The operator welcomes participants to the Lilly Q4 2023 Earnings Call and introduces the host, Joe Fletcher. Fletcher introduces the other participants on the call and mentions the possibility of making projections and forward-looking statements. He also mentions the focus on non-GAAP financial measures. CEO Dave Ricks then begins his prepared remarks, stating that 2023 was a year of progress for the company.

In 2023, the company saw a 20% growth in revenue and launched new medicines that are making a positive impact on patients' lives. They also made significant investments in manufacturing and expanded their pipeline through acquisitions and collaborations. The company received regulatory approvals for several new medicines, which will contribute to future revenue growth and margin expansion. Overall, the company made progress towards their strategic goals in Q4.

The company's revenue grew by 28% in the fourth quarter of 2023, with new products contributing over $2 billion. Important milestones were achieved in the pipeline, and the company completed acquisitions and announced a dividend increase. The financial performance for the quarter and full year was strong, with revenue increasing by 28% and 20%, respectively. Gross margin also increased, driven by higher prices and offset by manufacturing expenses. Marketing, selling, and administrative expenses also increased due to new product launches and higher incentive compensation costs.

In the fourth quarter of 2023, the company's R&D expenses increased by 28%, mainly due to higher development expenses and investments in research. The company also recognized acquired IPR&D charges of $623 million, which had a negative impact on EPS. Operating income increased by 29%, but was partially offset by operating expense growth. The effective tax rate for the quarter was 13.1%, higher than the previous year due to a lower net discrete tax benefit and changes in the Puerto Rico tax regime. The company delivered earnings per share of $2.49, a 19% increase from the previous year, despite the negative impact of acquired IPR&D charges. Revenue growth was driven by strong performance in the U.S. and Europe, with increases in net price and volume for key products.

In the fourth quarter of 2023, Japan saw a 15% increase in revenue due to strong growth of Verzenio and Mounjaro. China also experienced a 7% increase in revenue, driven by volume growth of Pivot. The rest of the world saw a 10% decrease in revenue, but excluding the impact of sales of Alimta in Korea and Taiwan, there was a 9% increase. New and growth product categories contributed to 15 percentage points of volume growth. Verzenio had a 42% increase in sales, driven by demand and higher prices. Jardiance had a 30% increase in sales, while Trulicity saw a 14% decline due to intermittent delays in filling orders.

In Q4, Trulicity's international sales were affected by measures to minimize disruption to existing patients, while Mounjaro continued to see strong growth in the U.S. due to expanded patient access and a change in the co-pay program. The company also received FDA approval for Zepbound, a treatment for obesity, and began building commercial formulary access before the end of the year.

The company is pleased with the early access of one-third of commercial lives covered and is focused on building formulary access and employer opt-ins. They expect it to take some time before reaching broad open access in this market. Meanwhile, commercial savings are available for those without coverage. In Medicare Part D, weight loss drugs are still not reimbursed. The company is confident in their existing commercial portfolio and potential launches of new drugs. They plan to invest in R&D, business development, and manufacturing expansion to drive revenue growth and return capital to shareholders through dividends and share repurchases. They also highlight potential factors that may impact their 2024 financial results.

The company expects strong revenue growth in 2024, driven by new product launches and expanded access for existing products. However, there may be a decline in Trulicity sales due to supply constraints and actions taken outside of the U.S. The company is working to increase manufacturing capacity, with a goal to double capacity for Incretin auto-injector pens by the end of 2023. This will be achieved through efforts from manufacturing colleagues and partners, and alternative presentations such as the multi-use Quick Pen. The company's manufacturing site in Concord, North Carolina is expected to begin production by the end of 2024, with product available to ship in 2025.

In 2024, the company plans to expand its capacity for Incretin production and launch two other medicines, Jaypirca and Omvoh. They expect significant production increases in the second half of the year and plan to launch two more medicines, Donanemab and Lebrikizumab, in the US. The company remains confident in the potential of Donanemab to benefit patients with Alzheimer's disease, but initial uptake may be limited due to diagnostic and treatment readiness.

The company expects Lebrikizumab to contribute to revenue growth in 2024, along with continued growth from Verzenio and Jardiance. They also anticipate accelerated growth outside the U.S. with the launches of Tirzepatide and strong performance from existing products. The company plans to invest in their value chain, potential launches, pipeline, and manufacturing footprint to create long-term value. Their initial 2024 financial guidance predicts a revenue range of $40.4 billion to $41.6 billion, representing roughly 20% growth or 29% growth for their core business.

In 2024, the company expects their revenue growth to accelerate in the second half of the year due to increased availability of Incretin doses. They also anticipate a high single-digit percent price decline for their core business, with more significant declines in the second half of the year. The company will be using a new ratio to represent their margin after planned costs, and they expect it to be between 31% to 33%. They also expect marketing and administrative expenses to grow at a slower pace than revenues, and R&D expenses to increase due to investments in their pipeline.

The company expects R&D expenses to increase more than marketing and administrative expenses, with other income and expenses also expected to rise. The non-GAAP effective tax rate for 2024 is projected to be 14%, but could increase if there are changes to the 2017 Tax Act. Earnings per share are predicted to be between $12.20 and $12.70, not including potential IPR&D charges. The company is focused on revenue growth and investments for future growth. The progress of the company's diabetes, obesity, and related complications is highlighted, including positive results from a Phase II study of Tirzepatide.

The study of Tirzepatide for the treatment of NASH met its primary endpoint, with a high percentage of participants achieving an absence of MASH with no worsening of fibrosis compared to placebo. The study also showed a clinically meaningful treatment effect on improvement in fibrosis. The adverse events were consistent with other clinical trials of Tirzepatide. Lilly's first approved treatment for obesity, Zepbound, was approved in late 2020. In addition, Lilly has advanced two other treatments for diabetes and heart failure into Phase I trials and has begun dosing patients for a Phase II trial of mastatide for obesity. Innovent, Lilly's partner, reported positive results for mastatide in a Phase III study in China.

In the Phase III CYCLONE two trial, the addition of Verzenio to abiraterone did not meet the primary endpoint in men with metastatic castration-resistant prostate cancer. However, the overall safety and tolerability profile was consistent with known profiles. Jaypirca received FDA approval for the treatment of divergence in CLL or SLL patients who have received prior therapy. The Phase III confirmatory trial for this approval also met its primary endpoint. Jaypirca is now the first non-covalent BTK inhibitor approved for CLL and SLL patients previously treated with a covalent BTK inhibitor and a BCL-2 inhibitor. The company anticipates sharing full results from the CYCLONE two study at a future medical meeting. The acquisition of POINT Biopharma marks Lilly's entry into radioligand therapy, a promising technology for treating various cancers.

Lilly welcomes new colleagues from Point and is looking forward to building on their work to grow the company's capabilities. 2024 is expected to be a productive year for new clinical starts in oncology, with at least five new molecules being put into the clinic. These include a selective KRASG12D inhibitor, a pan-KRAS inhibitor, two antibody-drug conjugates, and an actinium PSMA radioligand therapy. The company is also excited about the progress of their KRASG12C inhibitor, which has progressed into Phase II and is expected to start a Phase III program later this year. However, development of their RET inhibitor was terminated due to not meeting their internal development standards.

The company provided updates on their progress in immunology and neuroscience, including the approval of their drug Akouos for atopic dermatitis in the EU and Japan. They also announced positive results for their hearing restoration therapy and highlighted their commitment to solving healthcare problems. The company also shared updates on their pipeline and potential key events for 2023 and 2024, including the initiation of Phase III trials for their Incretins and plans for a Phase III program in Type 2 diabetes.

In the upcoming year, the company plans to initiate a Phase III program for Lepodiserin in cardiovascular disease and expects key data readouts for Tirzepatide in obstructive sleep apnea and heart failure. They also anticipate results from SURMOUNT 5 and the full Phase III program for insulin efsitora alfa alpha. In neuroscience, they are awaiting FDA action and potential launch of Erenumab, and have launched a blood-based diagnostic test for Alzheimer's disease. In immunology, they plan to submit for FDA approval for Mirikizumab in Crohn's disease and expect regulatory action for Lebrikizumab by the end of the year. In oncology, they plan to move Olomorasib into Phase III later this year.

In the final paragraph, the speaker recaps the company's achievements in the fourth quarter, including revenue growth, FDA approvals, investments, and the retirement of an executive. They also clarify the expected timing of regulatory action for Donanemab.

The company will be taking questions from callers and will respond to one question per caller to end the call on time. The first question is about the company's GLP franchise outside the U.S. and the hurdles to closing the gap with competitors. The President of Lilly International explains that they have already launched in select markets and will continue to launch in others throughout the year and into 2025, as they receive regulatory approvals and ramp up supply capacity. The next question is from JPMorgan.

The analyst asks about the progress and expectations for Zepbound coverage for the rest of the year, and whether most payers will add it. The company's representative responds that they are pleased with the 35% commercial access so far and will continue to expand payer access and aim for around 50% access. However, employer opt-in will take longer and there is not one reliable source for data on this. Another analyst asks about the possibility of accelerated approval for SYNERGY-NASH, to which the company does not provide a clear answer.

A question was asked about the secondary endpoint of fibrosis age improvement in a recent trial. The company representatives confirmed that while the improvement was clinically significant, it was not statistically significant. They also mentioned that they are excited about the data and are looking forward to discussing next steps with the FDA. They also discussed their manufacturing plans and how they are balancing investments with the potential success of their drug.

The company is fully investing in their projects and not slowing down due to financial constraints. They plan to build ahead of Phase III for Orforglipron, even at risk, because they see it as a wise investment. They are also evaluating both non-inferiority and superiority for SURPASS-CVOT, which has been pushed back to 2025, but they do not comment on interim looks.

The speaker discusses the timing of clinicaltrials.gov and explains that the trial has not yet begun. They state that it is frustrating to wait for final data, but it is good news for patients as it means the event rates are slower. They also mention a sleep apnea study and state that there is no established threshold for clinical meaningfulness in this area. They express excitement about the potential for Tirzepatide to improve the condition.

The operator introduces a question from Louise Chen about the downstream opportunities for GLP-1 such as Tirzepatide in NASH and other indications. Joe Fletcher hands the question over to Patrik Jonsson, who mentions the importance of employer opt-in and data in comorbidities for increased access in Medicare Part D. The next question is from Kerry Holford about Tirzepatide obesity, and Joe Fletcher hands it over to Ilya Yuffa to discuss the branding of Tirzepatide outside the U.S. Ilya mentions regulatory, competitive, and payer dynamics as factors in the decision-making process.

Lilly Direct was created to address the challenges patients face in accessing Lilly medications, such as finding pharmacies with available supplies and navigating savings programs. It also serves as a way to ensure patients receive legitimate medications, rather than illicit or counterfeit versions. The platform is not currently seen as a way to create new retail distribution business, but rather to better serve patients.

The company is working on improving their product, including adding more products and providing better information about physicians and telehealth providers. There is a lot of enthusiasm from the patient community. The next question is about lean muscle loss associated with Incretin use. The company believes that the ratio of lean to fat mass is important for patients, and in trials, patients on Tirzepatide have shown a higher ratio of lean to fat mass. The company is also working on improving the total amount of body weight loss and the change in body mass composition.

The speaker discusses the potential benefits of GIP-1 and GLP-1 agonism in relation to the company's acquisition and experimentation with drugs. They also mention the opportunity for an oral GLP-1 drug, orforglipron, to reach a larger market of patients with obesity due to its weight loss effects and lack of food or water restrictions. Additionally, it may appeal to patients who are hesitant to take injectable medications.

Steve Scala from Cowen asks about the reasons behind Lilly not initiating a Phase III trial of Tirzepatide in NASH. He suggests that it could be due to Lilly having better molecules, something in the Phase II data being less than ideal, or just not finalizing plans yet. Daniel Skovronsky responds by saying that they just received the Phase II data and need time to decide their next steps. He also mentions that there is nothing negative in the data that would prevent them from moving forward with a Phase III trial. He also discusses the importance of non-invasive testing in NASH trials and hopes to conduct future trials without relying on liver biopsies.

The speaker discusses the potential impact of non-invasive biomarkers on the feasibility and clinical application of NASH drugs. They then move on to address a question about the duration of use of GLP-1s in the diabetes and obesity populations. They mention that it is still early days for Mounjaro and Zepbound, but recent data suggests that patients starting therapy in 2023 have similar persistency rates to other injectable Incretins. They also believe that patients will be motivated by the benefits of the drug and that there will likely be a final duration of treatment for obesity.

David Ricks, CEO of Eli Lilly, discussed the potential of their new drug, Zepbound, which is expected to be effective in treating chronic diseases. He also addressed concerns about their other drug, orforglipron, and its potential safety risks, especially when coadministered with SGLT2s. Ricks mentioned that they are still in the early stages of Phase III trials and there is always a risk of new safety signals emerging. However, they are confident in the potential of orforglipron and have ongoing trials to test its effectiveness when coadministered with other drugs.

The speaker is responding to a question about the benefits of GIP agonism versus antagonism. They state that there is a lot of data supporting the benefits of GIP agonism, and they have also experimented with a pure GIP agonist with positive results. They contrast this with a recent study of a drug with both GLP-1 agonism and GIP antagonism, which showed negative effects such as an increase in free fatty acids and a decrease in triglycerides. The speaker believes that these negative effects are due to the GIP antagonism and that GIP agonism has positive effects on tolerability. They are satisfied with their decision to pursue GIP agonism and are interested to see how the field will continue to evolve.

During the earnings call, Carter Gould asked about the impact of the development fee on the use of CMOs for supply on the Incretin side. Anat Ashkenazi responded by stating that while the company's strategy is to develop internally, they also use third parties and are focused on ensuring continuity of supply for patients. James Shin followed up by asking if Lilly would consider more buy versus build options to get around technical bottlenecks and FDA processes, to which David Ricks responded that the company is not capital-constrained and will evaluate all options.

The speaker discusses the current lack of available manufacturing capacity in the GLP-1 space, stating that new capacity takes several years to come online. They attribute this to the difficulty of building new facilities and the limited number of people with the technical expertise to set them up. They mention potential solutions such as new technology and partnerships with third parties, but acknowledge that it will take time for these to have an impact. The speaker acknowledges the frustration of investors, but states that steady gains in manufacturing can be expected in the coming years. A question is then asked about the company's access with employers, but the response is not included in the paragraph.

A question was asked about the company's access to drugs and whether they were getting exclusive access or being added to existing access. The company aims for open access and believes their pricing strategy will lead to increased employer opt-ins. Another question was asked about the company's scenario planning for 2032 and beyond, when generic somatocytes may be launched. The company takes a long-term approach to their business and is focused on future-proofing against potential challenges.

The company looks at the long-term horizon for both commercial products and pipeline products. They aim to bring new breakthrough innovation to the market to raise the bar on their own products. They have made significant investments in facilities and are prepared for potential competition in the future.

During a Q&A session, Tim Anderson from Wolfe Research asked about the potential value of extended dosing for competitor drug Amgen. Dan Skovronsky, Eli Lilly's Chief Scientific Officer, responded by saying that the sustainability data for Amgen's drug is underwhelming and that weight loss is lower than needed for Phase III trials. Patrik Jonsson, Eli Lilly's Senior Vice President and President of Lilly Bio-Medicines, added that convenience is not the most important factor for providers and consumers when selecting an obesity treatment. Eli Lilly CEO David Ricks concluded by saying that he is excited about the company's current assets and potential future options for obesity treatment.

The speaker expresses gratitude for the participants and their interest in the company. They mention that 2023 was a successful year and they expect continued momentum in 2024. They encourage any follow-up questions to be directed to the IR team. The operator provides information on how to access a replay of the conference.

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