Lilly(Eli) & Company (LLY) — Q1 2015 Earnings Call Transcript

Thank you. Good morning. And thank you for joining us for Eli Lilly and Company's first quarter 2015 Earnings Conference Call. I'm Derica Rice, Lilly's Chief Financial Officer. John Lechleiter our Chairman, President and CEO is traveling overseas and is unable to join us today. However, I do have a number of my colleagues with me here in person or dialing in. And they are Dr. Jan Lundberg, our President of Lilly Research Laboratories; Sue Mahony, President of Lilly Oncology; Enrique Conterno, President of Lilly Diabetes; Dave Ricks, President of Lilly Bio-Medicines; Chito Zulueta, President of Emerging Markets; Jeff Simmons, President of Elanco Animal Health; and Elissa Rassner, Brad Roebling and Phil Johnson of Investor Relations team. During this call we anticipate making projections and forward-looking statements based on our current expectations. Our actual results could differ materially due to a number of factors including those listed on slide 3 and those outlined in our latest Forms 10-K and 10-Q filed with the Securities and Exchange Commission. The information we provide about our products and pipeline is for the benefit of the investment community. It is not intended to be promotional and is not sufficient for prescribing decisions. Now, 2015 is off to a very good start. This quarter we had solid underlying business performance offset by the continued strengthening of the U.S. dollar and lingering headwinds from U.S. patent expirations of Cymbalta and Evista. Our continued focus on cost controls drove strong leverage at the bottom line and we saw positive progress with our pipeline spanning regulatory approvals, submissions and Phase III data readouts. Now, I'll begin today's call by highlighting key events that have occurred since our last quarterly earnings call and there have been quite a lot of them. Starting with commercial milestones, our U.S. colleagues began promotion of CYRAMZA for second-line metastatic non-small cell lung cancer after receiving FDA approval late last year. While in Europe, our colleagues launched CYRAMZA for the treatment of second-line gastric cancer. In diabetes, following EU approval in Q4, we launched Humalog 200 units KwikPen, the first 200 units per mil mealtime insulin that is targeted for people who take more than 20 units of rapid-acting mealtime insulin per day. And following FDA approval at the end of January, along with Boehringer Ingelheim, we launched Glyxambi in the U.S. in March. We're excited about the potential of this product, which is the first approved single-fill combination of a DPP 4 inhibitor and an SGLT2 inhibitor. Turning to regulatory milestones, in addition to FDA approval of Glyxambi, Boehringer Ingelheim received a positive opinion from Europe's CHOP for the single pill combination of Empagliflozin and Metformin for the treatment of patients with Type 2 diabetes. If approved, the product will be marketed under the trade name Synjardy. In oncology we achieved a number of regulatory milestones for Cyramza. After receiving a priority review, Cyramza was approved in Japan as a treatment for patients with unresectable advanced or recurrent gastric cancer. Given the regulatory timelines for pricing in Access decisions, launch is expected midyear. We also submitted Cyramza in both the U.S. and the EU for second-line metastatic colorectal cancer. I would note that the FDA's review of this SBLA is moving very quickly. And also in the EU, we submitted Cyramza for second-line non-small cell lung cancer. We're very pleased with the progress we've made in bringing Cyramza to market, having received regulatory approvals in the U.S., the EU and Japan within less than 12 months. As I'll discuss later we're also excited about life cycle opportunities for this brand. In our bio-medicines business, we submitted ixekizumab to the FDA for review as a treatment for patients with moderate to severe plaque psoriasis. And along with Pfizer, we announced that the FDA removed the partial clinical hold for tanezumab. As a result, we will begin Phase III trials in multiple pain indications before the end of the year. Our decision to proceed with the development of tanezumab triggered a $200 million payment to Pfizer. On the clinical front, along with Incyte we announced that baricitinib met the primary endpoint of improved ACR20 response compared to placebo in the Phase III RA build study in patients with moderately to severely active rheumatoid arthritis who had an inadequate response to or were intolerant of at least one conventional DMARD. At the American Academy of Dermatology meeting in March, we presented detailed results from the positive Phase III Uncover One study evaluating ixekizumab in patients with moderate to severe psoriasis. Also for ixekizumab, we issued a topline press release earlier this week announcing positive results from the Phase III Spirit P-1 study evaluating ixekizumab in patients with active psoriatic arthritis who were naive to biologic treatment. I'm also pleased to announce that we have completed enrollment of the EXPEDITION 3 trial evaluating solanezumab in amyloid positive patients with mild Alzheimer's disease. Given that we completed enrollment ahead of schedule, we now expect the last patient visit in October of 2016. For our CTP inhibitor evacetrapib, we announced that the accelerate Phase III study in people with high-risk vascular disease will be extended by approximately six months. Last patient visit for this study is now expected in July of 2016. And we announced that regulatory submission of our basal insulin peglispro will be delayed in order to generate additional clinical data to further understand and characterize the potential effects, if any, of changes in liver fat observed with treatment in the Phase III trial. We're working with regulators to determine specific next steps but we do anticipate that the regulatory submission is likely to occur after 2016. And we look forward to presenting detailed Phase III data at this year's ADA meeting. On the business development front, we announced three deals. The first was an agreement with Hanmi for the development and commercialization of Hanmi's oral BTK inhibitor for the treatment of autoimmune and other diseases. Lilly will have worldwide rights, excluding China, Hong Kong, Taiwan and Korea. The second was a collaboration with Innovent for the development and commercialization in China for three investigational cancer treatments. In addition, Lilly will be responsible for the development and commercialization outside of China for a preclinical immuno-oncology molecule and for up to three preclinical bi-specific immuno-oncology molecules from Innovent. And the third deal which we announced last week with Bristol-Myers Squibb was for the transfer back to Lilly of Erbitux' commercial rights in North America. These rights were scheduled to revert to Lilly in September 2018 but we expect this deal will accelerate that transition to Q4 this year. In other news, the German Court of Appeals ruled that the vitamin regimen patent for Alimta would not be infringed by a generic competitor that intends to market a dipotassium salt form of pemetrexed in Germany once the compound patent expires in December of 2015. We will seek permission to appeal this ruling to the German Supreme Court. And finally, we repurchased just over $300 million of stock in Q1 leaving $3.4 billion remaining on our $5 billion plan. In addition, during the first quarter we distributed over $500 million to shareholders via our dividend. We remain committed to providing a robust dividend and to returning excess cash to shareholders via share repurchase. 2014 was a productive year for execution of our innovation-based strategy. Likewise, 2015 is off to a strong start with more to come. Now I'll turn the call over to Phil for a discussion of our financial performance for the quarter.

Thanks, Derica. Before I review our Q1 results, it may be helpful to comment on the presentation of our GAAP results and non-GAAP measures. For our GAAP results, remember that we closed the Novartis Animal Health acquisition on January 1. So in interpreting our GAAP results and growth rates versus 2014, please keep in mind that 2014 does not include Novartis Animal Health. While 2015 includes the operating results of this business as well as all the costs associated with the acquisition, including financing costs, integration costs, inventory step-up costs, amortization of intangibles and other miscellaneous adjustments. For our non-GAAP measures, recall that like our peers, we're now excluding amortization of intangibles from our non-GAAP measures. To provide you a better idea of underlying trends in our business, based on our current reporting practices and business configuration, we've adjusted our non-GAAP measures for 2014 to exclude the expense associated with amortization of intangibles and to include Novartis Animal Health as if we had closed the acquisition on January 1, 2014. This places 2014 on the same basis upon which we're reporting our financials this year. In addition to aiding your analysis of our non-GAAP measures, you'll see that we posted an Excel file to our Investor Relations website that contains our 2014 non-GAAP measures adjusted to remove intangible amortization and to add Novartis Animal Health. With that background, let's take a look at our results for the quarter. Slide 8 provides a summary of our GAAP results. As I'll focus my comments on our non-GAAP adjusted measures to provide insights into the underlying trends in our business, please refer to today's earnings press release for a detailed description of the year-on-year changes in our first-quarter reported or GAAP results. Moving to slide 9, you can see that Q1 revenue was just over $4.6 billion. The decrease of 6% compared to Q1 2014 reflects significant FX headwinds. Excluding FX, our Q1 revenue on a non-GAAP basis was essentially flat. As we discussed on our guidance call, this year we will still feel the negative effect of the loss of U.S. exclusivity for Cymbalta and Evista. This quarter sales of those two products in the U.S. declined by nearly $200 million. Excluding the unfavorable impact of foreign exchange rates and Cymbalta and Evista in the U.S., the rest of our worldwide revenue increased 5% this quarter. Gross margin as a percent of revenue increased 3.6 percentage points, going from 74.6% to 78.2%. This increase was entirely driven by the favorable impact of foreign exchange rates on International inventories sold which increased cost of sales in Q1 last year but decreased cost of sales in Q1 this year. Excluding this FX effect, our gross margin percent declined by 1.1 percentage points, going from 76.4% in last year's quarter to 75.3% this quarter. Please do take note of the level of our gross margin percent excluding the FX effect on International inventories sold. Again, you'll see that this is running at roughly 75%. As we discussed when updating our guidance on our Q4 earnings call, in 2015 we expect a substantial FX benefit that should push our gross margin percent into the 78% range. However, if FX rates stay at their current levels, that benefit will essentially go away in 2016. So as you construct your estimate of our 2016 gross margin percent, you should be making adjustments off of a 2015 base level of roughly 75%. As in past quarters, you'll find a supplementary slide providing our gross margin percent for the last 10 quarters with and without this FX effect. Total operating expense, defined as the sum of R&D and SG&A, declined by 7% or nearly $200 million, compared to Q1 of 2014. Marketing, selling and administrative expenses declined 6% while R&D declined 9%. The reduction in marketing, selling and administrative expenses was due primarily to the favorable impact of foreign exchange as well as to ongoing cost-containment efforts. The reduction in R&D expense was driven primarily by the lower late-stage clinical development costs and, to a lesser extent, the favorable impact of foreign exchange rates. As implied by our full-year guidance, we do expect the level of R&D spend to be higher for the remainder of the year as we start Phase III trials for tanezumab, our CGRP monoclonal antibody, olimertumab and additional indications for Cyramza. Other income and expense was income of $93 million in Q1 2015, compared to income of $36 million in the first quarter of 2014. This increase versus last year was due to a favorable legal judgment and larger net gains on investments. Our tax rate was 22.9%, an increase of 3 percentage points compared to the same quarter last year. This increase is primarily due to a discrete tax benefit realized in Q1 last year. Also our tax rate in both periods did not include the benefit of certain U.S. tax provisions including the R&D tax credit, as those provisions had lapsed. At the bottom line, net income increased 16% while earnings-per-share increased 18% reflecting the benefit of our share repurchases. Slide 10 provides a reconciliation between reported and non-GAAP EPS and you'll find additional details on these adjustments on slide 19. Now let's take a look at the effect of price rate and volume on revenue. On slide 11, in the yellow box in the middle of the page, you'll see the total revenue decline on a non-GAAP basis that I mentioned earlier of 6%. The significant strengthening of the U.S. dollar against many foreign currencies drove this decline as you see the 6% negative effect from FX that we booked this quarter with a favorable price effect of 3% offset by a volume decline of a similar amount. By geography, you'll notice that U.S. Pharma revenue increased 4% driven by price partially offset by volume. A number of pushes and pulls affected U.S. Pharma revenue growth this quarter. First, as I mentioned earlier, Cymbalta and Evista declined following their patent expirations. Excluding Cymbalta and Evista, the rest of our U.S. Pharma revenue increased 18% with over 7 percentage points coming from volume. Also recall that on our Q4 earnings call we mentioned that an extension of shipping days through the end of December 2014 resulted in lower wholesale inventory build in Q4 of 2014 than in Q4 of 2013. As expected, this led to less wholesale inventory burn in Q1 this year than in Q1 last year, benefiting this year's growth rate. So when adjusted for wholesale buying, as well as Cymbalta and Evista, our U.S. Pharma revenue grew 14% this quarter with 3 percentage points coming from volume. Moving to our International operations in Australia, Canada and Europe, or ACE, you'll see a negative 13% rate impact was the primary driver of the overall 16% decline in revenue. While on a constant currency or performance basis ACE revenue decreased 3%, driven primarily by the initial effects of a loss of exclusivity for Cymbalta. In Japan, Pharma revenue decreased 23% with half of the decline coming from the weaker yen. On a performance basis, our Japanese Pharma revenue decreased 11%. You may recall that we experienced substantial wholesaler buying in Q1 2014 in advance of an increase in the local consumption tax. Adjusting for the increased buying we saw last year, our Pharma revenue grew about 9% on a performance basis driven by volume. Turning to Emerging Markets, we saw mid-single-digit performance growth driven by volume growth of 7%. As a result of the significant negative effect of FX, our reported Emerging Markets revenue declined 4% versus last year. Our Pharma revenue in China grew 6% with nearly all of that growth coming from volume. On a non-GAAP basis, which adjusts 2014 as if we'd completed the Novartis Animal Health acquisition on January 1 last year, Elanco Animal Health revenue declined 4%. Excluding the negative effect of FX; Elanco revenue increased 2%. This performance increase was affected by competition in the U.S. for companion animal products. Moving to slide 12, you'll see the effect of changes in foreign exchange rates on our Q1 2015 results. Given the significant and swift strengthening of the U.S. dollar, this is one of those quarters where FX has the opposite effect on the topline as it does on the bottom line. This quarter FX was a top line headwind, reducing revenue in U.S. dollars by 6 percentage points. In terms of cost of goods sold, however, FX provided a substantial benefit which led to FX providing a tailwind or benefit for operating income and EPS. Excluding FX, you can see that our non-GAAP EPS in the first quarter grew 7%, while including FX non-GAAP EPS grew 18%. Slide 13 shows our pipeline as of April 17. Changes since our last earnings call are highlighted with green arrows showing progression, red arrows showing attrition and stars showing molecules added through business development. You'll see that ixekizumab has moved into the regulatory review column following regulatory submission in the U.S. Following our agreement with Tosano to develop their proprietary formulation of parathyroid hormone 1 to 34 using a microneedle patch system, you'll see that asset showing up in Phase II. And in Phase I you'll see two assets have been added through business development activities, an ultra-rapid acting insulin through our deal with Adosha and a BTK inhibitor initially being studied in immunologic diseases through our deal with Hanmi. In addition we began Phase I testing of a small molecule for diabetes and another for Parkinson's disease. And we terminated development of a Phase I small molecule for cardiovascular disease. You'll also see that we've moved Blosozumab from Phase II to Phase I. Our efforts to identify a commercially attractive formulation have been unsuccessful, and we've decided not to move Blosozumab into Phase III development for osteoporosis at this time. We'll evaluate our strategy for the Blosozumab development program to determine next steps. Now let me turn the call back over to Derica.

Thanks, Phil. I'll recap progress we've made in our key events for 2015 and then review our financial guidance for 2015. Turning to slide 14, you may recall that when we showed this slide on our Q4 earnings call in late January, we had already achieved two events, presentation of data for ramucirumab in second-line metastatic colorectal cancer and completion of the acquisition of Novartis Animal Health. Since that time, we've achieved a number of additional milestones. We began our second wave of Phase III trials for Cyramza, initiating a pivotal trial in first line gastric cancer. In terms of the additional lifecycle investments in Cyramza, you'll also see that we've specified that the Phase III lung cancer trial will be in the first-line setting in patients with the EGFR mutation positive. And we've added two new Phase III trial starts to our list of 2015 events. One is second-line bladder cancer and the other in second-line liver cancer in patients with elevated baseline alpha-beta protein levels. This is the population where we saw a pronounced overall survival benefit in the Phase III reach trial. You'll also see that we've added a key event for our CGRP monoclonal antibody. In the coming weeks we expect to start a Phase III trial in patients with episodic cluster headaches. Moving to the next Section, as mentioned earlier, we issued a second positive Phase III topline press release for baricitinib in rheumatoid arthritis. And earlier this week we issued a topline press release outlining positive results from a Phase III trial of ixekizumab in psoriatic arthritis. Also for ixekizumab, but in moderate to severe plaque psoriasis, we presented detailed results of the Phase III Uncover One trial at the AAD meeting in March. In the regulatory submissions category, you'll see the green check marks for the ramucirumab and ixekizumab submissions I mentioned earlier, as well as the red checkmark for the delay in submission for basal insulin peglispro. While in the regulatory actions section, you'll see the green checkmarks for the approvals received in Japan for Cyramza in gastric cancer and Glyxambi here in the U.S. Finally, we've reflected the progress made with tanezumab, lifting of the partial clinical hold paving the way to resume Phase III trials, as well as the negative Appeals Court ruling on Alimta in Germany. 2015 represents another year for execution of our innovation-based strategy and we're pleased with our progress so far and are excited for what lies ahead. While we know not all of the remaining events are likely to be positive, we're increasingly confident that a significant majority will break our way and solidify our near- to medium-term growth prospects. Now turning to our 2015 financial guidance, I first point out that our substantial EPS beat in the quarter relative to consensus came from two line items. Lower R&D expenses and higher other income. In both cases, we believe these represent differences in timing between our expectations and consensus, not differences in expectations for the full year. In terms of our non-GAAP guidance for 2015, at a high level, we're reconfirming our full-year guidance, both the individual line items and the EPS range. To provide some more color, we have seen further strengthening of the U.S. dollar since our call in late January, and this is causing further FX headwinds at the top and bottom lines. However, the underlying performance of our business is offsetting this additional downside. Specifically on FX, when compared to our late January outlook, we expect the continued strengthening of the U.S. dollar to trim an additional $150 million to $175 million from revenue and another $0.05 to $0.06 from EPS. For the full year, we now expect FX to reduce revenue growth by about 7.5% or about 1.4 billion to $1.5 billion. In terms of EPS, we now forecast a negative FX effect of about $0.13, comprised of an operational FX hit of about $0.60 offset by the benefit to cost of sales of nearly $0.50. As we discussed, should FX rates remain at current levels, this cost of sales benefit in 2015 would essentially go away in 2016. You'll want to consider this as you model our gross margin percent and EPS for 2016. For our GAAP guidance, you will see that we've incorporated changes related to our decision to proceed with the development of tanezumab and the deals we signed with Hanmi, Innovent, and Bristol-Myers Squibb. Finally, keep in mind that our 2015 GAAP guidance is based on our current estimate for how we'll account for the Novartis Animal Health acquisition and the Erbitux deal and could change based upon revised estimates and final accounting treatment. In summary, while our first-quarter revenue reflects the impact of foreign exchange headwinds and the lingering effect of U.S. patent expirations for Cymbalta and Evista, Lilly remains on track to return to growth in 2015, driven by excellent progress in our innovation-based strategy. We had solid underlying business performance, and our continued focus on cost controls drove strong leverage at the bottom line. Recent new product launches, along with the growing success of our late-stage pipeline, reinforce our confidence in our future. Since our last earnings announcement, we've seen one FDA approval and two FDA submissions, in addition to approvals and submissions in Europe and Japan. We've also seen a continuing series of positive data readouts for our late-stage assets. We're pleased with the performance of recently launched products as well as growth at several established products. Excluding the hit from unfavorable exchange rates and lower U.S. sales of Cymbalta and Evista, the rest of our worldwide revenue increased 5% this quarter. We've started 2015 in a position of strength and our continued cost containment efforts allow us to build on our innovation-based strategy through both internal and external investments. As we transition from a period of unprecedented patent expirations to an era of growth, we're seeing tangible results from our innovation-based strategy and we're increasingly optimistic about the opportunity we have to bring innovative new medicines to patients and create value for shareholders. As we discussed in January, throughout the balance of this decade, we aim to drive revenue growth and expand margins. You'll see us sharpen our focus on areas where we're best positioned to compete and win and find ways to increase productivity and do the work of pharmaceutical R&D better. This concludes our prepared remarks. Now I'll turn the call over to Phil to moderate the Q&A session.

This is Salim in for Mark. Thanks so much for all the color on the call. It's really helpful. Two questions, one on Glyxambi. Can you give us your thoughts, where are the patients going to come from? Do you expect cannibalization of your new products or are these going to be new patients to the Lilly franchise? And then Cyramza, if you could provide, please, a breakout on gastric versus lung sales? Thanks.

Obviously, Enrique, first question for you on Glyxambi and then over to you, Sue, for the Cyramza question. Enrique?

On Glyxambi, clearly we're looking at the benefit that this product could provide for patients that are not achieving good control on metformin. So we see this as a very attractive option for many of those patients. And that's basically what our clinical results also say. So we're excited. We're at the very early stages of our launch. We launched in late March, so we're, at this time basically introducing this product to healthcare providers.

Sure. And with Cyramza, the vast majority of the sales that we're seeing is in gastric cancer impacting the U.S. where we launched last year. We're seeing use with the majority of the sales coming from use in combination with taxitaxel as we expected. We did see in Q1, though, a proportion of sales coming from the lung launch. It's early days yet on lung. But what we're seeing uptake there and the feedback so far is positive from physicians in the use of Cyramza in lung cancer indications. And clearly in Europe, we just launched, beginning of this year, in Europe and where we're seeing access, for example, in countries like Germany, again early days, but the uptake in the gastric indication there is positive.

Yes. Just I did not answer the question on what impact would Glyxambi have on both Trajenta and Jardiance. We're not really thinking about the cannibalization aspects when introducing this product. We think this product is a very unique product. And, if anything, we believe that this product is actually going to strengthen both Trajenta and Jardiance as it becomes - as it basically gains acceptance in the marketplace.

Love to get your updated perspective on solanezumab and the Alzheimer's opportunities in light of the Biogen data. Mechanistically, of course, both products target A-beta. They do it in reasonably different ways. Yesterday Roche, who had two monoclonals, suggested that they may push forward with a plaque-targeting version of their drug versus the other product that hits multiple forms of A-beta. Your product targets soluble A-beta, yet you also have in development a plaque-specific monoclonal. So given the totality of their data, what's your latest thinking here? What has the best chance of success, a drug that targets soluble or deposited plaque? And then another question, if the last patient visit is October 2016, does it mean that we would only learn of results downstream of that or would we possibly learn of a topline ahead of that last patient visit?

Dave, if you'd like to take a shot at the two questions? Jan, do feel free to chime in as well, particularly on the first portion of Tim's question if you'd like. Dave?

Obviously, interest in Alzheimer's disease. And as you know, for a long time we've believed in solanezumab's mechanism clearing the data. We're starting to have a - conclude enrollments in Expedition 3 and now we're on the clock for last patients achieve 18 months of therapy. In the past we've communicated there was a chance we may - we had allowed for an interim risk but, as I've said before, that feature of the program was only valuable in the case of a slow enrollment rate. Again at this point we haven't made a definitive decision. I would continue to guide people to focus on the end of the study as when we'll be learning about the effects of solanezumab. So to your question, that would be after the October 16 last patient visit. As you rightly point out we also have specific interest in a Phase I program in that area. We're also excited about that mechanism. Recognizing that the mechanisms may, in fact, be complementary in some sense, either sequentially or combined together, that specific antibodies to date, the ones that we had published data on, also have a safety side effect profile that's, to our eye, quite different from solanezumab from the patient inherence perspective, et cetera, that may have an impact. So we'll have to let both of these mechanisms play out. And we're excited about both of them and I think with Alzheimer's, it is truly unique moment here as we've seen these modifying effects from multiple different programs.

Let me just add that I think it's very likely that these mechanisms are complementary. And clearly solanezumab has also shown a preferable safety profile, particularly in relation to ARIA, either on the brain edema dilemma that you see with this plaque-specific antibodies, at least then from competitors. So I think we now need to wait and see what happens with it in these bigger trials.

Tim, just a little more color on your question about hearing results downstream from that October 2016 date. As we've been through this a number of times, as you may recall, that after the last patient visit, there is time that needs to transpire for the database to actually be locked, cleaned and validated and then for us to run tables and figures and so typically, topline press releases have been after last patient visit by multiple months. So you should expect to see a topline press release downstream certainly of that October 2016 last patient visit date.

I was hoping you could provide a little more color on some of the softness in the quarter for Alimta and Animal Health. You mentioned some competitive pressures there. Could you expand a bit? And then on the pipeline, Jan, on the CGRP product, are you still pursuing chronic and episodic headache as well? And when might we see data on those products? And then lastly on the glucagon receptor antagonist, can you frame for us what you're trying to accomplish there and where it might fit in to the broader spectrum of treatments? Thanks.

Sure. Alimta performance was mainly impacted by FX worldwide. We had a 1% volume decline with a 7% rate and a 1% price. If we look at it by geography, we actually increased in the U.S. by 3% and that was mainly driven by price. In Europe, we had a 2% volume increase and that was offset mainly by FX with also some price impact in ENB. We also had a volume increase, again offset half by price and half by rate. In Japan we had the same impact that was mentioned earlier with regards to the buy-in that we saw last year on the consumption tax increase. So we did have a volume decrease versus last year's quarter. But also a rate impact in Japan.

On companion animals, real quick, we've seen and really expected these headwinds with increased competition really coming in a couple areas, two new competitive entries as well as a reentry in the marketplace. We're two drivers; I would add an additional one which has really been some distraction from the integration. We've really used a rapid pace with the integration of both companies and from this being the first and second quarter critical to the companion animal business, this also had an impact. I will note, though, on the integration, it's going better than expected. We're three months in and I do believe that both Novartis and Lohmann will be enablers to our medium- and long-term growth in the companion animal segment, as well as globally. We've relaunched, as well, Interceptor. Three weeks after the closing the Management teams have both been combined. We've got a Management team that includes some Novartis executives, and I believe we've now got the majority of the global sales force in place. So again, we're finding far more positives than negatives at this stage with the Novartis integration. It will be an enabler for growth and as we've previously communicated, the savings level of $200 million will be our minimum expectation.

Yes. So I think your question was whether we're pursuing chronic or episodic headache? Remembering there's actually two types of headaches we're looking at here. What we've been talking about today is the addition to the pipeline advancement chart of moving CGRP into Phase III here in the coming months for a condition called cluster headache and we'll be studying that in both the chronic and the episodic forms. This is an orphan-type indication that we're moving into. We're also continuing the development in episodic migraine. Lilly is not planning to study chronic migraine at this time and we've had impressive results from our Phase II program in episodic migraine. We'll be seeking to replicate these results in Phase III, and right now we have a Phase IIb program going on to further define the dose for that larger migraine program.

Maybe I'll start and then Jan can help here. But clearly our glucagon receptor antagonist is right now in Phase II. What we basically have seen is rapid reductions in Humalog A1c. We saw it increase high posts or weight gain. The way we're thinking about this product is this product has to offer a benefit vis-a-vis a number of oral options that are available today and that in the future will be available in generic form. So we're thinking that this product could be an attractive option in the early segment for patients that have impaired renal function where beta cell health might not be great. We don't see lots of options for these types of patients and GRA could be an attractive option there.

Just complement there, the metabolism of this agent is independent of renal function. So therefore, it's suitable with patients then that have some compromise in their renal function.

Number one, Jan, if you could comment on restarts for tanezumab. Would the focus again be NOA or osteoarthritis? Number two, what actually led to the decision to delay the evacetrapib look? Was it just simply the DSMB making some judgments about event rates? And then finally, again, back to Alzheimer's, I think there's data supporting combination, maybe it's totally in animals, but combinations of A-beta antibody in the base inhibitor. And just trying to understand how you think about, really from a cost standpoint and also from a mechanistic standpoint, think about combinations versus solanezumab versus one or the other antibodies alone as we progress over time? So something beyond 2016. Thanks very much.

Good. As it relates to tanezumab, yes, we're pleased to be able to now move off of clinical hold and do plan to proceed into Phase III as soon as later this year with Pfizer. There will actually be three indications that will be pursued. Osteoarthritis, as you mentioned, Tony, we'll also be looking at chronic low back pain and then chronic pain associated with cancer. And that program is similar to what had been previously studied and then stopped at Phase III. On evacetrapib, as we mentioned earlier in the quarter, the extension of time is really not related to the evacetrapib study accelerate. It was a set of recommendations made by our academic advisors and accepted by the company based on information coming from other major long-term cardiovascular event studies where it has been noted that in mediate or recent ACS patients that the impact of lipid management is a bit delayed in these patients. And we wanted to make sure we fully accounted for this new information in sizing the trial, thus the six-month extension into the middle of 2016. Maybe just briefly on Alzheimer's and Jan perhaps can elaborate on the Lilly-generated combination data, but we have no doubt that this disease, when we find and have approved these modifiers, will require multiple mechanisms to fully arrest its impacts.

And we do think mechanisms such as plaque-targeted antibodies, such as base inhibitors and soluble A-beta antibodies and maybe even TAL-based therapies could be combined in all kinds of forms to achieve optimal results. Of course the science in this space is evolving rapidly and, frankly, pretty new. We don't have human data in combinations that I'm aware of. So that's a whole field that would need to be explored, hopefully after a positive solanezumab study in late 2016.

As it relates to the target event rates and specifics about the population in the accelerate program, I know we've said this before, but we're anticipating publishing a design paper for accelerate which will include those details. So until that is published, it's probably not appropriate to comment further. I will only generally say that accelerate is a study designed to study secondary prevention in high-risk vascular disease, and as a result, we're expecting a decent event rate in this population. And, in fact, that's what we're observing having enrolled it. The details of that, again, we'll be publishing in the forthcoming Journal.

So I think your question was whether our clients were chronic or episodic headache? Remembering there's actually two types of headaches we're looking at here. What we've been talking about today is the addition to the pipeline advancement chart of moving CGRP into Phase III here in the coming months for a condition called cluster headache and we'll be studying that in both the chronic and the episodic forms. This is an orphan-type indication that we're moving into. We're also continuing the development in episodic migraine. Lilly is not planning to study chronic migraine at this time and we've had impressive results from our Phase II program in episodic migraine. We'll be seeking to replicate these results in Phase III and right now we have a Phase IIb program going on to further define the dose for that larger migraine program.

This is Wendy Lin on for Chris. Just a couple. How are you thinking about what insights you've learned from the recent DPP4 adcom panel and any impact it might have on the DPP 4 class? And can you talk about your relative confidence in Jardiance with regard to the CV outcome study and the possibility that the study could show a net benefit to patients? And then in ontology, in light of the Pfizer I brands approval and the early stoppage of their second-line study, can you update us on your program? Thanks.

Well, on DPP4, as I think we all have seen or heard the discussion at the advisory committee. Clearly, there was a lot to focus on both CV safety but also all-cause mortality endpoints. It is difficult for me to speculate any action that the FDA may take. I think what I can basically say as far as Trajenta is concerned and we have to keep in mind that these numbers are very low, so we cannot have any type of conclusive interpretation from this data, but when we look at our randomized placebo-controlled clinical trials and when we look at the data for Trajenta, in both cases when it comes to CV mortality and when it comes to all-cause mortality, our house of ratios were below 1. So we have no signals that would indicate that linagliptin would cause - would have an issue when it comes to either all-cause mortality or CV death. When it comes to the data for dose-specific DPP4, as I think you have to ask the respective companies. As far as Jardiance is concerned, we're very excited to be able to get to see the results from our outcome trial. At this stage, I've characterized our chances as decent, but we have to wait and see. So we will be basically having a chance to look at these results over the summer and we expect to basically publish topline results when we have this data available.

Regarding abemacyclic, we're very excited by this molecule and we believe that the latest news validates the CDK46 class. And we believe that we could have a best-in-class molecule here with single-agent activity, continuous dosing and also our molecule crosses the blood-brain barrier. We're moving quickly on our trials. We have our two Phase III trials ongoing and enrolling, one which is our Phase II trial ongoing, as well as our Kraz lung study, so we're moving quickly. Our plan is to enroll these trials as quickly as possible so we can get data out hopefully over the next year or so on these trials. Also we have started a breast cancer study for women with brain mets. That will be - because we know that abemacyclic crosses the blood-brain barrier, we believe that that could be a good opportunity for this molecule. So we're excited and we look forward to sharing more data with you.

So maybe you could just update us on some key data sets through the balance of this year and maybe if you could focus a little bit more on the data sets for Phase II that could actually have products entering into Phase III, that would be very helpful. As a second question, this may be for the CV team, but maybe you could talk to us a little bit about the target event rate in that study? And just update us on what your expectations are for the baseline LDL? And when you talk about that, could you confirm that the baseline LDL is on a maximized statin background? And then lastly, can you just help us better understand, in the evolving pricing environment, what do you think are the thresholds of benefit that are going to be necessary for you to show to really achieve an appropriate payment scheme for the anti-NGF therapy? Thanks a lot.

Dave, I think probably the second question, the third, are up your alley. I would say, Seamus, this is Phil - we have not yet published the design paper for the accelerate trial of evacetrapib. I think we were close to doing that last year, but when the improvement data came out, as Dave mentioned earlier, we wanted to make sure that we could fully analyze that and take into consideration how that might impact, if at all, the trial design for accelerate. As you've now seen, that has impacted, resulting in an additional six-month extension of the study to accrue additional events and additional late events. So, Dave, if you could maybe start off talking about the stuff that you can, target event rates, baseline LDL, and if it was on a mac statin background, and then talk a bit about the pricing environment as you see it for the anti-NGF. And then we'll come back to your first question, Seamus, on, in particular, Phase II data could read out this and more broadly data readouts that you should have on your radar screen for the balance of 2015. Dave?

As relates to the target event rates and specifics about the population in the accelerate program, I know we've said this before, but we're anticipating publishing a design paper for accelerate which will include those details. So until that is published, it's probably not appropriate to comment further. I will only generally say that accelerate is a study designed to study secondary prevention in high-risk vascular disease and as a result, we're expecting a decent event rate in this population. And, in fact, that's what we're observing having enrolled it. The details of that, again, we'll be publishing in the forthcoming Journal.

And then one follow-up then for Dave's question. My counterpart over at Bristol-Myers Squibb, John Elicher, would probably want me to point out that there will be, during this period on Erbitux, from Q4 this year through late 2018, a payment that we will be making to Bristol-Myers Squibb. I believe subsequently they'll be disclosing the amount of that payment with their SEC filing and that payment for us would show up in cost of sales.

Thanks, Phil. We appreciate your participation in today's earnings call and your interest in Eli Lilly and Company. Please note that we'll host a call from ADA on Sunday evening, June 7, to provide an update on our diabetes business. And do keep an eye out for conference calls later this summer to discuss Phase III data for both ixekizumab and baricitinib. Finally, if you have questions we did not address during today's call, please contact our IR team and they'll be happy to help. Have a great day.

Just on Alimta, can you help us understand, when should we expect to get news on the appeal of the German and UK court decisions regarding the Alimta method-of-use patent? And then do you expect the approval of PD1 antibodies for use in lung cancer to impact the sales of Alimta?