Eli Lilly and Co Q3 2023 Earnings Conference Call Transcript

Company Management

Analysts

Timothy Anderson

Thank you so much. I have a question on obesity and persistence on therapy, which I think has been a big question mark. I know you haven’t formally launched yet, but guessing you might have some idea, a best guess if nothing else. So in your view is this going to be like most other drug categories where persistence on therapy is often low? I think the rule of thumb is that at the one year mark 50% of patients drop off chronic medicines.

So really, the question is, if you took 100 patients who start on one of these contemporary obesity drugs, how many of that initial 100 would likely still be on therapy, let’s say three or four or five years down the road.

Michael Mason

Yeah, thanks for the question. Maybe I’ll first answer with the data that we do have, because it’s hard to speculate on what it’s going to be for obesity. The best data we have for tirzepatide is in Type 2 diabetes patients who started Mounjaro prior to our savings card changes last fall Mounjaro persistency for those patients is tracking higher than those patients that were started on trulicity and Ozempic, over that same period of time.

So while it’s too early to project the average length of therapy or how many out of 100 will still be on therapy after a couple of years, I think that this early data is encouraging. As for obesity, time was time was going to tell. I think we’ve all looked at Wegovy data, but I don’t think this is the right benchmark at this point because of novel supply constraints. And there’s been just a very dynamic market. I think, as you said, this — having persistency on a chronic treatment isn’t just an issue for anti-obesity medications. It’s a goal for all chronic treatments.

I think what’s different about obesity is that, on many chronic treatments, consumers don’t feel differently or experience any acute impacts from stopping treatments. So what we’ve seen in this SURMOUNT clinical trials, with tirzepatide is that some consumers will feel their appetite increase and experience weight regain when they stopped tirzepatide. And so this should help reinforce treatment adherence, seeing in our market research how important it is for people who live with obesity to lose weight and maintain it.

I do think you’re going to see just a high motivation as people have lost weight that they do want to maintain it. And we do know for our SURMOUNT program that, chronic use of tirzepatide is a good component, an important component of maintaining weight loss. So it’s too early to project it. But I do think there’s things that’s rolling in favor of tirzepatide having a good length of therapy in the obesity patient.

Seamus Fernandez

Great. Thanks so much for the question. So I really wanted to drill into orforglipron, and those Phase 3 programs. Dan, I was just hoping that you could clarify for the market, if there’s any monitoring in that study related to liver enzyme elevations. I think there was one case in the Phase 2 diabetes study that you conducted. Just wanted to know if there’s any related concerns associated with that. Or if this is kind of as expected, an all hands on deck moving forward opportunity. Thanks.

Daniel Skovronsky

Thanks, Seamus. Yeah, I like the way you phrase it all hands on deck moving forward on orforglipron. We’re really excited about this molecule. In terms of, liver safety, I think we commented before that, what we saw in Phase 2 is what we thought would be probably be typical for a trial of that nature in this population.

So not a heightened level of concern, but always concerned about safety going into Phase 3 from a variety of factors, including for all small molecules, especially liver function. So it’s routine in our Phase 3 studies across the portfolio to monitor liver function. And sure we’re doing that in orforglipron, but not aware of any special precautions there. So super excited that that program is going fast.

Terence Flynn

Great, thanks so much for taking the questions. Anat you had mentioned shifting the date of your 2024 guidance call early next year. Just want to know what drove that change? And if you can assure us that there are no issues with tirzepatide OBC review and/or manufacturing? Thank you.

Anat Ashkenazi

Sure. So let me first start with reassuring you that there are no issues behind our decision to move the guidance date to — or have it aligned with our Q4 earnings call. What it does do is it does help us have the yearend full results when we provide guidance for 2024. So previously, if we didn’t have that, investors had to look at guidance range for the year and estimates based on midpoint, etc. This does enable us to close the year and then have a full view into 2024. It is aligned with our internal planning processes as well. And obviously is the way most companies and I believe all companies in our industry do that.

So nothing unique going into that other than just having the full data set for 2023, going into that other than just having the full data set for 2023.

Mohit Bansal

Great. Thank you very much for taking my question. And my question is regarding the P documents [ph], seven biomarker data you have shown at CTAD. It seems like the predictability is getting to 94% of these tests, even C2N was pretty good. So do you have any thoughts on at this point, how close are we to actually make this — bring this to prime time? And when the donanemab gets approved do you think this could be the test doctors use? Or it will still take some time to get to that?

Anne White

Yes. So we shared at CTAD, we were pleased with the data that we saw. And we’re also pleased to see progress across the field in blood biomarkers. We definitely believe that this is incredibly important to drive access and early diagnosis in Alzheimer’s disease. So you’ve seen us invest in a number of fronts, our own p tau 217, but also partnering with others who are working on good tests to elevate the area. So it’s a strategy of raising all boats.

But yes, we did share our data. And we intend to make this available in a phased approach commercially as an LDT starting at the end of this year, in a couple of sites, and then continuing to expand over 2024. But at the same time, you’ll see us continue to publish the data. We think that what’s incredibly important in the field, is that good correlative data, particularly with amyloid PET, which is the gold standard in diagnosis is published and shared so that we can continue to make sure that we have high quality tests out there.

So that’s part of our goal with delivering this test is to really set a standard for what blood tests should look like. So look forward to hearing more over the next coming months as we publish that data and then make that more broadly available.

Louise Chen

Hi, thanks for taking my question. So I want to ask you, do you think the approval of additional oral potential — approval of additional oral diabetes drug could impact the pricing for injectables? Why or why not? Thank you.

Joe Fletcher

Thanks, Louise, for the question. I’ll hand over to Mike about the potential approval for other oral diabetes drugs and potential impact on injectables?

Michael Mason

No, I don’t think that’ll have an impact. I mean, traditionally, we don’t see a new class of diabetes agents coming in and affecting a current class. Usually the competition happens within a specific class within a diabetes market.

Geoff Meacham

Good morning, everyone. Thanks for the question. Just had one on tirzepatide supply. I know you guys have, a plant in North Carolina and another one coming online next year. But if you look beyond that, if you have demand anywhere near what’s modeled, and even outside of obesity and diabetes, obviously, supply could remain tight. So the question is, is there a threshold of treated patients like in the near term that will inform your decision on adding manufacturing capacity? And how much does the outlook for or orforglipron have on that? Thank you.

David Ricks

Yeah, thanks, Geoff. Obviously a hot topic. We work on this multiple hours every day. You’re citing the announcements we’ve made and as mentioned great progress is showing manufacturing agenda RTP sort of on track to deliver on its goal. But as we exit the year, and then that kind of in market volume following that Concord, which is a few hours away, and kind of a replica site also, well on track for coming online in ’24. So that’s good news in the ERMA [ph] presentation, which is — what we call our auto injector, from trulicity, and the current presentation from Mounjaro in the U.S. We’ve announced previously that we’re introducing now single use vial presentation ex-U.S., so that we aren’t basically sitting on approvals and connect patients have access to the medication.

That will follow them by a multi use injector that uses different property, plant and equipment than what we’re talking about here. So a couple of things to point out. You’re noting kind of new greenfield site expansions. We’ve rightfully made a big deal out of. We’re not done with those. I think you might hear more about that in the future. Of course, we are aggressively planning that and not banking on or forced upon to rescue us from this. We think that there is a need to take up parenteral incretin supply pretty dramatically from the current levels. And we plan to do that.

But that will be in a combination of the current syringe-based auto injector, the vial capacity, we’ve already talked about. The multi use injector, which will come online sometime next year, and is a highly efficient play for us because it uses current systems and different ones from the auto injector. And then there’s third party agreements that have been ongoing in the background. And to point out here, we are not relying on one. We have a diverse portfolio of third parties, recognizing that, the probability of full supply from any one is probably less than one. But buying up as much capacity as available in all those systems.

So we’ve got a, I think the all hands on deck phrase was used earlier. I mean, this is really all hands on deck. And it’s a problem we work every day. So we’re not at all happy with the capacity. We’ve announced already, you’ll see more. Some we don’t announce that we’ll just layer in to the volume we ship. And of course, long term new presentations like solid oral opens up even more possibilities, but we need to do everything we can now given the huge potential for global obesity treatment for our medicines to play a key role in that, and then ultimately impact hundreds of millions of people.

So a lot of work to do here yet ahead. Thanks for the question.

Laura Hindley

Hi, thanks for taking my question. So I think it’s clear from your results that the next steps in Mounjaro is rapidly in progress. But how should we think about the ex-U.S. trulicity contribution going forward, which did look weak this quarter? But at the moment you’re still supply restricted? Can we expect a return to growth into next year as constraints ease or should we now assume Trulicity is ex-growth as you push the shift into Mounjaro? Thank you.

Joe Fletcher

Thanks, Laura for the question. I’ll hand over to Ilya Ufa, President of Lilly International. Ilya, do you want to address Trulicity ex-U.S. contributions in the quarter and going forward?

Ilya Yuffa

Sure, first, thanks for the question. From a trulicity standpoint, we had healthy growth coming into later part of last year. And we’ve been pretty transparent with both physicians as well as regulators that due to the tight supply, we are encouraged not to start new patients. We continue with that, to be transparent. We think it’s the right thing to do. And as we think about the growth in incretin, we’re looking as we build up capacity, as David mentioned.

As we increase capacity both in the single use vial and introduce Mounjaro in additional markets as we have in Australia and we will continue over the next number of weeks and months in other markets and then transition towards a multi-use platform in quick time in introducing Mounjaro. And so the overall growth in incretin will be mainly driven by as we are able to launch Mounjaro in new markets that’s probably will go get the growth. Thank you for the question.

Umer Raffat

Hi, guys. Thanks for taking my question. I realize Mounjaro has not approved in obesity yet. But I’m just very curious how you’re thinking about the pros and cons heading into that pricing decision, if there is any, because Novo does have that price premium, as you know, on Wegovy or Ozempic. So on the one hand, while Mounjaro price could be the same because the dose is the same, but on the other hand, Novo has this dynamic where it can offer a lot more rebate for the obesity indication than you can, if you leave the price unchanged. I’m just curious what your thought process is heading into that.

Michael Mason

Yeah, thanks for the question. Obviously, we’re not going to talk about price prior to approval. We’re evaluating every scenario. We will make the right decision for patients who live with obesity.

David Risinger

Yes, thanks very much. And thanks for all the updates today. So some major payers seem to under appreciate the broad health savings potential that incretins offer the non-diabetic obese population, and instead focus on criticizing drug pricing. So ahead of the results from Mounjaro’s morbidity and mortality outcomes trial in 2027, how does Lilly plan to better inform payers about Mounjaro’s health economics benefits in non-diabetic obese patients? Thanks very much.

Joe Fletcher

Thanks, Dave for the question. Mike, do you want to talk a little bit about that, about the longer term appreciation for the broader health benefits of medicines, like tirzepatide?

Michael Mason

Yeah, no, David, it’s a good question. One that we’ve obviously spent a ton of time on and done a lot of internal analysis and a lot of planning on. We will have a whole suite of real world evidence and pragmatic trials so that we can answer this question clearly, for payers and other stakeholders. In our conversations with payers, while they’re concerned about the short term budget impact, they do understand that losing weight will have benefits. It’s not that hard of a sale, because they do understand the benefits are intuitive.

If you look at the total number of like obesity rate of complications, there’s over 200. And you look at some of these are just really devastating and very costly, like type 2 diabetes, coronary heart disease, hypertension, dyslipidemia. And then when you look at the cost of these, on the U.S. alone, there’s $370 billion in direct medical costs associated with obesity-related comorbidities, and over a trillion in indirect annual cost. When payers see that, people living with obesity and overweight, drive 2.7 times greater healthcare costs, than normal individuals, that data does get their attention.

And so I think over time will continue to provide health economics data, but also I think the voice of those living with obesity will be very important in this. This is a disease that, that really materially impacts someone’s both health and mental functioning. And is really important for people who live with obesity. Their goal is to is to lose weight and maintain that so they can help their long term health benefits. And they’re going to have a loud voice in this. I think both in commercial insurance as well as in states and the federal government. And so I do — I am confident over time that we will see increase in access.

I think the most recent report shows that there’s 50 million people in the U.S. that has access to obesity medication. So it will take time, but I think — do think more and more payers are appreciating the value that anti-obesity medications especially when we get approval for tirzepatide will offer them. Thanks.

Evan Seigerman

Hi, thank you so much for giving me the question and congrats on the progress. So given the executive changes announced in October, how should we think about the direction of the immunology business now with Dan at the helm? Thank you guys.

David Ricks

Sure, I can start and let Dan comment. Look, we’ve been really pleased with this business, which I think is important to take the long view here. I mean, I was involved in creating this like 10 years ago, and both [indiscernible] and now mirikizumab, and hopefully soon Lebrikizumab will form a really core portfolio for us, really exploiting ideas that we had some time ago. What’s next, and you see here today advancing another checkpoint agonist into Phase 2 is a lot of decisions about, okay, what’s next to take immunology to the next level. And that’s largely going to be about key decisions, both internal portfolio and potentially externally, like with our DICE acquisition, to find a new set of either single agent or combinations that can raise the standard of care in tough immunology diseases, noting, in particular in IBD and RA, the standard of care is hardly satisfied today.

We measure real pretty low performance status of success. So that’s the mission that Dan and we’ve hired Mark Genovese to the company and others to really build a portfolio the future. So I don’t Dan, if you want to

Daniel Skovronsky

No, excited about the opportunity. There’s lots of work to do in immunology, given the depth of unmet medical needs and the science is great here. So I hope we can continue to bring great drugs to market as we’re doing with mirikizumab. And we hope to do with Lebrikizumab soon and more to come.

Christopher Schott

Great. Thanks so much. Just as we’re thinking about the upcoming tirzepatide obesity approval, just interested in your perspective of how we should anticipate commercial coverage ramping, as we think of maybe the first couple of quarters post launch versus where it could be in a year or two from now, a business how quickly can we think about coverage coming on board? Thank you.

Michael Mason

Yeah, no, it’s a good question. It will ramp up. We’re trying to be disciplined. And we’re trying to make sure that we bring on access as quickly, as is prudent. And so just like we did with Mounjaro we will take and make sure that we sometimes access has to materialize at an organic pace where it makes sense. And we’ll make sure and use our judgment. So just like with Mounjaro, while we’d love to get out of the gate quickly, most importantly, as a setup for long term success. So you’ll see a kind of a natural ramp up that you would with any new product. And I think it’s important, as you look in the first quarter of our launch last January, when you saw Wegovy resupply. They were resupplying into a market where they already had capacity.

So I think when you look at our access, and you look at our volume as we head into next year, you’ll see a ramp up in volume as you see a ramp up in our access.

Stephen Scala

Oh, thank you very much. A question on why Lilly is evaluating higher doses of tirzepatide. There is risk and adverse event is uncovered and taints the franchise, and of course there are IRA considerations. Does this suggest some reservation about the pipeline either Triple G or orforglipron, the former, which has safety signals, the latter of which took five years to get to Phase 3. It would also be interesting to know whether it’s the exact same molecule or it’s been enhanced in some way. Thank you.

Daniel Skovronsky

Okay, I’ll take all that. I think I’m not sure exactly what the safety signals you are referring to [indiscernible], I think. But we were excited about both RADA and orforglipron, which are both in Phase 3, and both advancing quickly. We’ve invested quite a lot in those Phase 3 programs that are robust, covering multiple indications.

So there’s no hesitation or trepidation there at all. I think though notwithstanding those two molecules, which I expect to be great and important contributors to human health, we have, tirzepatide. I’m not exactly sure if we’ve maximized the dose response, if we hit the flat part of the dose response curve yet. It looks like we might be close. But we want to explore it. And so we’re testing the higher doses in Phase 2. I think we’ve had enough patients on this drug for long enough that I expect the risk of uncovering a new safety signal with sort of marginally higher doses is extremely low. So not worried about that at all.

Joe Fletcher

Let me just jump in here maybe on questions like this. And we have a number of research projects and obesity and related mechanisms. In some people ask, well how does this one affect that or whatever. That’s not really the mindset in which we’re pursuing this. We’re — we see ourselves a leader in the space and have a unique opportunity. And our goal is to exploit every single idea till we get data that says we shouldn’t. And so high dose tirzepatide just another version of that. But it doesn’t have a read through to other things. Were just in all the above mode in obesity. Thank you.

Chris Shibutani

Thank you. Good morning. In about a week or so we’ll get detailed results from the SELECT cardiovascular outcomes trial, the American Heart meeting. Can you share with us what perhaps three key questions that the Lilly team will be looking at when we get detailed results?

Daniel Skovronsky

I don’t know. I can start maybe. Maybe Mike has some to add here. Look, I’m excited to see that data, of course, as everyone else’s. But the top line looks good. For me, I think we’re sort of creating now data points on a line that connect the level of weight loss with the degree of cardiovascular benefit. I think this point fits on that line reasonably well. That line which was greater health benefits, including better, a fewer mace outcomes with greater degrees of weight loss bodes very well for Mounjaro data, given the very high degrees of weight loss that we saw in our trials. I’ll leave it at that. See if Mike wants to add.

Michael Mason

Probably the key question I’m looking at is like how much of the effect was driven by drug effect versus weight loss is probably the key question we’re looking at.

Carter Gould

Great. Good morning. Congrats on the progress. May be following on, on the prior question, but maybe more on sort of the impact of the flow data, and your thoughts there. Specifically, you guys have taken sort of a different approach with your more recent assets there in terms of targeting that population. Is Lily’s view that those benefits will accrue to the class and maybe just talk about how you think about targeting that segment down the road? Thank you.

Daniel Skovronsky

Yes, so you’re asking about kidney disease. I mean, I think the profound effect that incretin seem to be having on the kidneys is really a nice and important additive benefit here. This is something that’s been observed with multiple class members now and they expect it will extend into our incretins as well. So it’s exciting and I think proof that these drugs perhaps in addition to weight loss and A1C control, could have other direct metabolic benefits including the kidney.

Trung Huynh

Morning, all. Thanks for squeezing me in. Just one on Mounjaro U.S. pricing. So by our calculations, we think that 3Q ’23 the net price is around 440 per TRX. For the rest of the year do you think that net price can continue to go up and above the saving card price of 450 [ph]. Although payers willing to pay for this, or is this broadly capped now until that saving card ends? And for next year, can you just give us your thoughts on if net price can meaningfully keep increasing? Thanks.

Michael Mason

Yeah, no, I’d be happy to do that. I think maybe at a macro level, I would say that our gross to net for Mounjaro in Q3, that kind of normalized. Before then we had a number of saving card changes that that, made our gross to net rate dynamic. Our last and copay card change occurred late in Q2, so at the end of June. And so Q3 was a kind of a pure quarter, where we didn’t have any other copay card changes. And I would say that our Mounjaro rate normalized at that point, you know, going forward, I think what you’ll see is what you see normally for a product at this point in the lifecycle that as we pursue gaining access, there’ll probably be some pricing pressure related to that. But we don’t have any other coping card changes planned in the near future.

Unidentified Analyst

Good morning. Thanks for taking our question. This is Nicole [indiscernible] on for Robyn. Going back to obesity, how are you thinking through the impact on Mounjaro if Ira [ph] stays and Wegovy and Ozembic prices decline in the 2026-20 27 time frame?

Joe Fletcher

Thanks, Nicole for the question. I think it’s very — if I heard you right, you’re thinking about IRA impacts to maybe semaglutide and potential impacts to Mounjaro. Mike, do you want to comment on that briefly?

Michael Mason

Yeah, and I’ll happy to do that, Obviously, it’s too early to really impact how IRA will have an impact and the impact will have another product within the class. I think what you know, what’s important for tirzepatide is it is the first dual acting incretin. And we do think it has a unique profile. And in head to head results in type 2 diabetes, it did show superior, both I1C and weight to semaglutide. And so at the end of the day, I think the profile of the product will carry the day. And obviously more to come on the IRA. As the first products go through the negotiation, we see the impact, but we’re confident in the profile of tirzepatide.

Seamus Fernandez

Oh, great. Thanks for the follow up question. So just in terms of how you’re thinking about the introduction of oral treatments, and the importance of pushing for what would be hopefully a maintenance type regimen. Is Lily looking at oral therapies as more of a maintenance regimen opportunity, or do you see a broader opportunity here, perhaps bringing in other mechanisms that perhaps could aid in pursuing, I guess, the ever elusive metabolic set point? Thanks.

Daniel Skovronsky

Yeah, thanks, Seamus. Maybe to paraphrase Dave’s previous answers, it’s sort of in all of the above here, I think there’s great opportunities on the oral as a standalone therapy for initiation of therapy. Also, yes, for maintenance therapy globally. And also, yes, for potential combinations. You know, I point out the obvious fact that this is a GLP. One monotherapy. So we benchmark it against the best injectable GLP1 monotherapy. But I don’t expect as an oral it will achieve the same levels of efficacy we can see with dual agonism like tirzepatide. So the future certainly will hold combinations like that. Thank you.

Timothy Anderson

Thank you. What’s the latest thinking on the topic of get agonism versus antagonism. Tirzepatide is the former Amgen drug is the latter. I’ve never seen two drugs in any category that have a similar clinical effect but opposing underlying activity the biologic target. Amgen says get antagonism is the way to go supported by their genetic analyses. What is Lily saying? Have you looked similarly at genetic analyses to inform your view?

Daniel Skovronsky

Yeah, I’ll take that. I, of course, say we have now I think more data on GLP agonism than anyone in the world and starting with tirzepatide, of course, which is a combo GLP1 GIP agonist and the head to head study against a pure GLP1 agonist and you can see some profoundly different effects here looking at, for example, efficacy relative to tolerability. It looks like the GIP is boosting efficacy while also reducing the side effects that limit tolerability. So that was our initial evidence in human trials that involved well now tens of thousands of patients have been on tirzepatide in trials.

And then we went out to sort of prove this point by creating a pure GIP 1 agonist that just agonizes GIP to see what that could do alone. And again we saw a very highly tolerated drug consistent with what we understand about the mechanism of GIP 1 that probably could suppress actually nausea, vomiting that lead to weight loss. So, I think human data trumps everything here, and we’ve got a ton of that. So we’re pretty excited about gap agonism. I can’t really say what will happen with antagonism, but like you said, it’s pretty unusual to have opposing mechanisms both work in similar ways.

David Ricks

Okay, thanks, Joe. We appreciate everyone’s participation in today’s earnings call and of course your ongoing interest in Eli Lilly and Company. As I said, it’s been a very productive year for Lilly so far, and we look forward to continuing this momentum through a busy end of year in fourth quarter. So thanks for dialing in today. Please follow up with the IR team if you have questions we did not address on the call. And hope everyone has a great rest of the week and rest of the day today. Take care.