Joe Fletcher, Senior Vice President of Investor Relations, opened the Eli Lilly and Company's Q2 2023 Earnings Call by introducing the members of the team. He then warned that projections and forward-looking statements made during the call could differ materially from actual results due to various factors. Dave Ricks, Chair and CEO, then took over the call and reported that Lilly had continued its momentum in the second quarter, advancing its R&D pipeline, progressing its manufacturing agenda, and delivering strong financial results.

In Q2, Lilly saw strong revenue growth driven by Mounjaro, Verzenio, and Jardiance, as well as progress in their pipeline of innovative medicines, such as donanemab, orforglipron, retatrutide, and tirzepatide. Excluding Baqsimi revenue and sales of COVID-19 antibodies, Q2 revenue grew 22% with 23% volume growth.

In the second quarter of this year, Lilly experienced significant volume growth, driven by new products Mounjaro, Jaypirca, and Omvoh. They also had several important pipeline updates, such as the approval in the EU and resubmission of their U.S. application for mirikizumab, and regulatory submissions in the U.S. for tirzepatide for chronic weight management. Additionally, they announced agreements to acquire two clinical-stage companies, closed the sale of global rights to Baqsimi, and closed the sale of rights to their olanzapine portfolio. Finally, they continued to progress their ambitious manufacturing expansion agenda.

In the second quarter of 2023, revenue increased 28% year-over-year, with 23% growth on a constant currency basis. Gross margin as a percent of revenue was flat at 79.8%. Total operating expenses increased 14%, with 18% growth in marketing, selling and administrative expenses and 32% growth in R&D expenses. Commercial production to support the company's incretin portfolio has also begun at the Research Triangle Park site in North Carolina, and the company distributed over $1 billion in dividends this quarter.

In Q2 2022, the company recognized acquired IPR&D charges of $97 million, resulting in a 27% operating income as a percent of revenue. This was partially offset by higher R&D and SG&A expenses. Operating income increased 69% and resulted in earnings per share of $2.11. In the U.S., revenue increased 41%, with a 2% net price increase driven by Mounjaro access and savings cards dynamics. In Europe, revenue increased 6% in constant currency, driven by volume growth for Verzenio, Jardiance, and Taltz.

In Q2, Japan's revenue increased 7% in constant currency, while China's revenue increased 20% and the rest of the world's revenue increased 19%. Worldwide volume growth was driven by Verzenio, Jardiance, Mounjaro, and Baqsimi. Verzenio saw worldwide sales growth of 57%, while Jardiance saw growth of 45%. In June, the FDA approved Jardiance for the treatment of type 2 diabetes in children 10 years and older.

Jardiance has been on the market for almost a decade and is approved in the EU for the treatment of adults with chronic kidney disease. Trulicity's performance has been strong, despite a 5% decline in revenue due to price erosion. Mounjaro's revenue in the U.S. grew to $960 million in Q2 and access reached 73%. The proportion of paid scripts was 67%, and is expected to be 100% in the next quarter. Lastly, commercial production has started at the RTP site in North Carolina for incretin.

In the first 6 months of 2023, the company invested $5.7 billion in R&D, capital investments, and business development, and returned nearly $2.8 billion to shareholders. As a result, the 2023 revenue guidance has been increased to a range of $33.4 billion to $33.9 billion, with approximately $1.5 billion of the increase driven by business development activities. The company is also launching tirzepatide in a multi-dose quick pen device and valve form in OUS markets later this year, with the transition to quick pen beginning in 2024.

Lilly's guidance for gross margin as a percent of revenue has increased to approximately 80%, and the range of operating expenses for the year has been increased. The range for research and development expenses has been increased due to positive dynamics in their portfolio, and other income and expense and tax rate guidance have been updated. The estimated effective tax rate has increased to 14-15%, and full year reported and non-GAAP EPS guidance has been raised to $9.20-$9.40 and $9.70-$9.90, respectively. Since the last earnings call, major readouts have been announced across Lilly's therapeutic areas and several business development transactions have been announced.

At the American Diabetes Association, data was presented on the Phase III results of the SURMOUNT-2 study of tirzepatide in adults with obesity or overweight in type 2 diabetes, as well as the results from two Phase II trials of retatrutide and orforglipron. Orforglipron demonstrated an average of up to 14.7% body weight reduction at 36 weeks, and a dose-dependent decrease in systolic blood pressure and an overall improvement in lipid levels.

In Phase II trials, orforglipron demonstrated a mean reduction in hemoglobin A1c of up to 2.1%, and retatrutide met the primary end point at 24 weeks with a mean weight reduction of up to 17.5%. At 48 weeks, participants treated with the highest dose of retatrutide had a mean weight reduction of up to 24.2%, which could represent a new high watermark for weight loss from a pharmacologic agent. The safety profile of both drugs was similar to other incretin-based therapies, and Phase III trials for both drugs have been initiated.

The Phase II retatrutide trial in obesity was well balanced between genders, with females representing just under half of all participants, and the mean change in body weight for female participants at the highest dose was 28.5%. This encouraged the initiation of the Triumph Phase III program which will evaluate the safety and efficacy of retatrutide for chronic weight management, obstructive sleep apnea and knee osteoarthritis. Additionally, the Phase II results in patients with type 2 diabetes were encouraging with participants receiving retatrutide achieving a hemoglobin A1c reduction of up to 2% on average, and retatrutide will be advanced into Phase III for type 2 diabetes. The SURMOUNT-3 and SURMOUNT-4 trials of tirzepatide in obesity both met their primary and key secondary objectives, with participants achieving a mean weight reduction of 26.6% and 26.0% respectively.

Tirzepatide has been studied in two trials, SURMOUNT-3 and SURMOUNT-4, which showed that it provides additional weight loss when used in conjunction with lifestyle modification and prevents weight regain when used as a treatment. These results have led to the submission of an application to the FDA for tirzepatide to be used as a chronic weight management treatment, which was granted priority review designation. The neuroscience portfolio has also advanced since the last earnings call.

In the past three weeks, the results of the TRAILBLAZER-ALZ 2 study were shared, demonstrating donanemab's efficacy in slowing the progression of Alzheimer's disease. Additionally, the results of the BRUIN Phase I/II trial for chronic lymphocytic leukemia were published in the New England Journal and an application for accelerated approval was submitted to the FDA. At ASCO in June, data was presented from the Verzenio monarchE trial, showing that the efficacy of the medicine was not compromised when dose reductions were necessary.

Verzenio is differentiated in its class due to the success of its randomized trial of Retevmo in treatment-naive RET fusion-positive lung cancer, being the first targeted therapy to show superiority to a PD-1 plus chemotherapy regimen. The company is also working to initiate Phase III trials in first-line G12C-mutated lung cancer in the next 6 to 9 months, and has 7 randomized trial readouts and 4 to 6 new first-in-human trials planned in the next 12 months. Mirikizumab has also seen success, with new analyses showing that remission of key symptoms of ulcerative colitis is associated with a significant improvement in quality-of-life, and its launch as Omvoh in Japan for adults with UC.

In Q2, Lilly R&D made progress in all its therapeutic areas, with Onvio being approved in the EU and launched in Germany, an application to the FDA being resubmitted for the US, lebrikizumab being presented at the Revolutionizing Atopic Dermatitis Conference, and the detailed results of a Phase IIa study of peresolimab in rheumatoid arthritis being published in the New England Journal. These developments have enabled an acceleration of revenue growth.

Dave reported that the company had grown 22% excluding COVID-19 antibodies and Baqsimi revenue, and had invested in its future growth, manufacturing expansion, late-stage medicines, early phase capabilities and business development. He also reported positive top line results from several Phase III trials, data from mid-stage clinical trials, and business development moves. He also announced that they had returned over $1 billion to shareholders via the dividend. Joe then moderated the Q&A session and asked Mike to answer a question about the Novo SELECT study and its potential implications for the industry.

The SELECT trial read out as expected and the results are great for the anti-obesity medication class, which should support access for payers who are on the fence about adding anti-obesity medications. Obesity-related health complications and comorbidities are expensive, costing $370 billion in direct medical cost and over $1 trillion in indirect annual costs in the U.S. Tirzepatide's potential to provide over 20% weight loss should provide great value for payers. The SELECT trial results are an important milestone in getting broad access for anti-obesity medications, although most payers will not adopt AOMs overnight.

Joe Fletcher is asked a question about the persistency rates of Mounjaro, a drug marketed for type 2 diabetes. Michael Mason responds that Mounjaro has had good experiences with type 2 diabetes patients and has had better persistency than Trulicity, which is historically the most compliant in the diabetes market. Timothy Anderson then asks if Novo's claim of being the only drug with a proven cardiovascular benefit could give them a commercial advantage over Lilly. Michael Mason responds that he does not think this will be the case.

Lilly has raised their guidance for SG&A and R&D in order to invest in upcoming launches and their pipeline. This is due to the progress they have seen in their pipeline, including the broadening of their incretin portfolio, success in their early-stage pipeline, and the successful enrollment in their Phase III program.

Joe Fletcher handed the question of expectations for Mounjaro volumes and ASPs over to Mike Mason, who explained that the $25 savings program expired at the end of June and that the IQVIA scripts reflect that. He also said that the manufacturing team is working on bringing new capacity at North Carolina, which will help build inventories and eliminate spot outages.

Joe Fletcher and Anat Ashkenazi discuss the potential for a single brand or split brand for the obesity indication, the potential for supply to cap sales in 2024, and the progress of the RTP commercial supply. They confirm that there are no delays in the RTP supply and that it is progressing as expected.

Mike has mentioned a gradual increase in available capacity for the manufacturing site, and they are working on expanding capacity in existing sites and supplementing capacity with partners and CMOs. They are also working on a second site in North Carolina that could potentially go live in the second half of 2024. Furthermore, they are adding API capacity in Ireland and two large sites in Indiana to support the incretin portfolio and the broader Lilly portfolio. The goal of this is to provide additional presentation options for patients and to start launching outside the U.S.

Joe Fletcher and Daniel Skovronsky explain that due to the properties of tirzepatide, a GLP/GIP coagonist, they expect the SURMOUNT MMO study to show a large effect size, potentially even larger than the 20% MACE reduction seen in the SELECT results. This is due to the drug's benefits on weight loss, blood pressure, lipid profiles, and other biomarkers that indicate lower cardiovascular risk.

Joe Fletcher and Daniel Skovronsky discussed the safety of orforglipron in terms of liver enzymes and hepatobiliary disorders. They noted that the group averages showed an improvement with treatment of orforglipron, and that the safety of orforglipron was similar to other incretins. They also stated that there was no read-through from the competitor announcement from Pfizer on one of their two oral GLP-1s.

Dan Skovronsky explains that incretin therapy has been linked to cardiovascular benefits and that similar biomarkers from other weight-loss drugs may also be able to offer the same benefits. He cautions investors that Phase III trials may reveal unforeseen safety concerns, and that careful monitoring of safety is necessary when exposing large numbers of patients to a new drug.

Joe Fletcher and Michael Mason discussed the dynamics between Trulicity and Mounjaro, two products from the Lilly incretin franchise. They reported that there had been no changes in the amount of Trulicity being converted to Mounjaro since launch, and that 13-14% of patients had switched from Trulicity to Mounjaro. Overall, the goal is to grow the entire Lilly incretin franchise, which they achieved in Q2 by growing revenue by over 58%.

Joe Fletcher takes a comment from Mohit under advisement and passes the question of long-term supply to Anat Ashkenazi, who outlines the expansion of their manufacturing footprint to double capacity from last year and the ability to manage production plans across sites. She also mentions leveraging external partners to supplement capacity. Evan Seigerman then asks a question about donanemab.

Joe Fletcher and Michael Mason discussed the payer discussions for Mounjaro's weight loss drug. They stated that the FDA had accepted the submission and that they expected action by the end of the year. To convince reticent payers, they need to build a long-term clinical and real-world evidence to support their decisions.

Tirzepatide is a medication for obesity that has shown to improve physical, mental, and emotional well-being in clinical trials. The company is investing billions of dollars to show the cost savings to payers, but the patient voice is also important in the decision making process. The data from clinical trials like SELECT and MMO will continue to build the case for access to the medication, as well as the demand from people living with obesity for better health.

Joe Fletcher passes the question of how Lilly Immunology is thinking about positioning for the launch of lebrikizumab to Patrik Jonsson. Patrik explains that the maintenance data for lebrikizumab is encouraging and that it has a less frequent dosing than Dupixent. He also states that the atopic dermatitis market is growing and that payers are looking for options, so they are willing to enter into discussions to enable rapid access of lebrikizumab. Lilly Immunology is hoping to capitalize on their strong footprint in dermatology and their current immunology portfolio.

Joe Fletcher and David Ricks discussed the manufacturing needs for the development of tirzepatide, an incretin peptide. They mentioned that the current constraint is in the parenteral auto-injector space, but that they are developing a multi-dose pen and vial to increase the amount they can produce. They are also expanding capacity at their RTP and North Carolina sites. They concluded that while the volume is increasing, they need more and that today's news will only expand the opportunity.

Joe Fletcher responds to Trung Huynh's question regarding the impacts of the Part D redesign and the negotiation on earnings in the next few years. Anat Ashkenazi explains that the dollar amount should not be the focus, but rather the potential impacts of the Part D redesign, such as removing the coverage gap, on the portfolio. She also mentions the need for orforglipron to meet the needs of patients globally due to the projected 1 billion people with obesity and related conditions by 2050.

Joe Fletcher answers a follow-up question from Kerry Holford regarding Verzenio, a drug used in the early breast cancer setting. He explains that there will be varying degrees of impact on products depending on how quickly they move through the catastrophic phase, and that the government will negotiate for price discounts in 2026 and 2028. He also mentions that better adherence to medications should result in better health outcomes.

Jake Van Naarden answers the question about the proportion of Verzenio sales on new patients or NBRx, saying that the number is between 30-45%. He then comments on the NATALEE data from Kisqali at ASCO, saying that they don't see what the Kisqali 3-year regimen is offering to justify the additional year of therapy relative to the 2-year regimen offered by Verzenio, and that the node-negative patients are at lower risk and not part of their indication. He also mentions the differences in tolerability between the two agents.

At the American Society of Clinical Oncology (ASCO) conference, researchers found a high rate of discontinuations for toxicity of Kisqali, with many patients still on therapy. The Verzenio tolerability can be managed with dose reductions without sacrificing efficacy, while it is not clear that the same is true for Kisqali. Despite this, Lilly still feels confident about Verzenio's competitive profile in the marketplace, and encourages patients to take advantage of the medicine. The company has had a productive first half of the year and looks forward to continuing its momentum into the second half.

This summary was generated with AI and may contain some inaccuracies.