Lilly 2019 Financial Guidance + Investor Meeting – GIP/GLP-1 Tirzepatide to Enter Phase 3 for Obesity, Phase 2 for NASH; REWIND Submission in 1H19, Connected Pen + Jardiance for Type 1 (?) in 2019; Early-Stage Basal Insulin Movement; R&D Strategy Overhaul – December 19, 2018

Lilly provided 2019 financial guidance this morning (see the press release, presentation slides, and pipeline deck), in the company’s first major R&D meeting since May 2016. Below, you’ll find seven highlights from the call, covering 2019 guidance, connected care, and diabetes therapy. We conclude our report with diabetes-related Q&A from the call, with substantial discussion of tirzepatide.

Top Seven Highlights

1. Lilly Increases Five-Year 5% Growth Target to 6%, Guides to >$25 Billion in Revenue for 2019; Emphasis on Volume over Price Growth Continues; Trulicity, Jardiance, Basaglar Remain Key Drivers

Lilly offered 2019 revenue guidance between $25.3 and $25.8 billion, reinforcing that the company expects mid-single digit growth and is on track to meet 5% revenue annual growth from 2015-2020. Indeed, CFO Mr. Joshua Smiley actually concluded his presentation by detailing a revision of the company’s 2020 minimum financial expectations, increasing from 5% to at least 6% compound annual revenue growth from 2015-2020 (7% for pharma only), and the company now expects to meet that 5% goal a year early in 2019. For context, this 2019 guidance compares to an initial projection of $23 to $23.5 billion for 2018, which the company refined to $24.3 to $24.5 billion in its 3Q18 update (after raising the guidance in both its 1Q and 2Q updates). So far in 2018, Lilly Diabetes has posted $7.1 billion in revenue ($2.3 billion in 1Q18, $2.4 billion in 2Q18 and 3Q18), compared to $5.5 billion at this point in 2017, reflecting consistent double-digit portfolio growth driven by very strong performances from GLP-1 agonist Trulicity, biosimilar basal insulin Basaglar, and SGLT-2 inhibitor Jardiance. Lilly’s press release explains that 2019 growth should be driven by volume growth in these three diabetes products (the days where growth came from pricing seem long ago!), among other therapeutic areas, and we were also excited to see the potential launch of nasal glucagon identified as a possible growth driver. Indeed, management emphasized throughout the call its ongoing investment in pipeline candidates and bringing new products to market: In the past five years, the company has brought ten new medicines to market, and expects to double that in the next five years. 2019 itself should see approval of nasal glucagon (and lasmiditan for acute migraine). On balance, however, Lilly also emphasized that pricing pressure is expected to continue in the US and abroad, preventing increases in net price – we see that as a positive in diabetes and we’re very interested to see where and how nasal glucagon is eventually priced.

2. GIP/GLP-1 Agonist Tirzepatide to Enter Phase 3 in Obesity, Phase 2 in NASH in Coming Year; Details on Phase 3 Titration Scheme (Much Slower); Competitive Implications; New Phase 2b On-Treatment Analysis

Enthusiasm continues to abound for phase 3 GIP/GLP-1 dual agonist tirzepatide, and Lilly did not disappoint with updates: A phase 3 program for the candidate in obesity will begin in 2019, as will a phase 2 trial in NASH (including biopsy). We’re absolutely thrilled by this announcement: To date, Lilly had been very reticent to discuss the possibility of a non-diabetes indication for tirzepatide, and we very much expected them to stay focused on diabetes given historical reluctance to develop drugs for diabetes-adjacent indications. Given that, in our observation, the weight loss data from phase 2b for tirzepatide was the most exciting component for many, however, we’re not strongly surprised by this decision. Tirzepatide represents the likely next big innovation in diabetes treatment efficacy, and we’re so glad that it could become available for obesity on a similar timeline – doubtless, more efficacious obesity therapies are desperately needed. CSO Dr. Daniel Skovronsky expressed his own excitement about the opportunity in these indications, and he detailed that the obesity program will include four trials: (i) weight loss in obesity/overweight; (ii) weight loss in obesity/overweight and type 2 diabetes; (iii) weight loss maximization; and (iv) weight loss maintenance. On NASH in particular, Dr. Skovronsky emphasized that weight loss continues to be the best understood and most well-characterized treatment for NASH, giving tirzepatide a likely baseline level of efficacy. But the pattern of metabolic changes (e.g., lower insulin resistance) driven by the molecule also indicate it may further lower hepatic fat content, which may be preferable to therapies targeting symptoms of NASH (fibrosis, steatosis). Moreover, phase 2 biomarker data for diabetes already indicate that liver health improved in a non-NASH population.

• The phase 3 SURPASS program for tirzepatide in type 2 diabetes is now underway, and Lilly divulged the dose escalation scheme to be used in the studies. As a reminder, Lilly conducted a smaller, 12-week dosing study alongside the main phase 2b dose-ranging study, testing a slower titration schedule and purportedly minimizing discontinuation rates <5% for all doses – data from that study will be presented at an upcoming scientific meeting and informs this scheme. Unlike in the phase 2b dose ranging study, SURPASS will investigate 5, 10, and 15 mg doses (1 mg has been dropped) and also use a 2.5 mg titration dose. For comparison, in the phase 2b study, participants started at the 5 mg dose for two weeks, then escalated to 10 mg for four weeks before climbing to 15 mg (depending on the group) – meaning the new schedule for SURPASS is much, much gentler.

  • We were intrigued by an astute question from one investor, as to whether (particularly in primary care) this dose titration scheme would present a barrier to tirzepatide initiation. Dr. Brad Woodward, Senior Medical Director and incretin platform lead, explained that Lilly expects tirzepatide’s packaging in the same pen as Trulicity will make initiation and titration easier than might be expected. Moreover, he said, Lilly currently views 5 mg tirzepatide as a “good maintenance dose” for most patients, with titration to 10 and 15 mg available as needed. As such, our understanding is that tirzepatide would be prescribed as most existing GLP-1 agonists: A lower dose would be used for ~one month before titrating up to the maintenance dose, and then HCPs can escalate to a higher dose (or even two higher doses) if greater potency is needed. While this scheme is vulnerable to therapeutic inertia (i.e., patients not at goal but being kept at the lower dose) and should color our thinking about tirzepatide (i.e., will most patients be getting the 5 mg efficacy?), we don’t think it will represent a challenge for providers to understand and implement, all else equal. 

• Of high note, management commented that they envision tirzepatide competing directly with GLP-1 agonists as a first injectable therapy. Indeed, when asked about potential cannibalization of Trulicity, President of Lilly Diabetes Mr. Enrique Conterno commented that this is exactly what Lilly expects and thinks should happen with a breakthrough product like tirzepatide. The positioning as a first injectable is perhaps most interesting in and of itself and raises interesting questions about how HCPs are actually thinking about next-gen therapies. Could it be possible that tirzepatide’s remarkable level of efficacy will actually keep some HCPs from thinking of it as a first injectable? To be sure, we don’t think this should be the case – many patients could benefit from earlier, more intensive combination therapy. From where we stand, though, it’s hard not to draw comparisons to GLP-1 agonist/basal insulin combinations (Novo Nordisk’s Xultophy and Sanofi’s Soliqua), which offer tremendous glucose-lowering capacity but have seen relatively low uptake to date, reflecting how difficult it can be to establish a progressive class on the diabetes market. Challenges to promoting use of this progressive combination are many, but perhaps one of the most significant has come from HCPs simply not knowing how these agents fit into the traditional treatment algorithm. While tirzepatide will likely have an edge in that it gives both striking A1c lowering and impressive weight loss (plus more straightforward dosing with an autoinjector), disrupting the diabetes treatment algorithm does represent a challenge – and we’re sure Lilly is already thinking about how to most effectively introduce tirzepatide to endocrinologists, PCPs, and even cardiologists.

• Dr. Skovronsky also presented a new, on-treatment analysis of phase 2b data for tirzepatide, specifically for the endpoints of A1c <5.7% and weight loss ≥15%. In the initial data presentation at EASD, these endpoints were presented as intention-to-treat analysis (other endpoints were, somewhat confusingly, on-treatment analyses). In the ITT analysis, 22% of those on tirzepatide 10 mg achieved ≥15% weight loss, as did 25% of those on 15 mg; for the same groups, 18% and 30% achieved an A1c <5.7%. Thus, the on-treatment analysis unsurprisingly shows greater efficacy in only the group of participants who stayed on tirzepatide.

• As a reminder, SURPASS contains eight studies, detailed on this timeline. All but the SURPASS CVOT are set to be initiated in 2019:

3. Trulicity: All Eyes on REWIND Readout at ADA 2019; Regulatory Submission Slated for 1H19 (Potentially Before Results are Public!)

In Dr. Skovronsky’s words, “ADA can’t come soon enough in 2019” – there, Lilly will present full results from the REWIND CVOT for Trulicity. Notably, Lilly intends to submit REWIND results to regulatory authorities in support of a CV indication in 1H19, meaning that sNDA/Type II application could actually be submitted before we’ve seen any data! This seems like a very good sign to us and excitement around REWIND results remains high: The CVOT met its primary endpoint, significantly reducing risk of three-point MACE vs. placebo, despite enrolling a majority (69%) primary prevention population with a quite low mean A1c of only 7.3%. The study is also especially long, with median follow-up of 5.4 years. That said, we can’t draw any conclusions on efficacy before seeing the full results: Was the treatment effect balanced across the primary and secondary prevention cohorts? Did the longer follow up make it possible to detect cardioprotection in a healthier subgroup of patients? The answers to these questions will have tremendous implications for the GLP-1 agonist class and all patients with type 2 diabetes. We’re glad Lilly “took a risk” on REWIND design; regardless of subgroup results, we feel Lilly is all but guaranteed a CV indication of some sort for Trulicity.

4. Launch of Hybrid Closed Loop and Connected Pen/Decision Support in 2019-2021; Connected Pen to be Submitted to FDA in 2019

The presentation featured an entire slide devoted to Lilly’s connected care (hybrid closed loop and smart pen with decision support) work coming out of the Cambridge Innovation Center, including the news that the portfolio is “expected to launch in stages over three years starting in 2019” (2019-2021 – we imagine this may go into 2022). Management added that the connected pen is now slated for an FDA submission in 2019, suggesting it will likely be the first product to market. On the one hand, this is the first assurance that Lilly will begin to roll out its connected insulin systems in 2019; but on the other hand, the back end of the prior timing (late 2019-2020 launch) has been lengthened by one year, meaning that the closed loop system or elements thereof could be pushed back as far as the end of 2021. If the “Integrated Insulin Management” system (dose capture devices compatible with Lilly’s disposable KwikPen and CGM/BGM), or even just the connected dose capture device, launches by the end of 2019, launch could largely coincide with that of Novo Nordisk’s smart durable pens (key EU markets in 1Q19, potential 2019 US entry) and Bluetooth dose capture attachments for disposable pens (launching later in 2019). We’d expect Lilly’s smart pen will launch before the hybrid closed loop, given the firm “2019” pen submission timing given today. Companion Medical’s durable InPen is available in the US and CE marked, and Common Sensing’s GoCap is in US pilots/beta launch. It will be interesting to see which business models Lilly and Novo Nordisk adopt for their connected devices. We already know that Novo Nordisk is taking more of a partnership approach, including initial data partnerships with Dexcom, Glooko, and Roche, while Lilly seems to be developing its software internally (and non-exclusively partnered with Dexcom). A big question is how the companies will sell the devices. Will the smart pens be included in every prescription at no cost? At a premium out-of-pocket expense? Will the models differ between durable smart pens and disposable smart attachments? Will they be sold through risk-sharing agreements? How quickly will the manufacturers be able to transfer their user bases over to smart injection devices? How much will they invest in marketing smart pens and building the category? How will smart pens and decision support compare to AID with pumps? There are many potential go-to-market strategies, and we’re eager to see which are adopted and how quickly. 2019-2020 has the makings of a pivotal two-year-stretch in terms of increasing the penetration of insulin dose tracking.

• Lilly VP Ms. Marie Schiller spoke at some length on the call: “The key aspect of the program is changing the value proposition with insulin. We know fill rates are low; 30% of people don’t fill their first script. We’ve never had a way, once people start insulin to know what they’re taking and if they’re taking the right amount. So, a key part is to start to utilize the data we can capture from connected devices, build algorithms from a decision support perspective, allow physicians to efficiently use data, and get people to the time-in-range we know is possible. The pump here doesn’t look like a pump and we’re excited to bring out a system that was really designed to be a closed loop and come out with new mechanisms and algorithms embedded in the pump. I really think this will be key innovation for people living with diabetes.”

5. Management Projects Optimism for Jardiance and SGLT-2 Class Growth; Potential Type 1 Submission in 2019

While Jardiance was absent from Dr. Skovronsky’s R&D presentation, the SGLT-2 inhibitor still got plenty of airtime during the day, and management remains keen on its potential to drive and benefit from growth in the SGLT-2 class. When asked about what some might call disappointing growth from both product and class, Mr. Conterno gave an interesting take on the state of SGLT-2s commercially: “I like to make a parallel with GLP-1s. When Trulicity launched, GLP-1s were growing about 10% annually. The most common question I got was, why are these not growing faster? We have a number of safety scares in the class that were publicized, but data over time has strengthened the class and confirmed safety. With SGLT-2s, we do expect a significant re-acceleration of the class with Jardiance as a catalyst for overall class growth. We’re seeing faster growth when it comes to new patient starts, now in the double digits.” We would point out that multiple product improvements also helped accelerate the growth of class, like easier to use devices, less frequent dosing, etc. Mr. Conterno further highlighted the re-inclusion of Jardiance on CVS Health’s national formulary for 2019 and recent guidelines (ACC, ADA-EASD) preferring Jardiance for CV risk reduction as likely growth drivers for Lilly’s SGLT-2 in the next year. Moreover, given that SGLT-2s remain at ~7% of the oral diabetes market (by volume), Mr. Conterno sees enormous headroom for growth: “That’s peanuts when you look at the benefit/risk profile of Jardiance in particular.” Lilly has clearly invested heavily in maximizing the product’s market potential, and three key developments are on the horizon:

• Type 1 diabetes: Following presentation of phase 3 EASE data at EASD 2018, Lilly has been quiet on timing for a regulatory submission in type 1 diabetes, and today’s presentation listed US submission as a “potential” 2019 milestone – hardly specific, but the first we’ve heard. We’re not sure what the company’s thinking is on submission timing, but we don’t expect it to come before FDA gives its decision on Sanofi/Lexicon’s NDA for SGLT-1/2 dual inhibitor sotagliflozin in type 1 (an Ad Comm is scheduled for January 17 – the decision could come some time later and may be delayed given how under-resourced FDA currently is). On the other hand, Lilly also lists an FDA decision on a type 1 indication as a potential 2019 milestone – indicating submission may be on the table for early in the year. Because Lilly will only have to submit an sNDA for this indication, review should be more rapid than for a full NDA, but we have more questions than answers for now.

• Heart Failure: Both EMPEROR-Preserved and EMPEROR-Reduced are currently recruiting and expected to complete on June 2020; the combination of these trials could support an indication for Jardiance in heart failure, regardless of diabetes status, meaningfully expanding the product’s eligible patient population. As highlighted by Mr. Smiley during his presentation, 2019 will see a topline readout from the EMPERIAL studies, examining Jardiance’s impact on exercise capacity in people with heart failure (expected completion June 2019) and giving some indication of what one might expect from EMPEROR.

• Chronic Kidney Disease: EMPA-KIDNEY is not yet recruiting, but will eventually enroll ~5,000 people with chronic kidney disease, with or without diabetes, potentially supporting a game-changing CKD indication. This may also give a valuable “read” on pre-diabetes. Completion is currently expected in June 2022, and the study was originally scheduled for a November 2018 start date. That appears to have been delayed slightly, as initiation was listed as a 2019 milestone in this presentation.

6. Early and Late Stage Innovation in Insulin: Once-Weekly Basal Advances to Phase 2, Next-Gen Basal Enters Phase 1; URLi Submission in 2019

As we approach the 100^th anniversary of insulin, Lilly continues to invest in insulin as well. Below are the most current updates on the company’s three standalone insulin candidates:

• Ultra-rapid lispro (URLi): Following release of topline phase 3 data in both type 1 and type 2 diabetes, Lilly still plans to present full results and submit URLi to regulatory authorities in 2019. No more detailed timing was offered, and Dr. Skovronsky commented that “the goal is comparable control with lower hypoglycemia and improved postprandial glucose and time in range.” So far, Lilly has announced superiority of URLi to Humalog on PPG (one and two hour), as well as non-inferiority on A1c lowering – but hasn’t commented on whether superior A1c lowering was achieved.

• Basal Insulin-Fc: This once-weekly basal insulin, enabled by the same technology as Trulicity, entered phase 2 in 4Q18. Dr. Skovronsky commented that phase 1 data was “remarkable,” but didn’t offer a timeline for when that may be released. Lilly has been pretty quiet about this candidate, which we expected was in development mainly for combination with Trulicity as a once-weekly basal/GLP-1 option (as indicated by Lilly in its 4Q16 update). Our understanding is that the company is also still working on this program. We would be thrilled to see a once-weekly basal hit the market in the next decade and look forward to phase 1 data soon.

• Acylated next-gen basal insulin: According to Dr. Skovronsky, this daily next-gen basal just started in phase 1 – he emphasized the company’s capacity to “move very quickly if we like what we see,” as well as Lilly’s goal to deliver a best-in-class daily basal. No doubt, this is a tall order given the innovation Tresiba and Toujeo have brought to the basal insulin class. We’re looking forward to learning more about the molecule and science behind this candidate.

7. Lilly Targets Early-Stage Drug Discovery in Latest Move to Improve R&D, Following Impressive Overhaul of Clinical Development

Dr. Skovronsky detailed the Lilly’s changing approach to early-stage drug discovery and recent efforts to meaningfully accelerate the entire drug development cascade. For context, he said, the company commented in its May 2016 update that it would be working to make drug discovery and development both more successful and faster, acknowledging that Lilly’s timelines were among the slower of the industry. After working to improve clinical development timelines and processes, Dr. Skovronsky said, Lilly has achieved an impressive phase 3 success rate of 78% (vs. a 60-70% industry average) and reduced average time from first human dose to launch from 10.1 years in 1H15 to 7.9 in 2H18, giving the company one of the best investment to NPV ratios in the industry – wow. For example, he says, the company brought URLi from first human dose to submission in a projected <four years, “surely a record for Lilly.” Tirzepatide, also, has gone from first human dose to phase 3 start in 31 months. With this foundation in place, Lilly is now looking earlier in the series of events to preclinical R&D, aiming to (i) speed up the timeline from target identification to human proof-of-concept to only three years; and (ii) increase use of external innovation to improve access to novel, early-stage targets, modalities, and tools. While Lilly will continue to invest in its own R&D platforms (particularly insulin and incretins), it will increasingly look outward for access to the most effective, first-in-class candidates. This reflects a similar trend we’ve seen from another major industry player, Novo Nordisk, which has taken a similar approach to the same end goal, vastly increasing its use of external partnerships to source innovation from smaller companies. In addition, Novo Nordisk recently overhauled its own R&D process, laying off hundreds of R&D employees to begin a monumental shift toward using machine learning and AI to speed up and improve drug discovery and candidate selection. Lilly’s slides indicate a similar conviction to invest in technology (“automation and IT”), and it’s clear that the drive to innovate in diabetes is higher than ever.

Lilly Diabetes-Related Pipeline Summary

The table below reflects the latest updates, as far as we are aware, on Lilly’s diabetes pipeline products. Items highlighted in yellow indicate notable updates to the pipeline from this call.

Questions and Answers

On Tirzepatide

Q: What can you do to both speed up and expand the GLP-1/GIP program, in order to take advantage of the impressive clinical profile and your lead in the field?

Mr. Conterno: When it comes to GLP, we're clearly very excited about these assets. I'm going to steal a little bit from the R&D presentation, I apologize to my colleagues. But we have already started the phase 3 trial in type 2 diabetes and we are planning to start two trials, one in phase 3 for obesity next year as well as one phase 2 in NASH.

Q: Are there any changes (except the dose titration change) in the phase 3 program that we should be aware of in order to extrapolate phase 2 results? Were there any subgroup data that were major changes from phase 2 top phase 3 that we should take into account?

Dr. Woodward: So we're confident with the phase 3 design and what we learned from phase 2 is we have two different phase 2 studies – one that we presented at EASD and is in the Lancet publication, in addition to the titration study and then we also have a multiple ascending dose study. We've seen very consistent effects on glycemic control and A1c reduction as well as the way, so we're confident with what we'll see from an efficacy standpoint and with respect to the phase 3 design the titration that we shared earlier is really based off of our learning of those particular studies and the model and we believe with that titration algorithm, we will generate a tolerability profile that will be as good as GLP-1 is today. It will also be delivered in the single use pen device that Trulicity uses, so there will be the patient experience that will go along with that. We think phase 3 studies will support the overall positive profile for tirzepatide. For subgroup analyses, we're really encouraged by the proportion of patients that achieve normal glycaemia with the analysis that were shown today. Therefore, we're looking at that as an endpoint within the phase 3 studies. There are also other things such as lipids and triglyceride effects that we'll be measuring as well that look promising in the Phase 2 data.

Q: Phase 2 data for tirzepatide showed that weight loss did not plateau with continued dosing – could this be a potential problem with long-term dosing in terms of causing things like metabolic disturbances?

Dr. Woodward: During the phase 2 study we followed patients for 26 weeks. Patients lost 11.3 kilograms during that timeframe on the 15-milligram dose and almost one in or four patients achieved the categorical weight reduction of 15%, so that hasn’t plateaued. But what we have observed is that this weight reduction is proportional, so it is a percentage of weight loss. Further, we've also looked at patients and the amount of weight loss that they've had, whether they've dropped more than one category of BMI or if anybody is going to a BMI of less than 20 or less than 18. We've not seen patients achieve that level with the drug at this point in time. There seems to be a reset of the sub point, so wait. We look forward to studying this in longer durations in the phase 3 program, where we'll study patients out for 40 weeks as well as to 18 months with full exposure.

Q: What are the inclusion/exclusion criteria you're going to be using when you enroll those patients into the phase 3 trial in order to maintain speed and efficacy? What are you going to be capturing out of the trial that helps to drive value-based contracts?

Dr. Woodward: We've managed the inclusion/exclusion criteria to really represent a broad population across A1c. But importantly, so that the trials will be representative of what background therapy looks like today, we'll be looking at subjects on metformin, SUs, SGLT2 and, importantly, insulin. We have a co-administration study with insulin as well as the study comparing tirzepatide to basal insulin. For value-based contracts I think that's certainly an important question for us. Within the design of the protocols as I mentioned previously we'll have percent meeting A1c goals and weight percent of goal, but it will be critical that we also follow maintenance of therapy and low discontinuation rates. And we're looking for a very durable effects of those, but the weight loss that we see in continued A1c reduction.

Q: Assuming that tirzepatide does make it to market. How do you think about possible cannibalization of Trulicity?

Mr. Conterno: We are developing tirzepatide to be truly a breakthrough product for type 2 diabetes, obesity, NASH. If we are successful, we would expect that we will cannibalize Trulicity. Tirzepatide should become the new standard given the type of results that we're seeing.

Q: How challenging is it going to be to get patients to step through the long titration to 15 milligrams, and how does that affect the profile of the product?

Dr. Woodward: I think from an endocrinologist or primary care physician’s perspective, they want to have something straightforward, and the idea is to maintain an overall ease of use profile and injection experience that matches that of Trulicity today. The five mg dose of tirzepatide, which has shown fairly significant A1C reduction in weight, we see that as a good first maintenance dose for patients. The introduction of a 2.5 milligram four-week introduction to further improve upon tolerability seems like a very reasonable trade-off. In clinical practice, we anticipate that 10-15 mg doses will be used as needed for additional glycemic control.

Q: Where does GLP-1/GIP fit in the treatment paradigm between oral and injectables?

Dr. Woodward: We’ll certainly study tirzepatide in combination with oral therapies that are available today, and we see it as a first-line injectable therapy for type 2 diabetes.

Q: Given inconsistency in biopsies and NASH assessments, how would endpoints in a NASH trial be validated?

Dr. Woodward: The Phase 2 study will include biopsies, and we see that as an important requirement for review with regulators in order to go into Phase 3. FDA has published guidance on development for NASH (ed. note – see our take here) this recently this month still including biopsies as a requirement. We are also looking at other imaging modalities, including MRI technology within these studies, to look at liver fat and steatosis. We'll also be looking at biomarkers within these studies.

Q: Have you seen any retinopathy with tirzepatide?

A: No. We’re excited about the profile for tirzepatide and the innovation this represents for patients.

On Trulicity

Q: Trulicity is very strong right now; how are you thinking about the next several years with oral semaglutide likely entering, and also generic Victoza potentially?

Mr. Enrique Conterno (President, Lilly Diabetes): Sure. So, Trulicity is clearly having a fantastic run. Since the launch of (Novo Nordisk’s) Ozempic, Trulicity has actually gained over 5 share points and when we look at recent data about new patient starts, Trulicity actually continues to gain share and new patient starts. So these are first-line patients when it comes to GLP-1 therapy. So, we are very excited about our performance, we have a product with very good efficacy and of course ease of use. I think what's important is that Trulicity has a very unique benefit when it comes to some of the adherence that we see. We measure adherence for Trulicity by looking at refill rates. Trulicity not only has better adherence and better refill rates than other GLP-1s ones and other injectables – it actually has better refill rates than oral products. And this goes to the question of oral semaglutide, because I think you have to ask what is it that orals offer? An oral product typically offers convenience and people may say that should lead to better adherence. They have data for oral semaglutide against Jardiance in a head-to-head trial, and their discontinuation rates were in double digits. We feel very good about the value proposition that Trulicity offers.

You asked the question about Victoza, and that's really a major question for Novo. But we basically see the dynamics that we see today, which is that we are simply gaining share at the expense of Victoza. A dynamic where you have a very large product that goes generic in the GLP-1 class probably would not be as favorable. And lastly we of course have REWIND, that is truly unprecedented as we look at both patients with established cardiovascular disease and without established cardiovascular disease. In fact, the majority of patients did not have cardiovascular disease. This is an extremely important trial for physicians, and we expect to submit these data early next year and to get an indication as a result of that. But what I'm trying to share is that, Trulicity is not only strong today, but I think it has a bright future.

Q: Lilly is in a privileged position to have two drugs with leading properties or product profiles in diabetes: Jardiance and Trulicity. How do you see that market evolving over time? The GLP-1 world believes they should be the first go-to-products because of the profile that they have. Jardiance, on the other hand, believes it should perhaps be the first product people go to after metformin. How do you see that evolving over the next several years?

Mr. Conterno: We have a pretty bullish view when it comes to the expansion of both the GLP-1 class and, increasingly, the SGLT2 class. I mentioned before that the SGLT2 class today represents a tiny fraction of the entire oral market, at about 7%, so there's a significant opportunity for expansion. Interestingly enough, when you look at the prescriptions for the U.S. market, the SGLT2 market and GLP-1 market are about the same size. Rather than a competition between those classes, guidelines are favoring both classes for people with established ASCVD. We see the opportunity for both of those classes to significantly grow. It is likely that those classes are going to start to be studied together a lot more often as well.

On Jardiance

Q: Jardiance has done well – though maybe not as well as some of us hoped. With everything about the guidelines you're getting, et cetera, do you expect further growth inflection? And have there been hurdles for Jardiance, and I guess do you think those are manageable as we think about the business going forward?

Mr. Conterno: I like to make a parallel with GLP-1s. When Trulicity launched, GLP-1s were growing about 10% annually. The most common question I got was, why are these not growing faster? We have a number of safety scares in the class that were publicized, but data over time has strengthened the class and confirmed safety. With SGLT-2s, we do expect a significant re-acceleration of the class with Jardiance as a catalyst for overall class growth. We’re seeing faster growth when it comes to new patient starts, now in the double digits. But importantly longer term is just looking at the guidelines, whether it is ADA or EASD or ACC, guidelines are not only speaking about the utilization of SGLT2s, but of Jardiance as the preferred agent within that class, given the profile and approved benefits when it comes to CVD. On top of all of that, we have an important event in 2019 which relates to the re-inclusion of Jardiance in one of the major formularies. So I see many dynamics that are playing for further acceleration of Jardiance and the SGLT-2 class. Keep in mind that SGLT2s right now are maybe 7% of the overall oral market. That’s peanuts when you look at the benefit/risk profile of Jardiance in particular.

Q: Do you think SGLT-2 pricing will change with HF or CKD benefit?

A: It’s too early for us to speculate on what the pricing will be. Of course, it’s going to depend on the outcomes of the trials, the environment, and many other factors.

Q: Do you have an interim read on the HF studies for Jardiance and if so could you tell us when?

A: We haven't commented on any interim analysis for that heart failure program, but I think it is important to note that we have the functional heart failure program – a six-minute walk test for both preserved and reduced ejection fraction. Those two trials are ongoing and we expect them to read out this year.

On Financials

Q: Could you tell us your expectation for 2019 US list price and net price benefits, and then second, the tax rate continues to surprise on the downside. It’s expected at 16% in 2019: What is the outlook for that tax rate to stay the same or potentially drop further beyond 2019?

Mr. Josh Smiley (CFO): On price, our guidance assumes a modest single-digit net decline in price in the US next year, due to the combination of continued efforts on patient access and price – you know the negotiations that we have with payers, and list price is not a significant component of that thinking. As you know, we've been restrained on list price this year. I think as we get into 2019 we'll look at things on a product-by-product basis and assess the competitive and environmental dynamics at that point. But we're confident that the range we have provided today is not dependent on any list price decisions. On tax rate I think that the 16% is certainly sustainable long-term. A lot of what we're looking at here are as we continue to get regulations from Treasury – I think most of what we've seen so far has been on the whole favorable, which has allowed us to bring the rate down a little bit. And then I think once we have stability and in understanding all these regulations, we can look at structure and tax planning and see if there are any opportunities to bring that that rate down a little bit. I think you know the natural floor for us is probably somewhere in the 13% or 14% – that would be if you planned everything perfectly and again we'll have to assess the regulations. I think we're more comfortable that 16% is certainly sustainable with maybe opportunities to bring that down over time, again totally dependent on regulations and interpretations from Treasury.

--by Ann Carracher and Kelly Close