourth quarter expenditures as well, which keeps us on track for our full year ranges and modest full year growth. Research and development expenses increased by 6% in the quarter, driven primarily by our efforts to develop COVID-19 neutralizing antibodies and baricitib for hospitalized COVID-19 patients, partially offset by lower development expenses for late-stage assets. In total, operating income decreased 4% compared to Q3 2019 as increased investments, including COVID-19 related R&D expenses, exceeded revenue growth during the quarter.

We expect the increased marketing activity and customer activity activation to drive additional revenue growth going forward.

During the first nine months of 2020 operating income increased by 7% as revenue growth outpaced operating expense growth.

Operating income as a percent of revenue was 26.2% during the third quarter and 28.1% for the first nine months of 2020 as.

As Dave mentioned earlier, our investments in COVID-19 therapies represent an investment outside of our normal business operations. So excluding R&D expenses of $180 million associated with these important programs our operating margin. During the first nine months of 2020 would have been 29.2% and consistent with our guidance we expect.

Continued improvement in Q4.

We continue to allocate resources efficiently in an environment, where COVID-19 is likely to have an impact for a sustained period of time.

We've made the transition to a hybrid virtual and in person commercial model to support executing our strategy and we are committed to margin expansion in 2020 and beyond.

Josh: We expect the increased marketing activity and customer activation to drive additional revenue growth going forward. During the first nine months of 2020, operating income increased by 7% as revenue growth outpaced operating expense growth. Operating income as a percent of revenue was 26.2% during the third quarter and 28.1% for the first nine months of 2020.

Other income and expense was income of $159 million this quarter compared to expense of $25 million in Q3 2019.

This quarter's other income was primarily driven by investment gains across our portfolio of public and private Biopharm company investments as part of our external innovation strategy.

As we regularly highlight this line can be volatile as public and private equity valuations fluctuate.

We have received quite a bit of investor feedback on this item. So beginning in 2021, we will exclude the gains or losses due to equity investments from our non-GAAP measures. We believe this will better align our non-GAAP results with our core business operations allow for easier comparisons with our peer group and remove unpredictable volatility.

Josh: As Dave mentioned earlier, our investments in COVID-19 therapies represent an investment outside of our normal business operations, so excluding R&D expenses of $180 million associated with these important programs, our operating margin during the first nine months of 2020 would have been 29.2%, and consistent with our guidance, we expect continued improvement in Q4. We continue to allocate resources efficiently in an environment where COVID-19 is likely to have an impact for a sustained period of time. We've made the transition to a hybrid virtual and in-person commercial model to support executing our strategy, and we're committed to margin expansion in 2020 and beyond. Other income and expense was income of $159 million this quarter compared to $25 million in Q3 2019.

This quarter, our tax rate was 15.5% an increase of 380 basis points compared with the same quarter last year, driven by the mix of earnings in higher tax jurisdictions, and lower net discrete tax benefit this quarter versus the same quarter last year.

While we expect some quarterly variability we remain comfortable with long term expectations of roughly 14%, 15% tax rate under the current us corporate tax structure.

At the bottom line earnings per share increased 4% during the first nine months of 2020 earnings per share increased 20%.

On slide nine and 10, we described the effect of price rate and volume on revenue.

Worldwide revenue increased 5% during Q3 as volume growth of 9% was partially offset by price.

Foreign exchange rates had a 1% positive impact on revenue growth.

Josh: This quarter's other income was primarily driven by investment gains across our portfolio of public and private biofarm company investments as part of our external innovation strategy. However, as we regularly highlight, this line can be volatile as public and private equity valuations fluctuate. We've received quite a bit of investor feedback on this item, so beginning in 2021, we will exclude the gains or losses due to equity investments from our non-GAAP measures. We believe this will better align our non-GAAP results with our core business operations, allow for easier comparisons with our peer group, and remove unpredictable volatility. This quarter, our tax rate was 15.5%, an increase of 380 basis points compared with the same quarter last year, driven by the mix of earnings in higher tax jurisdictions and lower net discrete tax benefit this quarter compared with the same quarter last year.

During the first nine months of 2020 revenue grew 6% driven by volume growth of 12% price was at 6% drag on worldwide growth or 4%. If you exclude the impact of Olympia and tie that in China.

US revenue grew 3% compared to the third quarter of 2019 volume growth of 7% was led by Trulicity targets in presenting partial.

Partially offset by increased competition for Forteo and the impact on Trajenta from the restructuring of the BDI Alliance.

In line with our expectations price was a 4% drag on us revenue growth.

Three percentage points were due to changes to estimates for rebates and discounts most notably impacting trulicity.

One percentage point was due to the net impact of increased rebates across the portfolio to maintain our strong commercial access partially offset by modest list price increase.

Ill typically we do not discuss detailed pricing dynamics for individual products I will provide some additional commentary on the impact of price on Trulicity performance in Q3.

In prior quarters, we assumed our part D coverage gap liability would shift to later in the year due to short term deferral of health care utilization caused by the impact of COVID-19, and the increased threshold for entry into the coverage gap.

However, informed by recent invoices from our part D customers. We now anticipate similar patterns in prior years. So this resulted in updated estimates that led to a meaningful impact on Q3 results and a double digit drag on trulicity true lessees growth rate.

Josh: While we expect some quarterly variability, we remain comfortable with long-term expectations of roughly 14-15% tax rates under the current U.S. corporate tax structure. At the bottom line, earnings per share increased 4%. During the first nine months of 2020, earnings per share increased 20%. On slides 9 and 10, we describe the effect of price, rate, and volume on revenue. Worldwide revenue increased 5% during Q3, as volume growth of 9% was partially offset by price.

Our estimated coverage gap impact for the full year, though is largely unchanged.

Excluding the impact of the onetime adjustments to lessees price declined by high single digits in the third quarter versus Q3, 2019, and low double digits for the first nine months of 2020.

We expect a high single digit price decline for Trulicity for the full year.

Last year, we guided toward a mid single digit price decline for Trulicity. We expected this to be driven by increasing rebate rates to maintain our excellent access partially offset by modest list price increases and modest growth in more re more highly rebated segments.

As 2020 has unfolded the negative impact of price on Trulicity growth had been higher than we expected primarily due to segment mix.

On slide 10, we show the impact of segment mix and rate on Trulicity growth in 2019 and 2020.

Josh: Foreign exchange rates had a 1% positive impact on revenue. During the first nine months of 2020, revenue grew 6%, driven by volume growth of 12%. Price was a 6% drag on worldwide growth, or 4% if you exclude the impact of Olympta and Tyvit in China. U.S. revenue grew 3% compared to the third quarter of 2019. Volume growth of 7% was led by Trulicity, Tulse, and Verzenio, partially offset by increased competition for Porteo and the impact on Trojanta from the restructuring of the BI alliance. In line with our expectations, price was a 4% drag on U.S. revenue growth.

While rate with a pricing headwind the net impact of modest list price increases and increased rebate rates has been mid mid single digits or lower which is consistent with our expectations.

Moving to segment mix, while the commercial segment continues to deliver robust growth.

Lower net price segments have grown significantly faster.

This depressed Trulicity is reported growth by approximately seven percentage points in 2019, and six percentage points through the first nine months of 2020.

This continued growth in 2020 exceeded our expectations and was primarily driven by Medicaid and to a lesser extent Medicare and other segments.

Within Medicaid, we experienced formulary changes in key states faster than anticipated pull through of access wins and expansion of total Medicaid lives. This year.

Trulicity currently has a 45% share of market across all segments and continues to be the market leading GLP one.

Josh: Three percentage points were due to changes to estimates for rebates and discounts, most notably impacting Trulicity. One percentage point was due to the net impact of increased rebates across the portfolio to maintain our strong commercial access, partially offset by modest list price increases. While typically we do not discuss detailed pricing dynamics for individual products, I will provide some additional commentary on the impact of price on Trulicity performance in Q3. In prior quarters, we assumed our Part D coverage gap liability would shift to later in the year due to short-term deferral of health care utilization caused by the impact of COVID-19 and the increased threshold for entry into the coverage gap. However, informed by recent invoices from our Part D customers, we now anticipate similar patterns to prior years, so this resulted in updated estimates that led to a meaningful impact on Q3 results and a double-digit drag on Trulicity's growth rate.

We exited Q3 with a similar share of market in the commercial segment. However, consistent with volume growth. We gained 4.5 percentage points of share in Medicaid and other segments. Since 2000 since Q1 2019 and finished the quarter at a 38% share of market.

It's worth noting that utilization of GLP ones as a class is still immature and low market penetration suggests significant opportunity for additional growth across all segments.

GLP ones are use less than Medicaid and Medicare and we expect disproportionate volume growth in these segments to continue.

Although these volume gains have a lower realized price than our commercial business. They do represent profitable business enable trulicity help more people living with diabetes.

So as we project into 2021, we expect continued strong trulicity access and performance across all segments with modest unit price declines and continued faster growth in lower price segments to result in high single digit total net price declines in 2021.

However, I would note that this faster segment growth, which contributes to the net price decline also shows up at higher overall prescription growth for GLP ones as well.

Josh: Our estimated coverage gap impact for the full year is largely unchanged. Excluding the impact of the one-time adjustment, Trulicity's price declined by high single digits in the third quarter versus Q3 2019 and low double digits for the first nine months of 2020. We expect a high single-digit price decline for Trulicity for the full year. Last year, we guided toward a mid-single-digit price decline for TruList.

Our outlook for total us pricing train trends remains unchanged and we continue to expect mid single digit price declines for the full year in 2020 as well as moving into 2021. This.

This mid single digit price decline outlook includes as we noted last quarter a modest impact in 2020 from the effect of increased U.S. unemployment on segment mix.

As well as approximately 100 million to $200 million of impact in 2021.

Josh: We expected this to be driven by increasing rebate rates to maintain our excellent access, partially offset by modest list price increases and modest growth in more highly rebated segments. However, as 2020 has unfolded, the negative impact of price on Trulicity growth has been higher than we expected, primarily due to segment mix. On slide 10, we show the impact of segment mix and rate on trulicity growth in 2019 and 2020. While rate was a pricing headwind, the net impact of modest list price increases and increased rebate rates has been mid-single digits or lower, which is consistent with our expectations. Moving to segment mix, while the commercial segment continues to deliver robust growth, lower net price segments have grown significantly faster.

Okay moving to Europe revenue grew 9% in constant currency and volume grew by 10% partially offset by price.

Volume growth was positively impacted by Olympia in Germany due to our patent appeal victory and the court ordered injunction against generics that had entered the market as well as trulicity tall, salumi and presenting it.

In Japan revenue grew 1% in constant currency as 5% volume growth was partially offset by government mandated price decreases who are effective March 2020.

Japan revenue benefited from a onetime sale of CLS as well as good volume growth from presenting on Trulicity, partially offset by increased competition for Forteo.

In China revenue grew 10% in constant currency, driven by 51% volume growth, partially offset by pricing concessions from the inclusion of tie that in Olympia in government sponsored programs. These programs helped drive China's significant volume growth, which substantially increased access for patients to these important cancer medicines we are.

Josh: This depressed Trulicity's reported growth by approximately 7 percentage points in 2019 and 6 percentage points through the first nine months of 2020. This continued growth in 2020 exceeded our expectations and was primarily driven by Medicaid and, to a lesser extent, Medicare, and other segments. Within Medicaid, we experienced formulary changes in key states, faster-than-anticipated pull-through of access wins, and expansion of total Medicaid lives this year. Trulicity currently has a 45% share of the market across all segments and continues to be the market-leading GLP-1. We exited Q3 with a similar share of the market in the commercial segment. However, consistent with volume growth, we gained 4.5 percentage points of share in Medicaid and other segments since Q1 2019 and finished the quarter at a 38% share of the market. It's worth noting that utilization of GLP-1s as a class is still immature, and low market penetration suggests a significant opportunity for additional growth across all sectors.

Cited about the momentum of our China oncology business and look forward to receiving regulatory action on presenting out in the coming months.

Outside of our oncology portfolio in China recently launched products Trulicity tops Jardiance and alumina continue to have strong uptake.

Revenue in the rest of the world increased 3% in constant currency driven by increased volume from our key growth products strong performance from Trulicity Jardiance illuminate was partially offset by decreased Humalog Forteo see Alison Humulin volume.

As shown on slide 11, our key growth products continue to drive impressive worldwide volume growth.

These new medicines delivered nearly 13 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 low lead product for forteo as well as reduced trajenta royalties from the restructuring of our alliance with Behringer Ingelheim announced last year.

We ended the first nine months of 2020 pleased that our key growth products have contributed approximately 15% year to date volume growth.

Slide 12 highlights the contributions of our key growth products in total these brands generated nearly $3 billion in revenue this quarter, making up 52% of revenue.

Josh: GLP-1s are used less in Medicaid and Medicare, and we expect disproportionate volume growth in these segments to continue. Although these volume gains have a lower realized price than our commercial business, they do represent profitable business and enable Trulicity to help more people living with diabetes. So, as we project into 2021, we expect continued strong trulicity, access, and performance across all segments, with modest unit price declines and continued faster growth in lower-priced segments, to result in high single-digit total net price declines in 2021. However, I would note that this faster segment growth, which contributes to the net price decline, also shows up as higher overall prescription growth for GLP-1s as well. Our outlook for total U.S. pricing trends remains unchanged, and we continue to expect mid-single-digit price declines for the full year in 2020, as well as moving into 2021.

So our key products are well positioned to drive strong performance over the long term, we continue to see an impact from reduced patient starts due to COVID-19 in.

In Q3, we were encouraged to see new patient starts recover off the troughs experienced in Q2 as the health system reopened around the world while different classes have recorded different rates most classes remain 10%, 20% below pre coven baseline.

On slide 13, we provide an update on capital allocation.

During the first nine months of 2020, we invested nearly $6 billion to drive our future growth through a combination of business development capital expenditures and after tax investment in R&D, including the addition of let brick has of mab in a number of early stage agreements. In addition, we've returned over $2.5 billion to shareholders via share repurchase and the dividend.

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 we do not anticipate cobot impacts regarding travel or market uncertainty to affect our efforts.

Moving to slide 14, you'll find our updated 2020 financial guidance and this is based on our best estimates at this time key assumptions supporting the guidance include healthcare activity will continue the positive trend seen in Q3, returning to historical levels as doctors utilize tele health or in person visits despite additional costs.

Josh: This mid-single-digit price decline outlook includes, as we noted last quarter, a modest impact in 2020 from the effect of increased U.S. unemployment on segment mix, as well as approximately $100 million to $200 million of impact in 2021. Okay, moving to Europe, revenue grew 9% in cost and currency, as volume grew by 10%, partially offset by price. Volume growth was positively impacted by Olympta in Germany due to our patent appeal victory and a court-ordered injunction against generics that had entered the market as well as Trulicity, Talt, Salumian, and Verzenio. In Japan, revenue grew 1% in constant currency as 5% volume growth was partially offset by government-mandated price decreases that were effective in March 2020.

19 outbreaks.

New patient prescriptions will continue to improve in the U.S.

Pricing headwinds from increased utilization of patient affordability programs and changes in segment mix due to increased U.S. unemployment will continue to be modest and promotional spend will can constitute a mix of in person customer interactions direct to consumer advertising and investments in digital promotion.

While uncertainty remains regarding resurgent waves of cobot, 19, and any resulting impact on the pace of economic recovery around the world. We do believe health care activity will continue to be a priority and that most patients will find ways to access healthcare so.

So based on these assumptions we are maintaining our current full year revenue range.

At the low end of the range year over year sales growth in Q4 would be 8% to 9%, which while a step up from our third quarter growth rate is supported by current volume trends and our expectations of more limited price impacts in the U.S.

Josh: Japan's revenue benefited from a one-time sale of Cialis, as well as good volume growth from Bresenio and Trulicity, partially offset by increased competition for Porteo. In China, revenue grew 10% in constant currency, driven by 51% volume growth, partially offset by price and concessions from the inclusion of Tibet and Olympia in government-sponsored programs. These programs help drive China's significant volume growth, which substantially increased access for patients We're excited about the momentum of our China oncology business and look forward to receiving regulatory action on Bersenio in the coming months. Outside of our oncology portfolio in China, recently launched products, Trulicity, TULPS, Jardians, and Illumion continue to have strong uptakes. Revenue in the rest of the world increased 3% in constant currency, driven by increased volume from our key growth products.

Achieving the higher end of the range likely require some moderate sales from our cobot antibody, which we believe is possible but of course not certain at this point.

Moving down the income statement, our gross margin as a percent of revenue was unchanged on a GAAP and non-GAAP basis.

We are narrowing our range for marketing selling and administrative expenses to $6.0 billion to $6.1 billion.

We are narrowing our range for research and development expenses to $5.8 billion to $5.9 billion with investment in COVID-19 treatments of approximately $400 million for the full year likely to push us to the high end of our range as Willie continues to self fund. These programs. We believe these investments are critical to help combat the global pandemic.

We're noting that our non-GAAP operating income as a percent of revenue goal of 31% excludes our substantial investments in KOVA 19 treatments and and any associated revenue with them income.

Inclusive of these costs, we expect an operating margin of approximately 29%.

While these investments put near term pressure on our operating margin. They continue to be the right decision for our company and for Society and post launch we do expect these therapies to be accretive to our operating income.

Josh: Strong performance from Trulicity, Jardians, and Illumiant, partially offset by decreased Humalog, Forteo, Cialis, and Humulin volumes. As shown on slide 11, our key growth products continue to drive impressive worldwide volume growth. These new medicines delivered nearly 13 percentage points of volume growth this quarter.

We are updating the range of other income and expense to $450 million to 600 million of income, reflecting additional gains in our equity portfolio seen in the third quarter. As previously mentioned this number is subject to volatility in the capital markets.

Josh: The strong volume trend in our key products was partially offset by a mix of competition and lower utilization of post-LOE products for Porteo, as well as reduced Trojanta royalties from the restructuring of our alliance with Berenger Ingelheim announced last year. We end the first nine months of 2020 pleased that our key growth products have contributed approximately 15% year-to-date volume growth. Slide 12 highlights the contributions of our key growth products. In total, these brands generated nearly $3 billion in revenue this quarter, making up 52% of revenue.

Turning to taxes, we are maintaining our GAAP and non-GAAP effective tax rate guidance at approximately 14%.

Earnings per share are unchanged on a non-GAAP basis, our GAAP EPS is expected to be in the range of $6.20 to $6.40.

As I noted with the revenue range EPS totals in Q4 will be highly dependent on cobot sales, which is why we're maintaining a pretty broad 20 cent range as we head into the fourth quarter.

We executed very well positioned to continue delivering revenue growth and productivity. Despite the impact of the Cove in 19 pandemic. We're proud of the investments we are making to help come back over 19 and are confident in the underlying strength of our business and our ability to overcome challenges based.

Based on our current outlook for Q4, we believe we will exit the year with strong underlying momentum for 2021.

Josh: Though our key products are well positioned to drive strong performance over the long term, we continue to see an impact from reduced patient starts due to COVID-19. In Q3, we were encouraged to see new patients start to recover from the troughs experienced in Q2 as the health system reopened around the world. However, while different classes have recorded different rates, most classes remain 10 to 20% below pre-COVID baseline.

So I'll now turn the call over to Dan to provide an update on our ongoing efforts to develop treatments for KOVA 19, a summary of key data disclosures in Q3, and an overall pipeline update.

Thanks, Josh since.

Since our last call, we've made meaningful progress developing potential treatments recovered 19, advancing key assets in our pipeline.

And presenting practice changing clinical trial data at major medical meetings.

I'll begin with updates to our COVID-19 viral neutralizing antibody program, then ill provide an update on the full pipeline and I'll finish by highlighting key events since the last quarter.

Josh: On slide 13, we provide an update on capital allocation. During the first 9 months of 2020, we invested nearly $6 billion to drive our future growth through a combination of business development, capital expenditures, and after-tax investment in R&D, including the addition of Lebrekismab and a number of early-stage agreements. In addition, we've returned over $2.5 billion to shareholders via share repurchase and dividend. We remain well-capitalized and have the ability to access debt markets at attractive rates.

Moving to slide 15 really.

Really is testing single antibody therapy, as well as combinations of antibodies in several trials across two different patient populations.

In the treatment of recently diagnosed ambulatory patients and second in the prophylactic or preventative setting amongst nursing home residents and staff.

Third more severely ill population on the hospitalized patients has been studied in the active three trial only.

Josh: We expect to continue to enhance our long-term growth by acquiring first or best-in-class pipeline assets, and we do not anticipate COVID impacts regarding travel or market uncertainty to affect our efforts. Moving to slide 14, you'll find our updated 2020 financial guidance, and this is based on our best estimates at this time. Key assumptions supporting the guidance include health care activity continuing the positive trend seen in Q3, returning to historical levels as doctors utilize telehealth or in-person visits despite additional COVID-19 outbreaks.

This clinical trials being run by the NIH and is the only study evaluating the efficacy of Finland Nivolumab.

Also known as Allied Koby five by five in hospitalized COVID-19 patients.

Based on an updated dataset from the trial reviewed yesterday by the independent data safety monitoring board no additional care with 19 patients in this hospitalized setting will receive Finland in for Matt.

The board's recommendation was based on trial data, suggesting that the addition of Bam whenever map to Greg severe and other treatments used in the hospital setting.

Is unlikely to further help hospitalized 19 patients recover from this advanced stage of the disease.

Josh: New patient prescriptions will continue to improve in the U.S. Pricing headwinds from increased utilization of patient affordability programs and changes in segment mix due to increased U.S. unemployment will continue to be modest, and promotional spend will constitute a mix of in-person customer interactions, direct-to-consumer advertising, and investments in digital promotion. While uncertainty remains regarding resurgent waves of COVID-19 and any resulting impact on the pace of economic recovery around the world, we do believe healthcare activity will continue to be a priority and that most patients will find ways to access healthcare. So based on these assumptions, we're maintaining our current full year revenue range. At the low end of the range, year-over-year sales growth in Q4 would be 8-9%, which while a step up from our third quarter growth rate, is supported by current volume trends and our expectations of more limited price impacts in the U.S.

This updated dataset differences in safety outcomes between the family Nuvamap and placebo groups were not significant.

Importantly, all other studies have been when you remember me and ongoing.

Including active to the NIH sponsored study in recently diagnosed mild to moderate 19 patients bleach.

Please one really is ongoing phase two trial and people recently diagnosed with COVID-19 in the ambulatory setting.

Just studying bandwidth nuvamap as monotherapy and in combination with at a seven map also known as Allied Cobi post 16.

And delays to Lilly's phase three study of bandwidth nivolumab for the prevention of Covance.

I mean in residents and staff and long term care facilities.

While there was insufficient evidence from active three that band we never have improved clinical outcomes when added to other treatments in hospitalized patients.

We remain confident based on data from the lease Blaze one study that band linear math monotherapy may prevent progression of disease to those earlier in the course of COVID-19.

Josh: Achieving the higher end of the range likely requires some moderate sales from our COVID antibody, which we believe is possible, but of course, not certain at this point. Moving down the income statement, our gross margin as a percent of revenue is unchanged on a gap and non-gap basis. We are narrowing our range for marketing, selling, and administrative expenses to $6.0 to $6.1 billion.

While the results in hospitalized patients were disappointing we don't expect this to affect our chances of success in prophylaxis ordinarily treatments.

And we thank the patients physicians and staff participating in all clinical trials of our neutralizing antibodies, including active through.

Regarding the Lilly sponsored COVID-19, neutralizing antibody program, we've made key advances in the third quarter, which include.

Josh: We are narrowing our range for research and development expenses to $5.8 to $5.9 billion, with investment in COVID-19 treatments of approximately $400 million for the full year, likely to push us to the high end of our range, as Lilly continues to self-fund these programs. We believe these investments are critical to help combat the global pandemic. We note that our non-GAAP operating income as a percent of revenue goal of 31% excludes our substantial investments in COVID-19 treatments and any associated revenue with it. Inclusive of these costs, we expect an operating margin of approximately 29%.

We initiated blaze to the phase three trial studying post exposure prophylaxis for residents and staff and nursing homes, we reported proof of concept data for band the Nivolumab monotherapy in delays, one demonstrating a reduction in hospitalizations and IAR visits in the outpatient setting.

We reported that the combination therapy of bandwidth, even havent had to seven that met the primary and secondary endpoints at an interim analysis of blaze, one significantly reducing viral load and symptoms as well as meaningfully reducing hospitalizations and IAR visits in the outpatient setting.

And we submitted the request for emergency use authorization to the FDA for bands and even that monotherapy in higher risk patients who have been recently diagnosed with mild to moderate carbonite team.

Josh: While these investments put near-term pressure on our operating margin, they continue to be the right decisions for our company and for society. At POACH's launch, we do expect these therapies to be accretive to our operating margin. We're updating the range of other income and expense to $450 million to $600 million of income, reflecting additional gains in our equity portfolio seen in the third quarter. As previously mentioned, this number is subject to volatility in the capital market. Turning to taxes, we're maintaining our GAAP and non-GAAP effective tax rate guidance at approximately 14%. Earnings per share are unchanged on a non-GAAP basis.

We were particularly encouraged to show the neutralizing antibodies can help people clear varnish more quickly improve symptoms and most importantly prevent serious medical outcomes like hospitalization CDR visits notably.

Notably the pool data of monotherapy and combination therapy showed a reduction of hospitalizations in VR visits of greater than 75% across all patients.

In addition, the monotherapy and combination therapy had an even larger effect size in high risk patients defined by body mass index or age.

We've now dose approximately 1000 trial participants with benralizumab alone or in combination with that to seven that and.

Josh: Our GAAP EPS is expected to be in the range of $6.20 to $6.40. As I noted, with the revenue range, EPS totals in Q4 will be highly dependent on COVID sales, which is why we're maintaining a pretty broad 20-cent range as we head into the fourth quarter. We at Q3 are well positioned to continue delivering revenue growth and productivity despite the impact of the COVID-19 pandemic. We're proud of the investments we are making to help combat COVID-19 and are confident in the underlying strength of our business and our ability to overcome challenges. Based on our current outlook for Q4, we believe we will exit the year with strong underlying momentum for 2021. 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 Q3, and an overall pipeline update. Thanks, Josh.

And we've shared safety and Tolerability data for more than 400 patients in the monotherapy and combination therapy arm. So please one on our call earlier this month, where we noted that monotherapy and combination therapy were both generally well tolerated with no significant safety concerns.

No clinically meaningful differences in treatment emergent adverse events were observed across the treatment groups and the majority of treatment emergent adverse events were mild to moderate in severity.

And there have been no drug related serious adverse events reported thus far.

We continue to recruit patients and blaze one.

While the FDA is still reviewing our request for EU way for monotherapy.

We will soon be ready to request for emergency use authorization for combination therapy.

And we intend to submit that request to the FDA as early as November.

Another achievement this quarter as part of our efforts to develop potential treatments for Covance team was the positive outcome of Baricitinib.

Dan: Since our last call, we've made meaningful progress developing potential treatments for COVID-19, advancing key assets in our pipeline, and presenting Practice-Changing Clinical Trial Data at Major Medical. I'll begin with updates on our COVID-19 viral neutralizing antibody program, then I'll provide an update on the full pipeline, and I'll finish by highlighting key events since the last quarter. Moving to slide 15, Lilly is testing single antibody therapy as well as combinations of antibodies in several trials across two different patient populations. First, in the treatment of recently diagnosed ambulatory patients, and second in the prophylactic or preventative setting amongst nursing home residents and staff. Third, the more severely ill population, i.e. Hospitalized patients, has been studied in the ACTIV-3 trial on. This clinical trial is being run by the NIH and is the only study evaluating the efficacy of Bamlanivimab, also known as LY-COV555, in hospitalized COVID-19 patients.

And each sponsored act two trial of hospitalized COVID-19 patients.

Baricitinib in combination with the brand disappear significantly reduce time to recovery and improved clinical outcomes.

The numerical decrease in mortality compared to Rendez severe alone was also demonstrated.

These results were most pronounced in patients receiving oxygen.

Based on these data we submitted a request for emergency use authorization for Baricitinib to the FDA and global regulatory discussions are ongoing.

With two submissions to the FDA this month for requests for emergency use officer authorizations.

And with our neutralizing antibody combination therapy, providing the potential for third.

Remember on.

Im, particularly proud of the progress we've made over such a short period of time to rapidly develop potential new solutions to physicians and patients in the battle against this pandemic.

Moving to slide 16.

You can see our select pipeline opportunities as of October 20 us move.

Movement since our last earnings call includes approval for Trulicity alternative dose.

Dan: Based on an updated data set from the trial reviewed yesterday by the Independent Data and Safety Monitoring Board, no additional COVID-19 patients in this hospitalized setting will receive BAMLIN. The board's recommendation was based on trial data suggesting that the addition of bamlanivimab to remdesivir and other treatments used in the hospital setting is unlikely to further help hospitalized COVID-19 patients recover from this advanced stage of the disease. In this updated data set, differences in safety outcomes between the Bamlanivimab and placebo groups were not seen. Importantly, all other studies at BAML and EVMA have remained ongoing, including ACTIV-2, the NIH-sponsored study in recently diagnosed mild to moderate COVID-19 patients, Blaze 1, Lilly's ongoing phase 2 trial and people recently diagnosed with COVID-19 in the ambulatory setting, which is studying ba While there was insufficient evidence from ACTIV-3 that bamlanivimab improved clinical outcomes when added to other treatments in hospitalized patients with COVID-19, we remain confident, based on data from Lilly's BLASE I study, that bamlanivimab monotherapy may prevent progression of disease for those earlier in the course of COVID-19.

Approval for Baricitinib in moderate to severe atopic dermatitis.

The previously mentioned initiation of the Blaze two phase three trial.

The advancement of two immunology programs into phase two.

The initiation of two phase one programs.

And the termination of a phase one diabetes assets and termination of our inch two antibodies phase two proof of concept study in COVID-19 due to futility.

We also saw results from the phase two trial of Mega deal and our D., one positive to Alistair modulator in patients with Lewy body disease.

While we were disappointed that the study did not meet its primary cognitive endpoints at week 12 methods.

The daily did show encouraging motor and non motor benefits and we are evaluating the next steps for this program at this time.

In addition, Pfizer and Lilly have been informed by the US Sta that the agency intends to hold an advisory Committee meeting.

Likely in the March 2021 timeframe to discuss that Sun has a map application.

As a result of the Fdas review, we'll obviously extend beyond the current December 2020, PDUFA date. However, the FDA has not provided new action date.

The agency communicated that its review of the application is ongoing and it has not requested any new clinical studies to be completed at this time.

Certainly we'll continue to work with the FDA as it completes its review of the application.

Moving to slide 17, we provide an update on our 2020 key events.

The first nine months of 2020 have been incredibly productive.

As highlighted by a significant number of positive key milestones with only a few exceptions. We've delivered on the key events that we outlined back in December 2019.

Dan: While the results in hospitalized patients were disappointing, we don't expect this to affect our chances of success in prophylaxis or early treatment. And we thank the patients, physicians, and staff participating in all clinical trials of our Neutralizing Antibodies, including Active 3. Regarding the Lilly-sponsored COVID-19 Neutralizing Antibody Program, we made key advances in the third quarter, including initiating Blaze 2, the Phase 3 trial focusing post-exposure prophylaxis for residents and staff of nursing homes. We reported proof-of-concept data for bamlanivimab, monotherapy, and Blaze I, demonstrating a reduction in hospitalizations and ER visits in the outpatient setting We reported that the combination therapy of bamlanivimab and etesevimab met the primary and secondary endpoints at an interim analysis of Blaze 1, significantly reducing viral load and symptoms, as well as meaningfully reducing hospitalizations and ER visits in the outpatient setting.

And we've added several more sales.

Most notably since the last earnings call, we've had regulatory approvals for important new indications and line extensions for Trulicity Taltz and illuminate.

In collaboration with banker Ingelheim, we also presented results from temporary reduce trial in patients with heart failure with reduced ejection fraction or have fresh.

Jardiance demonstrated a 25% reduction in cardiovascular death or heart failure hospitalization.

In addition, the charges had a positive effect in key secondary endpoints, including first hospitalization for heart failure, and an exploratory renal composite endpoints.

Tempur reduced including patients with and without diabetes and these data are encouraging to expand the use of jardiance in patients with that for us.

Also add to the existing body of evidence showing the cardiovascular renal benefits of chart.

As first demonstrated in the direct outcome trial.

We're on track to submit these data to regulators later this year and look forward to the emperor preserved to trial in drought has passed.

Dan: And we submitted a request for emergency use authorization to the FDA for Bamlanivimab monotherapy in higher risk patients who have recently been diagnosed with mild to moderate COVID-19. We were particularly encouraged to show that neutralizing antibodies can help people clear the virus more quickly, improve symptoms, and, most importantly, prevent serious medical outcomes like hospitalizations in the ER. Notably, the pooled data of monotherapy and combination therapy showed a reduction in hospitalizations and ER visits of greater than 75% across all patients. In addition, monotherapy and combination therapy had an even larger effect size in high-risk patients, defined by the Body Mass Index Array. We've now dosed approximately 1,000 trial participants with bamlanivimab alone or in combination with etesevimab, and we shared safety and tolerability data for more than 400 patients in the monotherapy and combination therapy arms of phase one on our call earlier this month, where we noted that monotherapy and combination therapy were both generally well tolerated with no significant safety issues. No clinically meaningful differences in treatment emergent adverse events were observed across And, so far, there have been no drug-related serious adverse events reported.

In 2021.

We also presented important data for presenting an early breast cancer at the virtual ESMO meeting this quarter confirm.

Confirming of presenting who is the only CDK four six inhibitor.

To demonstrate a benefit in this population.

And the first advancement for these patients in almost two decades.

Presenting a showed a 25% reduction in risk of cancer recurrence that his two year landmark analysis.

Presenting will also reduce the risk of distant metastasis by 28%.

And essential objective for any novel therapy in HR positive hertwo negative early breast cancer.

Distant recurrence is currently an incurable event.

This is an important observation that bodes well for overall survival sense. According to published literature improvements in distant relapse free survival has been shown to be a leading indicator for improved overall survival.

The monarchy study is ongoing study participants will remain on trial and continue to be followed and additional results will be presented in the future.

As we stated previously we.

We intend to submit for regulatory review by the end of the year.

We anticipate a standard review timeline with the FDA.

While there have been many positive pipeline events already this year, we still have two important read outs to come yet this year at a number of updates that will occur during the first half of 2021.

Dan: We continue to recruit patients in Blaze 1. We will soon be ready to request emergency use authorization for combination therapy, and we intend to submit that request to the FDA as early as November. Another achievement this quarter, as part of our efforts to develop potential treatments for COVID-19, was the positive outcome of bare sit in the NIH-sponsored ACT-II trial of hospitalized COVID-19 patients. Baracitinib in combination with remdesivir significantly reduced time to recovery and improved clinical outcomes.

Before year end, we will present additional data from the phase one to improve it study for Loxo three or five our BTK inhibitor.

We will also have top line results from surpassed one the first phase three trial to readout from the tour's appetite type two diabetes program.

Surpass one is a placebo controlled monotherapy trial, we look forward to sharing these data in the coming months for this important program that we believe will raise the bar for treatment expectations for patients with type two diabetes.

We have a lot of momentum in R&D at Lilly, which will carry into 2021, where we have a number of additional data readouts, including the remainder of the Registrational phase three trial is appetite type two diabetes trials.

Dan: A numerical decrease in mortality compared to remdesivir alone was also demonstrated, and these results were most pronounced in patients receiving, Based on these data, we submitted a request for emergency use authorization for baricitinib to the FDA, and global regulatory discussions are ongoing, with two submissions to the FDA this month for requests for emergency use authorization, and with our Neutralizing Antibody Combination Therapy providing the potential for a third in November. I'm particularly proud of the progress we've made over such a short period of time to rapidly develop potential new solutions to aid physicians and patients in the battle against this. Moving to slide 16.

Phase three data from your CASM and ulcerative colitis.

Three data from laboratories, and Mab in atopic dermatitis phase.

Phase three jardiance have pest data.

Phase two data from two Alzheimer's trials, including an important readout from our plaque clearing antibody to Nanomabs expected early in Q1 2021.

We remain excited about the potential of this molecule to make a real difference for patients with Alzheimer's disease.

Finally, we look forward to multiple potential proof of concept studies from our early stage portfolios in immunology neuroscience diabetes and oncology.

Dan: You can see our select pipeline opportunities as of October 20. Movement since our last earnings call includes approval for Trulicity alternative dose, approval for Baricitinib in moderate to severe atopic dermatitis, the previously mentioned initiation of the Blaze 2 Phase 3 trial, and the advancement of two immunology programs into phase two.

We have risen to the challenge this year as we engaged in the fight against COVID-19, we showed our adaptability and commitment to developing medicines through innovative ways.

Aspired by the indefatigable effort by our teams in their pursuit of new medicines for patients.

Dan: The initiation of two Phase 1 programs and the termination of a phase one diabetes asset and the termination of our ANG2 antibodies, phase two proof of concept study in COVID-19 due to futility. We also saw results from the phase 2 trial of mevidalin, our D1 positive allosteric modulator, in patients with Lewy body disease. While we were disappointed that the study did not meet its primary cognitive endpoint at week 12, Medvedelin did show encouraging motor and non-motor benefits, and we are evaluating the next steps for this program at this time. In addition, Pfizer and Lilly have been informed by the U.S. FDA that the agency intends to hold an advisory committee meeting, likely in the March 2021 time, to discuss the TANESIMAP application. As a result, the FDA's review will obviously extend beyond the current December 2020 PDUFA date. However, the FDA has not provided a new deadline.

Dave back to you for some closing remarks.

Thanks, Dan.

Turning 20 has been a difficult yet remarkable year, despite challenges and the resulting choppiness of our quarterly results, we've delivered volume driven growth of 6%.

Through the first three quarters of this year.

Excluding investments in coconut 18 therapies, we have expanded our operating margin by 160 basis points compared to the first three quarters of 2019.

We've made meaningful progress this year on our innovation based strategy launching three new medicines and a number of nylex delay.

Delivering important data readouts for key pipeline molecules and developing and submitting ooh ways for potential treatment for a virus a known to the world that this time last year.

And over the next few months, we have several highly anticipated pipeline readouts on deck.

We continue to look for opportunities to augment the future growth of our company through business development, and then return excess capital to shareholders.

Well the COVID-19 pandemic will continue to challenge us the growth products in our commercial portfolio.

Limited patent expiry in the next five years and margin expansion opportunities before us as well as upcoming data readouts in the pipeline I like our prospects and I. Thank my Lilly teammates for persevering and performing amidst a year of challenges to continue to deliver meaningful innovation for the patients we serve.

Dan: The agency communicated that its review of the application is ongoing, and it has not requested any new clinical studies to be completed at this time. Pfizer and Lilly will continue to work with the FDA as it completes its review of the application. Moving to slide 17, we provide an update on our 2020 key events. The first nine months of 2020 have been incredibly productive, as highlighted by a significant number of positive key milestones. With only a few exceptions, we've delivered on the key events that we outlined back in December 2019, and we've added several more. Most notably, since the last earnings call, we've had regulatory approvals for important new indications and line extensions for Trulicity, Telts, and Illumia. In collaboration with Berenker Ingelheim, we also presented results from the EMPEROR-REDUCE trial in patients with heart failure with reduced ejection fraction or HFRAC.

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

Thanks, Dave.

Two questions from as many callers as possible. So we ask that you limit your questions to two per caller.

Lewis please provide the instructions for the Q and a session and then we are ready for the first caller.

Thank you and ladies and gentlemen, if you wish to ask a question. Please press one.

On your telephone keypad.

Withdraw your question at any time by repeating the one zero coming.

Using a speaker phone. Please go ahead.

Once again, if you have a question please press one zero.

And our first question is from Ken from Canaccord. Please go ahead.

Hi, Thanks for taking my question here.

My first question for you is right.

Lower or tighten your 2020 guidance and leave the antibody sales upside are you having a high degree of conviction behind this emergency use authorization or are you seeing some positive trends shape up for the fourth quarter and then my follow up question is what are your thoughts on the upcoming FDA AD Com meeting to review Eddie can you map.

Dan: Jardians demonstrated a 25% reduction in cardiovascular death or heart failure hospitalization. In addition, the Guardians had a positive effect in key secondary outcomes including first hospitalization for heart failure and an exploratory renal composite. Emperor Reduced included patients with and without diabetes, and these data are encouraging to expand the use of Jardians in patients with HFRAC. They also add to the existing body of evidence showing the cardiovascular and renal benefits of jargon, as first demonstrated in the Antibiotic Outcome Trial. We're on track to submit these data to regulators later this year and look forward to the Emperor Preserved trial in half past, in 2021. We also presented important data for Virzenio, an early breast cancer drug, at the virtual ESMO meeting this quarter, confirming that Versenio is the only CDK4,6 inhibitor to demonstrate a benefit in this population and the first advancement for these patients in almost two decades.

Do you think this will close the door on all time, Ms drug development, all Harold and you beginning thank you.

Thanks, Lisa good adjust for the first question on guidance and then Dan just a question on the AD com.

Thanks, Louise I think as we look at sales guidance.

On the implied Q4 absolute numbers, we see the trends now we're at the end of October.

I think we feel good about the lower end of the range for shore based on.

Commercial performance of our products around the world, we have submitted any USA Dan talked about the.

Data behind that so I think it's reasonable to include a potential upside associated with some some sales of that antibody to governments around the world in Q4 of course. It is uncertain that is why we kept the range.

Thanks, just Dan.

Yes, Thanks Louise for the question on the New AD Com of course like everyone else will be watching it with.

Dan: Bresenio showed a 25% reduction in risk of cancer recurrence at a two-year landmark analysis. Presenio also reduced the risk of distant metastases by 28%, an essential objective for any novel therapy in HR-positive, HER2-negative early breast cancer, where distant recurrence is currently an incurable event. This is an important observation that bodes well for overall survival since, according to published literature, improvements in distant relapse-free survival have been shown to be a leading indicator for improved overall survival. The monarchy study is ongoing.

Great interest.

But I don't think I can handicap, it one way or the other.

The way I see it the important observation here is.

Around the evidence that lowering plaques can lead to cognitive benefits in Alzheimer's disease, I think we've seen it across a couple of data presentations now.

And Thats, what gives us confidence in our own 10 nanometer nthreepg antibody thats.

Dan: Study participants will remain on trial and continue to be followed, and additional results will be presented in the future. As we stated previously, we intend to submit the product for regulatory review by the end of the year. We anticipate a standard review timeline with you. While there have been many positive pipeline events already this year, we still have two important readouts to come this year and a number of updates that will occur during the first half of 2021. Before year-end, we'll present additional data from the Phase I-II Bruin Study for ALOXO305, or BTKNA. We'll also have top-line results from Surpass One, the first phase 3 trial to read out from Terzapatide type 2 diabetes. Surpass One is a placebo-controlled monotherapy trial.

Thats currently in phase two just as a reminder, this is.

We're pretty large phase two we've designed it with a special care.

Enrolling very margin this group of patients so that it could be powered.

To show Us an efficacy signal.

If president and we look forward to seeing that data early next year.

Thanks, San Luis Thanks for your questions next caller please.

The next caller is Tim Anderson from Wolfe Research. Please go ahead.

Hi, Ivan.

Question on tourists appetite.

Certain event coming up here first read out of phase three.

Can you characterize your level of confidence that future results will wow investors kind of like the phase two results did it's notable that analysts are to carry a 5 billion dollar number for this which has a high number.

Dan: We look forward to sharing these data in the coming months for this important program that we believe will raise the bar for treatment expectations for patients with type 2 diabetes. We have a lot of momentum in R&D at Lilly, which will carry into 2021, when we have a number of additional data readouts, including the remainder of the registrational phase 3 terzepatide type 2 diabetes trial. Phase 3 data from Merik Kizumab and ulcerative colitis and phase 3 data from Labrychizumab in atopic dermatitis.

I'm wondering if you can talk about both efficacy and Tolerability and safety relative to phase two in terms of what to expect I know, that's asking you to predict how these radar scope, but it's what we have to do as investors. So it'd be great to get your best guess on that.

And related to that question, how much data can we realistically expect that you'll provide and the topline press release.

Dan: Phase 3 Jardians have PEF data, and phase II data from two Alzheimer's trials, including an important readout from our plaque-clearing antibody, Denenimab, expected early in Q1 2021. We remain excited about the potential of this molecule to make a real difference for patients with Alzheimer's.

Thanks, Tim will go to Mike Mason for those questions.

Yes. Thanks for the question we appreciate it.

We've never been more excited about our trees appetite program in our phase two type two diabetes studies, 43% of people onto his appetite had reached a final one see a 5.7% which is normally when C versus only 2% for the market leader Trulicity, 34% of people onto his appetite.

Dan: Finally, we look forward to multiple potential proof-of-concept studies from our early-stage portfolios in immunology, neuroscience, diabetes, and oncology. We've risen to the challenge this year as we engage in the fight against COVID-19. We showed our adaptability and commitment to developing medicines in innovative ways. I'm inspired by the indefatigable effort by our teams in their pursuit of new medicines for patients. Dave, back to you for some closing remarks. 2020 has been a difficult yet remarkable year. Despite challenges and the resulting choppiness of our quarterly results, we've delivered volume-driven growth of 6% through the first three quarters of this year.

Loss more than 15% of their body weight versus 2% for Trulicity enters appetite will.

We will be delivered in the same patient friendly devices, Trulicity, whose appetite has the opportunity to become a foundational treatment for someone living with type two diabetes that not only need a one c. control look at benefit from significant weight loss, which brings additional metabolic health benefits.

Further we are very excited about which is appetite to do and the BCD and Nash as you take a look at the at the results from surpassed one.

Dave Ricks: Excluding investments in COVID-19 therapies, we've expanded our operating margin by 160 basis points compared to the first three quarters of 2019. We've made meaningful progress this year on our innovation-based strategy, launching three new medicines and a number of Nilex, delivering important data readouts for key pipeline molecules, and developing and submitting EUAs for potential treatment for a virus unknown to the world at this time last year. And over the next few months, we have several highly anticipated pipeline readouts on deck. We continue to look for opportunities to augment the future growth of our company through business development and then return access capital to shareholders.

Later this year, we'll get the results will issue a press release.

It will likely be copper.

Topline results, we won't have full data be able to do a full analysis that will come later at medical meetings in 2021.

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

Thank you and that will come from.

From Evercore ISI.

Please go ahead.

Hi, Thanks, so much for taking my question I have one for Dan on for Dave If I may.

Perhaps maybe starting with you Dave on the all time or a four trial, you've previously expressed openness to possibly taking an interim analysis. I know you have two years plus a follow up by now already maybe three years of follow by next year is that something you are still open to just wanted to hear your thoughts and then Dan there.

Kevin Hearn: While the COVID-19 pandemic will continue to challenge us, the growth products in our commercial portfolio, limited patent expiry in the next five years, and margin expansion opportunities before us, as well as upcoming data readouts in the pipeline, I like our prospects. And I thank my Lilly teammates for persevering and performing amidst a year of challenges to continue to deliver meaningful innovation for the patients we serve. This concludes our prepared remarks, and now I'll turn the call over to Kevin to moderate the Q&A. Thanks Dave.

Theres, a little bit of confusion on tours appetite, perhaps in part because both the clin trials as well as the Lilly slide suggest that the trial had a primary completion in October but when I map out when the last patient entered which was first week of February and adding the 40 weeks, which is the primary endpoint. It doesn't look like the trials met the primary endpoint.

Operator: We'd like to take questions from as many callers as possible, so we ask that you limit your questions to two per caller. Lois, please provide the instructions for the Q&A session, and then we're ready for the first caller. Thank you, and ladies and gentlemen, if you wish to ask a question, please press the telephone. You may withdraw your questions at any time by repeating the one. If you're using a speakerphone, please pick up your handset before pressing the number.

And yet in all the patients and they will probably be in November and then sometime to analysis. So can you confirm if I'm off track there. Thank you very much.

Yes, thanks, Thanks tumor Dave.

Operator: Once again, if you have a question, please press 1 and 0. And our first question is: Hi, thanks for taking my question here. So my first question for you is, why didn't you lower or tighten your 2020 guidance and leave the antibody sales as upside? Do you have a high degree of conviction behind this emergency use authorization?

Well I think you direct today for questions and even probably Dan able to answer that.

Better.

Dan why don't you take any more questions.

No. Thanks, Thanks for both of those questions. If of course, a force is an ongoing trial.

In patients who are.

Presymptomatic they don't have the Centrus Alzheimer's disease, but they have amyloid plaques has ticked by imaging and we're testing if solanezumab and now a higher dose of Solanezumab.

Josh: Or are you seeing some positive trends shape up for the fourth quarter? And then my follow-up question is, what are your thoughts on the upcoming FDA adcom meeting to review bibsemab? Do you think this will close the door on Alzheimer's drug development or herald a new beginning? Thank you.

Can have a benefit in those patients we havent commented on whether or not there there could be opportunities for.

Dan: Next we'll go to Josh for the first question on guidance and then Dan for the question on the FDA ad. Thanks, Louise. Yeah, I think as we look at sales guidance and, you know, in the implied Q4 absolute numbers, we see the trends. Now we're at the end of October, and I think we feel good about the lower end of the range, for sure, based on, you know, just the commercial performance of our products around the world. We have submitted an EUA, and Dan talked about the data behind that. So I think it's reasonable to include a potential upside associated with, you know, some sales of that antibody to governments around the world in Q4. Of course, it is uncertain. That is why we've kept the range. Thanks, Josh. Dan?

Interim look here and.

Right now we're just focused on on the final analysis of Metro.

With respect to the timing of that there is appetite trial and the details on clinical trials Dot Gov I can just reconfirm, what we said.

Earlier on the call, which is that we expect to have that data and topline added in coming months.

It's it's obviously a major event for us.

You can assume that when we get that data, we're going to turn it around quite quickly.

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

The next question is from the line of Greg Greg Lewis. Please go ahead.

Josh: Yeah, thanks, Louise, for the question on the ADU adcom. Of course, like everyone else, we'll be watching it with great interest. But, you know, I don't think I can handicap it one way or the other.

Thanks, I'm going to start with another one on Alzheimer's Dan I'm not sure to what degree you can comment on this but I am curious how interrelated youre.

Studies are and the agencies view of out of Canada.

Maybe asked another way do you think the agency can act on their application without seeing your data, which is coming pretty soon it seems to me that what you're bringing to the table is pretty important to the field and.

Dan: The way I see it, the important observation here is around the evidence that lowering plaque can lead to cognitive benefits in Alzheimer's disease. I think we've seen that across a couple of data presentations now, and that's what gives us confidence in Nenumab, our N3PG antibody that's currently in phase two. Just as a reminder, this is a pretty large phase two, we've designed it with special care, enrolling a very homogeneous group of patients so that it could be powered to show us an efficacy signal if present, and we look forward to seeing that data early next year. Thanks, Dan. Louise, thanks for your questions. Next caller, please. The next caller is Tim Anderson from Wolfson. Hi, I have a question about terzapatide.

And then secondly, I know, it's a little early I was hoping you could talk to your growing confidence in the aisle to approach since you signed that collaboration for years ago looks like there's some additional data coming at HCR as well. Thanks.

Thanks, Greg will go to Dan for both those questions.

Yes, thanks, Thanks, Greg.

Two two good interesting questions I think on on Alzheimer's disease. Your question is how how will the FDA syncope out sort of a class effect here from multiple black lung antibody show the same result, or they show different results.

I don't know I mean, I can't speculate on on agency actions today, but I can say that it wouldn't surprise me if.

Regulators around the world.

Did take sort of the totality of evidence approach in Alzheimer's disease, which could be across.

Michael B. Mason: An important event coming up, your first readout of Phase 3. Can you characterize your level of confidence that the Phase II results will wow investors kind of like the Phase II results did? It's notable that analysts already carry a $5 billion number for this, which is a high number.

Multiple molecules in different.

Trials to give confidence about a particular mechanism in this case of course plaque.

Lowering having said that though each molecule will still have to.

Michael B. Mason: And I'm wondering if you can talk about both efficacy and tolerability and safety relative to Phase II in terms of what to expect. I know that's asking you to predict how these readouts go, but that's what we have to do as investors. So it'd be great to get your best guess on that.

Past, a certain bar of evidence for for benefits versus risks.

Intended use population.

I do think though that if.

How do is deemed to have a positive effect in our drug ultimately has a positive effect the convergence of those two events could could bode well for both drugs, but theres a lot that has to happen before before we get there Craig.

Michael B. Mason: And related to that question, how much data can we realistically expect that you'll provide in a top line press release? Thanks, Tim. We'll go to Mike Mason for those questions.

Michael B. Mason: Yeah, thanks for the question. We appreciate it. We've never been more excited about our trazepatide program. In our phase two type two diabetes studies, 43% of people on trazepatide had reached a final A1C of 5.7%, which is a normal A1C versus only 2% for the market leader trlicity. 34% of people on trazepatide lost more than 15% of their body weight versus 2% for trlicity, and trazepatide will be delivered in the same patient-friendly device as trlicity. Trazepatide has the opportunity to become a foundational treatment for someone living with type 2 diabetes that not only needs A1C control but could benefit from significant weight loss, which brings additional metabolic health benefits.

With respect to aisle too yes.

This molecule progressed as a clinical trials were recurring more confident in the hypothesis that underlies this.

Effort.

This is.

Low dose Pegylated I'll too that's meant to stimulate T regulatory cells without stimulating effector T cells, and we have not presented data from phase one that should we had exactly that effect in a dose dependent way, we can boost T regs.

And we hope that that will have a modulatory effect on auto immune disease based on our confidence in the biomarker here.

And the mechanism of action.

Weve committed to starting a number of phase two trials here in parallel to understand how these changes in regulatory T cells translates could translate to clinical benefits for patients.

Michael B. Mason: Further, we're very excited about what TransEpityte can do for obesity and NASH. As you take a look at the results from Surpass One later this year, we'll get the results. We'll issue a press release that will likely be, you know, top line results. We won't have full data, or be able to do a full analysis that will come later at medical meetings in 2021. Thanks Mike. Tim, thanks for your questions. Next caller, please. Thank you, and that will come from Umar Rafat from Evercore ISI.

Diseases, like like lupus or IBT or Dermatologic diseases.

And so those trials are starting and.

We look forward to getting data from them.

Thanks, and Greg Thanks for your questions next caller please.

The next question is from Chris Scott from JP Morgan. Please go ahead.

Great. Thanks, so much for the questions just.

Just my question on Trulicity. It seems like there's two issues kind of impacting the quarter and the first was the timing of the donut hole impact and the second was this channel mix issue. If I was hearing your correctly, so I guess on channel mix.

Dan: Hi, thanks so much for taking my question. I have one for Dan and one for Dave. If I may, perhaps maybe starting with you, Dave, on the Alzheimer's A4 trial, you've previously expressed openness to possibly taking an interim analysis. I know you've had two years plus a follow-up by now, maybe three years of follow-up by next year. Is that something you're still open to? I just wanted to hear your thoughts.

The net of the unfavorable price.

I guess balanced against the higher volumes, a net neutral versus your original expectations or is volume only partially offsetting this this kind of mix issue that that you're you're dealing with I guess on that product specifically and then my second question was on margin evolution going forward should we be thinking about the 31% operating margin ex.

Dan: And then, Dan, there's a little bit of confusion on terzepatide, perhaps in part because both the CLIN trials as well as the Lilly slide suggest the trial had a primary completion in October. But when I map out when the last patient entered, which was the first week of February, and add in the 40 weeks, which is the primary endpoint, it doesn't look like the trial is not the primary endpoint yet in all the patients, and it will probably be in November, and then some time for analysis. So can you confirm if I'm off track there? Thank you very much.

Coven investments as your baseline to grow off of as we think about 2021 and beyond where should we still think about some kind of lingering cobot investments that could impact margins as we move through next year. Thanks, So much.

Thanks, Chris will go to Mike Mason for the question on Trulicity than Josh for the question on margin evolution.

Yeah. Thanks for your question overall, we're very confident about the growth potential of the GLP class and Trulicity. The GLP classes performance strong with Trx growth of 23% for the quarter. During the cobot pandemic lets you continues to hold market share leadership in the face of Semaglutide with a 45% share of market overall Trulicity group.

Dan: Thanks. Thanks, Umar. Dave?

Dan: Well, I think you directed the A4 question to me, but probably Dan's able to answer that better. Dan, would you like to take the A4 question? No, no, thanks for both of those questions. Of course, A4 is an ongoing trial in patients who are pre-symptomatic. They don't yet have the symptoms of Alzheimer's disease, but they have amyloid plaques as detected by imaging, and we're testing whether solanesimab, and now a higher dose of solanesimab, can have a benefit in those patients.

Volume, 26% in the us at a time when patient office visits for type two diabetes remains 20% lower than last year due to the covert pandemic. When you take a look at segment mix.

What we're seeing is that trulicity performed well in commercial and part D holding market share leadership and growing gross sales year to date at 29% in commercial and 44% and part D will see second mix was really driven by stronger than expected.

Dan: We haven't commented on whether or not there could be opportunities for an interim look here, but right now, we're just focused on the final. With respect to the timing of the terzapatide trial and the details on clinicaltrials.gov, I can just reconfirm what we said earlier in the call, which is that we expect to have that data and top line it in the coming months. It's obviously a major event for us, and you can assume that when we get that data, we're going to turn it around quite quickly. Thanks Dan, Umar, thanks for your questions. Next caller, please. The next question is from the line of Greg Gilbert from Truist. Please go ahead.

Performance, both share and volume and growing lower priced segments like Medicaid even at the lower prices Medicaid growth brings and profitable business for Lilly and helps people living with diabetes.

Like one decision that we made during the early stages of the covert pandemic, we were concerned about people on commercial insurance, losing their jobs moving to Medicaid and having this uptake trulicity because we had lower access in Medicaid. We Didnt think this dynamic would be best for people living with diabetes during the pandemic. Thus we prioritize.

He is improving our access and Medicaid to help people living with diabetes. For example, we were upgraded on California Medicaid early in Q2, and Weve seen Trulicity volume in Calgary Medicaid nearly double this year, which is really great for everyone I remain very excited and confident and trulicity.

Dan: Thanks. I'm going to start with another one on Alzheimer's. Dan, I'm not sure to what degree you can comment on this, but I'm curious how interrelated your studies are and the agency's view of Atacanamab. Maybe asked another way, do you think the agency can act on their application without seeing your data, which is coming pretty soon? It seems to me that what you're bringing to the table is pretty important in the field. And then secondly, I know it's a little early, but I was hoping you could talk about your growing confidence in the IL-2 approach since you signed that collaboration a few years ago. Looks like there's some additional data coming from ACR as well. Thanks.

Thanks, Jeff. Thanks, Thanks, Chris on margin. So yes, so we've tried to separate out of the cobot investments this year, which we.

We've mentioned will be.

The expense will be in the range of $400 million for the year as you know we've been focused on 31% operating margin as as a goal for 2020 and given the guidance that we presented not including anything from Cove. It. We're confident we'll achieve that 31% I think thats the right baseline to think about going forward.

On an overall basis now we will have cobot investments that.

Move into 2021, as we continue the trials.

That we've already put up and running.

Dan: Thanks, Greg. We'll go to Dan for both those questions. Yeah, thanks. Thanks, Greg. Two good, interesting questions. I think about Alzheimer's disease. Your question is, how will the FDA think about sort of a class effect here if multiple black lung antibodies show the same result, or if they show different results? Um, I don't know. I mean, I can't speculate on agency actions, but I can say that it wouldn't surprise me if regulators around the world did take sort of the totality of evidence approach in Alzheimer's disease, which could be across multiple molecules in different trials to give confidence about a particular mechanism. Skovronsky is, of course, black.

Although again, we are expecting.

Given the.

Submission of the way and the data that we have that there will be you know at some point sales associated with those investments I think if we look at just isolating the expense and the sales I will have to come back on that we haven't.

We don't have prices or volumes or anything around the world. So I think the the cobot piece in 2021, we will have some expense, but realistically I think the way to think about our business is 31% operating margin.

Excluding the extraordinary coated.

Impact.

And margin expansion, then in 2021 and really through 2025 as we've talked about so I think cobot should help us I think from an overall economic perspective in that period.

If the product this product or products are successful, but really I think the focus on long term margin expansion sort of cuts through anything that we see in the near term on on Cove. It and we're committed to those margin expansion plans that we talked about pre pandemic.

Thanks, Josh Chris Thanks for your question next caller please.

Dan: Lowering. Having said that, though, each molecule will still have to pass a certain bar of evidence for benefit versus risk in the intended use population. I do think, though, that if Adu is deemed to have a positive effect and our drug ultimately has a positive effect, the convergence of those two events could bode well for both drugs. But there's a lot that has to happen before before we. Um, with Resheka IL-2, yes, you know, as this molecule progresses in clinical trials, we're growing more confident in the hypothesis that underlies this effort. This is a low-dose pegylated IL-2 that's meant to stimulate T-regulatory cells without stimulating effector T-cells.

Next caller is from Steve Scala from Cowen. Please go ahead.

Thank you a couple of questions first Dan in the past when you have referred to very low dropout rates in surpassed one were you referring to analysis on an intent to treat basis.

Fear Lilly is preparing us for solid data on an efficacy este demand basis, but less compelling on an intent to treat basis and then the second question is.

It was said earlier in the call that Lilly has never been more excited about terrorists appetite I thought that was an interesting choice of words, given the importance of the event and the lack of clarity on the status of the trial at this point it implies that you're more excited than you were in Q2 or Q1 or anytime and.

Dan: And we have now presented data from Phase 1 that showed we had exactly that effect in a dose-dependent way. We can boost Tregs, and we hope that that will have a modulatory effect on autoimmune disease. Based on our confidence in the biomarker here and the mechanisms of action, we've committed to starting a number of Phase 2 trials here in parallel to understand how these changes in regulatory T-cells could translate to clinical benefits for patients with diseases like lupus or IBD or dermatologic disease.

Between silicon.

So can you tell us if any member of management has any knowledge whatsoever of the results of surpassed one thank you.

Thanks, Steve will go to Dan for the question on dropout rates and then Mike can talk about is.

The question on Theres appetite.

Sure. Thanks, Steve what we said with respect to people dropping out of our clinical trials was that we hadn't seen a an effect from COVID-19, we were quite worried about that nearly days in the pandemic.

Dan: And so those trials are starting, and we look forward to getting data. Thanks, Dan. Greg, thanks for your questions. Next caller, please. The next question is from Chris Scott from J.P. Morgan. Please go ahead. Thanks so much for the questions. My question is about Truelicity.

When that Theres appetite trauson to become fully enrolled and we are some of the most important and largest trials that weve ever conducted whether this new pandemic would cause people to stop participating clinical trials and we did see a bump up and dropout rates I think though what you're really interested in is people discontinuation therapy.

Michael B. Mason: It seems like there were two issues kind of impacting the quarter. The first was the timing of the donut hole impact. And the second was this channel mix issue, if I understood you correctly. So I guess on channel mix, is the net of the unfavorable price, I guess, balanced against the higher volumes, a net neutral versus your original expectations, or is volume only partially offsetting this kind of mixed issue that you're dealing with, I guess, on that product specifically? And then my second question was on margin evolution going forward. Should we be thinking about the 31% operating margin X the COVID investments as your baseline to grow off of as we think about 2021 and beyond? Or should we still think about some lingering COVID investments that could impact margins as we move through next year? Thanks so much.

Which could be different than than dropout rates and we wouldn't know that.

Until we get the data from the trial with respect to two different analyses that you comment on the efficacy as demand versus.

Real intent to treat.

Analysis.

You're you're pointing out I think that in FY two there was a pretty big difference between these two analyses.

With the efficacy estimates showing better results than the pure ITD.

Because a number of patients at the highest dose of 50 milligram dose that dropped out due to adverse events.

Josh: Thanks Chris. We'll go to Mike Mason for the question on true listening and then Josh for the question on margin evolution. Now, thanks for your question. You know, overall, we're very confident about the growth potential of the GLP class and Felicity. The GLP class is performing strong, with TRX growth of 23% for the quarter during the COVID pandemic. Felicity continues to hold market share leadership in the face of semiglutide with a 45% share of the market. Overall, Felicity grew volume 26% in the US at a time when patient office visits for type 2 diabetes remain 20% lower than last year due to the COVID pandemic.

Like I said, we don't know what's happening in surpass one yes.

[music].

But when those data com.

It will be important to look at those two analyses.

Our hope and the way we've designed this trial with the slower dose titration is to avoid discontinuations due to adverse events, which would show that a smaller gap between that exceeds demand.

That we saw.

Thanks, Dan Mike.

Yes, I can assure you that no one in any one at Lilly have seen the.

The results as for past one yet I think my confidence in terms of appetite for anything new that we've seen is obviously theres been a lot of attention on the dose titration scheme that we used in our phase two and the dose titration study as well as as phase three we've used a more gradual.

Michael B. Mason: When you take a look at segment mix, what we're seeing is that Felicity performed well in commercial and Part D, holding market share leadership and growing growth sales year to date at 29% in commercial and 44% in Part D. Felicity's second mix was really driven by stronger than expected performance, both share and volume, in growing lower price segments like Medicaid. Even at lower prices, Medicaid growth brings in profitable business for Lilly and helps people living with diabetes. I'll highlight one decision that we made. During the early stages of the COVID pandemic, we were concerned about people on commercial insurance losing their jobs, moving to Medicaid, and having to stop taking Felicity because we had lower access to Medicaid. We didn't think this dynamic would be best for people living with diabetes during the pandemic.

Tightrail Ocean approach in our phase III trials and as we've seen the readout of award 11 as well as some of the novels step programs, who use similar gradual titration we saw.

But those schemes did work and that they did that we're able to produce JPY profiles that were acceptable. So thats the new data that we've seen and we're very confident in should appetite.

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

The next question is from Geoff Meacham from Bank of America Merrill Lynch. Please go ahead.

Hey, guys. Thanks for the question I just had a few.

Josh on Trulicity, if I'm hearing you correctly for 2021, you guys have gone from mid single to high single digit price declines but.

For the rest of the broader diabetes portfolio and really overall is it still mid single as an assumption.

Michael B. Mason: Thus, we prioritize improving our access in Medicaid to help people living with diabetes. For example, we were upgraded on California Medicaid early in Q2, and we've seen Felicity volume in California Medicaid nearly double this year, which is really great for everyone. I remain very excited and confident in Felicity. Thanks a lot, Mike. Josh

And.

If you have formulary wins for Trulicity in Medicare Medicaid, but at a lower price, what's your capacity to raise price down the road.

And then second question is.

Just real quick wanted to ask if you're seeing any sort of halo effect than the marketplace from metastatic breast share from monarchy currently or do you think thats going to happen looking to 2021. Thank you.

Josh: Thanks, thanks, Chris on margin. So yeah, so we've tried to separate out of the COVID investments this year, which we've mentioned will, the expense will be in the range of $400 million for the year. As you know, we've been focused on 31% operating margin as a goal for 2020. And given the guidance that we presented, not including anything from COVID, we're confident we'll achieve that 31%. I think that's the right baseline to think about going forward. On an overall basis,

Thanks, Jeff we'll go to Josh for the questions about the overall use pricing and then and for the question on Brazil.

Thanks, Jeff Yes on Trulicity I think as we think about 2021, we are looking at to two separate pieces I think the first is just the underlying unit price where we feel.

Things haven't changed we really see underlying unit price.

Holding segment's constant as being in that.

Low to mid single digit impact.

I think what we've seen now over two years is were underestimating, how fast segments like Medicaid and grow and Thats, what what Mike talked about so I think I think given the fact that we continue to see good growth in Medicaid.

Josh: Now, we will have COVID investments that, you know, move into 2021. As we continue the trials that we've already put up and running all over again, we are expecting, you know, given the submission of the EUA and the data that we have, that there will be, you know, at some point, sales associated with those investments. I think if we look at, you know, just isolating the expenses and the sales, we'll have to come back on that. You know, we haven't, you know, we don't have prices or volumes or anything around the world.

Share performance and utilization is still lower than what we see in commercial.

And our strong performance in that in that segment as well as as we've talked in prior calls we expect some Medicaid expansion, we're seeing a little bit of that now expect we expect that to persist into 2021.

That moves us from that mid single digit trulicity price to high single digits. So it really is the fact that we do continue to expect.

Mr segment growth in areas like Medicaid.

All that being said I think we'll continue to look at pricing.

Pricing as we have in the past, we we price for.

The set into the system, we have today, which is modest pricing list price increases and giving back a little bit more than that and rebate that so we've seen over the last few years I don't anticipate that that approach changing unless we have something that changes on the on the legislative side that can get us.

Josh: So I think the COVID piece in 2021 will have some expenses, but realistically, I think the way to think about our business is 31% operating margin, excluding the extraordinary COVID impact. And margin expansion, then in 2021. And really through 2025, as we've talked about, so I think COVID, you know, should help us from an overall economic perspective in that period, if the product or products are successful. But really, I think the focus on long-term margin expansion sort of cuts through anything that we see in the near term on COVID. And we're committed to those margin expansion plans that we've talked about pre-pandemic. Thank you, Josh.

As the industry more toward a net price environment as opposed to high gross rebates and Nat but for 2021, we're sort of planning that those things at least for the beginning of the year wont wont change.

Thanks, Josh and.

Yes. Thanks for the question, Jeff on Virginia. So present have had notable positive momentum right now in the currently approved.

Metastatic breast cancer, setting and you can see that state steadily gaining market share we have monthly trx of approaching 14% now and beer acts of approaching 23% and then you saw some of the sales being posted basically road bike growth of 49% and we're now market leader and then be Rx in Japan that over 50%.

So definitely momentum and what Weve continued to do it's really grow the number of physicians, who trivers ennio and they continue to adopt with really a positive experience and incorporate it more broadly into the practice. This I think is is primarily capitalize on the positive overall survival data from monarch two in combination for restaurant.

Josh: Chris, thanks for your questions. Next caller, please. The next caller is... Thank you. A couple questions.

Dan: First, Dan, in the past, when you referred to very low dropout rates in Surpass One, were you referring to analysis on an intent-to-treat basis? I fear Lilly is preparing us for solid data on an efficacy-estimand basis but less compelling on an intent-to-treat basis. And then the second question is, it was said earlier in the call that Lilly has never been more excited about terzapotide. I thought that was an interesting choice of words, given the importance of the event and the lack of clarity on the status of the trial at this point. It implies that you're more excited than you were in Q2 or Q1 or any time in between.

But we do believe that the positive results from monarchy are really providing them. Another strong example that present neo is differentiated from other CDK four six inhibitors and even prior to those results. There was a steadily growing value of evidenced that revenue is differentiated with the higher CDK four selectivity differentiated continuous dosing of.

Monotherapy indication and then obviously this state not just in the overall population, but in the primary end the can resistance. So we do think we're seeing a shift in people's perception that this is a best in class opportunity both in the metastatic setting and then potentially in the future as we bring it forward for a new treatment option for patients.

Michael B. Mason: So can you tell us if any member of management has any knowledge whatsoever of the results of CERPAS-1? Thank you. Thanks, Steve. We'll go to Dan for the question on dropout rates, and then Mike can talk about the question on TERS epitide. Sure.

In the early breast cancer setting so look forward to two more work there.

Dan: Thanks, Steve. What we said with respect to people dropping out of our clinical trials was that we hadn't seen any effect from COVID-19. We were quite worried about that in the early days of the pandemic when the terzapidib trials had become fully enrolled and were some of the most important and largest trials that we've ever conducted, whether this new pandemic would cause people to stop participating in clinical trials. But we didn't see a bump up in dropout rates. I think, though, what you're really interested in is people discontinuing therapy, which could be different than dropout rates, and we wouldn't know that until we get the data from the trial. With respect to the two different analyses that you comment on, the efficacy estimate versus the real intent-to-treat analysis, you're pointing out, I think that in phase two, there was a pretty big difference between these two analyses, with the efficacy estimate showing better results than the pure ITT because a number of patients at the highest dose, at the 50 milligram dose, had dropped out due to adverse events. Like I said, we don't know what's happening in surpass one yet, but when those data come in, it will be important to look at those two analyses.

Thanks, and Jeff. Thanks for your question next caller please.

The next question is from Dan.

From Guggenheim. Please go ahead.

Thanks very much for the question. So one question for Dave and then a question for Josh So Dave.

Can you talk about.

Post election policy priorities for the industry and.

What specifically Lilly hopes to achieve with the challenges to 340 B.

And then a question for Josh is.

If implemented as written.

What would be the biggest impact on lilly's corporate tax rate.

Under the Biden tax plan.

Is there a concern that this would have a significant.

Relative impact on us corporations like Lilly versus U.S corporations. Thanks.

Thanks, Seamus state yes.

Yes, Thanks Seamus of course, the landscape post election is not defined so we'll need to wait for that to lands before we get into too many speculations about the future environment, but I think we can say.

Michael B. Mason: Our hope and the way we've designed this trial with a slower dose titration is to avoid discontinuations due to adverse events, which would show that there is a smaller gap between the efficacy S demand and the IT demand. Thanks, Dan. Yes, I can assure you that no one in any none at Lilly has seen the results for PASS-1 yet. I think my confidence in terms of appetite is obviously there's been a lot of attention on the dose titration scheme that we used in our Phase 2 and the dose titration study as well as in Phase 3. We used a more gradual titration approach in our Phase 3 trials.

That as an industry as we sit around the table and certainly here at Lilly, There's two basic problems in the U.S. drug market that need to be on Tango. One is the patient out of pocket cost problem, where we're really the only country on the planet that indexes patient out of pocket costs to list prices that thats still.

Happens highly in a highly prevalent way and actually the rate of growth in high deductible plans, including those on exchanges in Asia is growing. So this problem is getting bigger not smaller of course, we think the answer there is two.

Michael B. Mason: And as we've seen the readout of Award 11, as well as some of the novel STEP programs that used similar gradual titration, we saw, you know, that those schemes did work and that they were able to produce GI profiles that were acceptable. So, that's the new data that we've seen, and we're very confident in terms of, Thanks, Mike. Steve, thanks for your questions. Next caller, please.

Have cost sharing at least be based on some discounted number.

Much closer to actual price.

And perhaps all of the discounts being pass through Theres other solutions regulatory ones other ideas, we have capping.

Deductibles, reducing.

Josh: The next question is from Geoff... Hey guys, thanks for the questions. I just had a few. Josh, on Trulicity, if I'm hearing you correctly, for 2021, you guys have gone from mid-single to high-single-digit price declines, but for the rest of the broader diabetes portfolio, and really overall, is it still mid-single as an assumption? If you have formulary wins for Trulicity and Medicare and Medicaid, but at a lower price, what's your capacity to raise prices down the road? And then second question is, you know, just real quick wanted to ask if you're seeing any sort of halo effect in the marketplace from metastatic breast share for monarchy currently, or do you think that's going to happen looking to 2021? Thank you.

The amount a copay can be for any given transaction through regulation or other avenues states have done that and I think we do see good impact on affordability and persistence. When that's done so that's the highest priority for the industry. The second priority and you touched on 340 B is just reducing the amount of distressed.

Persons in the system, which create artificial winners and losers and shift money around health care based on drug sales, which is inappropriate.

Way to fund things in our mind, we'd like to see that disentangled and that.

Kind of services.

As it relates to dispensing or formulary management are based on something to do with the value of those services versus something to do with the drugs that are being dispensed.

Dan: Thanks, Geoff. We'll go to Josh for the questions about overall U.S. pricing and then Anne for the question about Virginia. Thanks, Jeff.

Three for me is one example of that where high price drugs move through cover.

Covered entities at huge margin.

Josh: Yeah, on Trulicity, I think we, as we think about 2021, we are looking at two separate pieces. I think the first is just the underlying unit price where we feel things haven't changed. We're really seeing underlying unit price, you know, holding segments constant as being in that low to mid single-digit impact. I think what we've seen now for over two years is that we're underestimating how fast segments like Medicaid can grow. And that's what Mike talked about.

Increases and.

Those monies go to other purposes not related to the drugs patients pay more.

And lose in that equation, and we certainly lose in that equation. So.

As it relates to three four to be actions and other channel actions. We're interested in kind of de complex defining that and making the system work a little bit better for not just patients but.

Josh: So I think given the fact that we continue to see good growth in Medicaid, the share performance and utilization is still lower than what we see in commercial. And, you know, our strong performance in that segment, as well as, as we've talked about in prior calls, we expect some Medicaid expansion. We're seeing a little bit of that now, and we expect that to persist into 2021. That moves us from that mid-single-digit trulicity price to the high single-digit.

For the sustainability of the pharmaceutical industry so anyway.

Anyway, we'll focus on those things as we have been and we'll have to see what the tactics look like based on electro outcomes here just a week away.

Thanks, Dave Jeff. Thanks, Seamus I think first the tax.

System that we have in the us now.

It does help help us compete on a global basis for innovation I think thats. The biggest positive that we have seen it it is a complex system.

But having a rate an underlying rate that's more competitive with are you.

European competitors allows us to attract innovation keep it in the U.S. and you've seen that in some of the acquisitions, we've done including companies like walk. So we're more competitive when were competing against.

Josh: So it really is the fact that we do continue to expect faster segment growth in areas like Medicaid. All that being said, I think we'll continue to look at, you know, pricing as we have in the past. We price for, you know, the system we have today, which is modest, you know, list price increases and giving back a little bit more than that in rebates, as we've seen over the last few years. I don't anticipate that, you know, that approach changing unless we have something that changes on the legislative side that can get us, you know, as an industry, more toward a net price environment as opposed to, you know, high- But for 2021, we're sort of planning that those things, at least for the beginning of the year, won't change. Thanks, Josh. Anne?

Companies companies that have a low corporate tax rate in their in their countries. So we like that I think as we look though to potential changes I think the first thing I would say is there's.

Been through the last round here Theres a huge.

Difference between what a high level plan isn't Alec gets implemented and the details in that implementation or what actually drives the big point movements.

I don't know that we could have it sitting in 2017 predicted.

We have a 15% rate for example, as our long term rate here. So so theres a lot of work to be done if there is any.

Kind of future tax reform coming.

Obviously, the the underlying UES rate looks like it will go up but I think we have a couple of advantages.

Anne: Yeah, thanks for the question, Geoff, on Versenio. So Versenio has had notable positive momentum right now in the currently approved metastatic breast cancer setting. And you can see that it's steadily gaining market share. We have a monthly TRX of approaching 14% now, and NBRX of approaching 23%. And then you saw some of the sales being posted, particularly worldwide growth of 49%. And we're now the market leader in NBRX in Japan at over 50%. So definitely, momentum.

No matter what happens we invest heavily in R&D among the most heavily of any of our big pharma peers. So we would hope.

Open end.

And work to ensure that innovation is is rewarded in any tax system going forward and we have a pretty balanced manufacturing.

Network, we make at about half of our plants are in the U.S. and half are outside the U.S. So I think we're.

Probably poised to take.

To take advantage of any changes that happened in the in the tax structure going forward, but there is no doubt that having a competitive sort of base rate for the for the us relative to our Oh US peers is something that I think really important for our industry.

Anne: And what we continue to do is really grow the number of physicians who have tried Versenio, and they continue to adopt it with really positive experiences, and they incorporate it more broadly into their practice. This, I think, is primarily capitalized on the positive overall survival data from Monarch 2 in combination with Fulvestrant. But we do believe that the positive results from Monarch E are really providing them with another strong example that Versenio is differentiated from other CDK4-6 inhibitors. And even prior to those results, there was a steadily growing body of evidence that Versenio is differentiated with higher CDK4 selectivity, differentiated continuous dosing of mental therapy medication, and then obviously this OS data, not just in the overall population but in primary endocrine resistance.

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

The next caller is Terence Flynn with Goldman Sachs. Please go ahead.

And the question just regarding Loxo three of five can you share any perspective on the registration path for the drug in CLL and if a head to head trial versus Imbruvica is still on the table. Thank you.

Thanks, Terence Dan will give you for that question.

Yes, I think at this moment, it's premature to talk about to register.

Registrational path, but I can say that we look forward to releasing.

Anne: So we do think we're seeing a shift in people's perception that this is a best-in-class opportunity, both in the metastatic setting and then potentially in the future as we bring it forward as a new treatment option for patients in the early breast cancer setting. So we look forward to more work there. Dan. Geoff, thanks for your questions. Next caller, please.

More data later this year and I think as release that data, that's an opportunity to update on our current thinking.

On the development plan.

Thanks, Dan Paris. Thanks for your question next caller please.

Dave Ricks: The next question is... from Guggenheim, please. Oh, thanks very much for the question. So, one question for Dave and then a question for Josh.

The next question comes from David Risinger from Morgan Stanley. Please go ahead.

Yes, thanks, very much I just wanted to clarify so.

Josh: So Dave, can you talk about post-election policy priorities for the industry and what specifically Lilly hopes to achieve with the challenges to 340B. And then the question for Josh is, if implemented as written, what would be the biggest impact on Lilly's corporate tax rate under the Biden tax plan and is there a concern that this would have a significant relative impact on U.S. corporations like Lilly versus non-U.S. corporations?

With respect to Trulicity I believe you said that the volume growth was 26% in the quarter. Obviously the reported sales growth was 5%.

Which suggests a 21 percentage point difference.

So either way if thats right. If you could just confirm it if not if you could just give us the correct figures, but then could you for the different explained the components. So obviously last year in the third quarter the company you'd Miss Trulicity sales expectations due to.

Dave Ricks: Thanks. Thanks, Seamus. Dave?

Dave Ricks: Yeah, thanks, Seamus. Of course, the landscape post-election is not defined yet. So we'll need to wait for that to land before we get into too many speculations about the future environment. But I think we can say that as an industry, as we sit around the table, and certainly here at Lilly, there are two basic problems in the US drug market that need to be untangled. One is the patient out of pocket cost problem, where we're really the only country on the planet that indexes patient out of pocket costs to list prices. That still happens highly, in a highly prevalent way. And actually, the rate of growth in high-deductible plans, including those on exchanges and the ACA, is growing. So this problem is getting bigger, not smaller.

Higher than expected rebates.

So the company had a very easy comparison versus the third quarter of 19 fruits for Trulicity.

Yes, obviously, the the sales disappointed this quarter. So if you could explain that.

20% plus percentage point difference in terms of how much was due to rebates verse.

Versus mix shift et cetera.

Dave Ricks: Of course, we think the answer there is to have cost sharing at least be based on some discounted number, much closer to actual price. And perhaps all the discounts being passed on to consumers will be passed through. There are other solutions, regulatory ones, other ideas we have, such as capping deductibles, reducing the amount a copay can be for any given transaction through regulation or other avenues. States have done that.

And then also help us understand why the mix shift was a surprise given the Medicaid wins that you articulated.

[music].

And then.

Well actually I'll I'll just leave it at that.

So if you could address those that would be great. Thank you.

Thanks, Dave will go to Mike Mason for that.

Thanks for the question as we take a look at pricing performance for Trulicity in Q3.

When we take a look at the net impact of Reba increased rebates maintain access in list price.

Dave Ricks: And I think we do see a good impact on affordability and persistence when that's done. So that's the highest priority for the industry. The second priority, and you touched on 340B, is just reducing the amount of distortions in the system that create artificial winners and losers and shift money around healthcare based on drug sales, which is an inappropriate way to fund things in our mind. We'd like to see that disentangled, and that kind of services as it relates to dispensing or formulary management are based on something to do with the value of those services versus something to do 340B is one example of that, where high-priced drugs move through covered entities at huge margin increases, and you know, those monies go to other purposes not related to the drugs. Patients pay more and lose in that equation, and we certainly lose in that equation.

That was a a 2% of modest head win in Q3 of this year.

Segment mix was 6% and then the remaining of that was due to one time events due to coverage gap estimates for rebates.

And discounts so that's the breakdown of performance for.

For Trulicity and Q3.

As you.

You may not have been on earlier as we take a look at Medicaid.

Performance.

We are performing quite well and the higher priced segments of commercial and part D. We grew gross sales and commercial by 29% year to date and part D by 44%.

When we take a look at that segment mix is really driven by higher than expected.

Medicaid really have kind of a triple whammy going there were.

As you say cobot is driving.

Driving more people into Medicaid. We're also seeing that Medicaid in general is growing for Trulicity Clintrials should be share is lower and then we did make the conscious decision to win access and Medicaid because we felt that we were going to see people going from commercial to Medicaid and we had a lower access.

Dave Ricks: As it relates to 340B actions and other channel actions, you know, we're interested in kind of decomplexifying that and making the system work a little bit better for not just patients but for the sustainability of the pharmaceutical industry. So, anyway, we'll focus on those things as we have been, and we'll have to see what the tactics look like based on electoral outcomes here just a week away. Thanks Dave. Jeff?

In Medicaid than we did in commercial so we thought was the right thing to do for patients in order to increase Medicaid. So someone didnt have to go off trulicity. They lost their job during during the pandemic. So that's the breakdown, we're very confident and trulicity, both pricing and volume going forward.

Josh: Thanks, Seamus. I think first that the tax system that we have in the U.S. now does help us compete on a global basis for innovation. I think that's the biggest positive that we've seen. It is a complex system, but having a rate, an underlying rate that's more competitive with our European competitors allows us to attract innovation and keep it in the U.S. And I think you've seen that in some of the acquisitions we've done, including, you know, companies like Lockso. We're more competitive when we're competing against O.U.S. companies that have, you know, a low corporate tax rate in their countries.

Thanks, Dave Thanks for your question next caller please.

Your next question will come from.

From Mizuho. Please go ahead.

Hey, Thanks for taking my question. So just two please one teenage imaginary mentioned the AD com I believe that's a change from before when we have to sustain that they were not going into an AD com I don't know if you have any insight you can share just on what may have changed to lead to the vintage of the Advisory Committee meeting.

Josh: So we like that. I think as we look, though, to potential changes, the first thing I would say is there's, you know, having been through the last round here, there's a huge difference between what a high-level plan is and how it gets implemented and the details in that implementation or what actually drives the big point movements. I don't know that we could have, you know, sitting in 2017 predicted that we would have a 15 percent rate, for example, as our long-term rate here.

Second on maybe just going back to the Alzheimer's discussion from before obviously a lot of focus in on demand.

Early next year I know you guys have any PPG.

And one development and just curious if you could maybe talk about sort of how that what is different.

The one you haven't in late Phase two now.

To give us a sense of what you're trying to change their attention.

Thanks, Tom will go to Patrick for the question about today's amount and then Dan for the question on.

Josh: So there's a lot of work to be done if there is, you know, any kind of future tax reform coming. Obviously, the underlying U.S. rate looks like it'll go up. But I think we have a couple of advantages. No matter what happens, we invest heavily in R&D, among the most heavily of any of our big pharma peers. So we would hope and work to ensure that innovation is rewarded in any tax system going forward. And we have a pretty balanced manufacturing network. We make, you know, about half of our plants are in the U.S., and half are outside the U.S.

In phase one.

Well, thank you very much for the question.

And just updated by the FDA say about the PDUFA date, they no longer have on the end to end that they are most likely to panic.

Havent Advisory board in the month of March and actually we don't believe net negative taking into account that's more than enough update on finance them up and we have been talking nine clinical trial and more than 18000 patients meet need to ask I think even in that ballpark would be beneficial.

Thanks, Patrick Dan.

Sure. Thanks.

Thanks for the question on Continental Europe, and the follow on and through PG molecule, which you noted is in phase one one of the things that we saw with denim enforce that.

Josh: So I think we're probably poised to take advantage of any changes that happen in the tax structure going forward. But there's no doubt that having a competitive sort of base rate for the U.S. relative to our O.U.S. peers is something that's, I think, really important for our industry. Thanks, Josh. Seamus, thanks for your questions. Next caller, please. The next caller is Terence Flynn with Goldman Sachs. Please go ahead. Great question!

Hey, we had a great PD in fact, we could clearplex quite deeply and quickly but we also had.

Drug antibodies the antibodies weren't at a level that they have to.

Second the PK of the drug because we're getting pretty high doses of the drug still its thats not optimal to have 88 inch your drug. So we created a next gen. Nthreepg that we hypothesize would have the same plat Quinn PD effects.

Dan: Just regarding LOXO305, can you share any perspective on the registration path for the drug and COL and if a head-to-head trial versus Imbruvica is still on the table? Thank you. Thanks, Terence. Dan, we'll go to you for that question. Yeah, I think at this moment it's premature to talk about registrational progress, but I can say that we look forward to releasing more data later this year

But not have anti drug antibodies. So so thats. The next one that you see there in phase one if net him have turned out to be a success.

It could be useful to have a follow on molecule that that doesn't have a da.

Dan: And I think as we release that data, that's an opportunity to update on our current situation. Thank you, on the development. Thanks, Dan. Terence, thanks for your question. Next caller, please. The next question.

I also point out that in addition to that amount than that that falling into BG molecule. The other Alzheimer's molecule. We're really quite excited about is that going to tighten map, which is our.

Michael B. Mason: David Rice, Yes, thanks very much. I just wanted to clarify. So, with respect to Trulicity, I believe you said that volume growth was 26% in the quarter. However, obviously, the reported U.S. sales growth was 5%, which suggests a 21 percentage point difference. So, either way, if that's right, if you could just confirm it, if not, if you could just give us the correct figures, but then, could you, for the difference, explain the components?

Aggregated tower specific antibody and that will be reading out later next year.

Thanks, Dan Vamil. Thanks for your questions and I will go back to Dave for the close.

Great. Thanks, Kevin well, we appreciate everyone's participation in today's earnings call and your ongoing interest in Eli Lilly and company. Please follow up with the IR team. If you have questions that were not addressed today and I hope everyone stays well during this difficult time.

Take care and we'll be in touch.

Thank you and ladies and gentlemen that does conclude our conference for today. Thank you for your participation.

Michael B. Mason: So obviously, last year in the third quarter, the company had missed Trulicity sales expectations due to higher than expected rebates. So the company had a very easy comparison versus the third quarter of 19 for Trulicity. Yet, obviously, the sales disappointed this quarter.

Pnp conferencing services you may now disconnect.

Michael B. Mason: So if you could explain that, you know, 20% plus percentage point difference in terms of how much was due to rebates versus mixed shift, et cetera, and then also help us understand why the mixed shift was a surprise given the Medicaid wins that you articulated, and then well, actually, I'll just leave it at that so if you could address those, that would be great, thanks Dave. We'll go to Mike Mason for that.

Michael B. Mason: Thanks for the question. If we take a look at pricing performance virtualicity in Q3, when we take a look at the net impact of increased rebates to maintain access and list price, that was 2% a modest head win in Q3 of this year. Segment mix was 6%, and then the remaining of that was due to one-time events due to coverage gap estimates for rebates and discounts.

Michael B. Mason: That's the breakdown of performance for virtualicity in Q3. As you may not have been on earlier, as we take a look at Medicaid performance, we're performing quite well in the higher price segments of commercial and Part D. We grew gross sales in commercial by 29% year to date and Part D by 44%. When we take a look at segment mix, it's really driven by higher than expected Medicaid.

Michael B. Mason: We really have kind of a triple whammy going there where, as you say, COVID is driving more people into Medicaid. But we're also seeing that Medicaid in general is growing for trulicity because the trulicity share is lower. And then we did make the conscious decision to win access to Medicaid because we felt that we were going to see people going from commercial to Medicaid, and we had lower access to Medicaid than we did in commercial. So we thought it was the right thing to do for patients in order to increase Medicaid so someone wouldn't have to go off Trulicity if they lost their job during a pandemic. So that's the breakdown.

Michael B. Mason: We're very confident in truthfulness, both pricing and volume going forward. Thanks, Mike. Dave, thanks for your question. Next caller, please. Great, thanks for taking my question. So just two, please.

Patrik Jonsson: One on the Tunisia map, I know you mentioned the adcom. I believe that's a change from before when the FDA was saying that they were not going to do an adcom. I don't know if you have any insight you can share just on what may have changed to lead them to set up the advisory committee. And then, second on, maybe just going back to the Alzheimer's discussion from before, obviously a lot of focus on Denonimab early next year, but I know you also have an N3PG in phase one development. I'm just curious if you can maybe talk about sort of how that one is different from the one you have in late phase two and give us a sense of what you're trying to change.

Patrik Jonsson: Thanks, Bob. We'll go to Patrik for the question about Tanazumab and then Dan for the question on NPPG in Phase 1. Thank you very much for the question. We were just updated by the FDA that the PDUFA data is no longer valid and that they are most likely planning to have an advisory board in the month of March. And actually, we don't believe this is necessarily negative, taking into account that we have a lot of data on Tanesema. We have 39 clinical trials and more than 18,000 patients treated. So we actually think even an advertising board could be beneficial.

We're sorry your conference is ending now please hang up.

Patrik Jonsson: Thanks, Patrik, and Dan. Sure, thanks for the question on Deninamab and the follow-on N3PG molecule, which you noted is in phase one. One of the things that we saw with Deninamab was that we had a great PD effect. We could clear plaques quite deeply and quickly, but we also had anti-drug antibodies. The antibodies weren't at a level that they affected the PK of the drug because we're giving pretty high doses of the drug. Still, it's not optimal to have ADA drugs.

Dan: So we created a next-gen N3PG that we hypothesized would have the same plaque clearing PD effect but not have anti-drug antibodies. So that's the next one that you see there in phase one. If Nenumab turns out to be a success, it could be useful to have a follow-on molecule that doesn't have ADH.

Dan: I also point out that in addition to Nenumab and that following N3BG molecule, the other Alzheimer's molecule we're really quite excited about is Zagatinumab, which is our aggregated tau specific antibody, and that'll be reading out later. Thanks, Dan. Vamal, thanks for your questions. And now we'll go back to Dave for the close. Great, thanks, Kevin. Well, we appreciate everyone's participation in today's earnings call and your ongoing interest in Eli Lilly and Company. Please follow up with the IR team if you have questions that were not addressed today, and I hope everyone stays well during this difficult time. Take care, and we'll be in touch. Thank you, and ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. AT&T. We're sorry, your conference is ending now. Please hang up.