Lilly(Eli) & Company (LLY) — Q3 2019 Earnings Call Transcript

Thank you. Good morning, thanks for joining us for Eli Lilly and Company's Q3 2019 Earnings Call. I'm Kevin Hern, Vice President of Investor Relations. Joining me on today's call are Dave Ricks, Lilly's Chairman and CEO; Josh Smiley, our Chief Financial Officer; Dr. Dan Skovronsky, President of Lilly Research Laboratories; Anne White, President of Lilly Oncology; and Enrique Conterno, President of Lilly Diabetes and Lilly U.S.A; Patrik Jonsson, President of Lilly Bio Medicines; and Mike Mason, incoming President of Lilly Diabetes. We're also joined by Kim Macko and Mike Czapar of the Investor Relations team. During this conference 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, 10-Q and any 8-K's filed with the Securities and Exchange Commission. The information we provide about our products in the pipeline is for the benefit of the investment community. It is not intended to be promotional and is not sufficient for prescribing decisions. As we transition to our prepared remarks, a reminder that our commentary will focus on non-GAAP financial measures, which exclude the financial contribution from Elanco during 2018 and 2019 and present earnings per share as though the full disposition via the exchange offer was complete on January 1, 2018. Now I'll turn the call over to Dave for a summary of our Q3 results.

Thanks, Kevin. Q3 was another strong quarter for Lilly as we continue to deliver robust results and execute on our strategy, which is launching new medicines, advancing our pipeline and driving productivity. Revenue grew 3% this quarter or 4% in constant currency, driven entirely by robust volume growth from our new products and international operations. Volume contributed 8 percentage points of growth despite sizable headwinds from the loss of exclusivity for Cialis in the U.S. and the withdrawal of Lartruvo. Excluding Cialis and Lartruvo, volume growth was an impressive 16%. Our newest medicines continue to be the engine of revenue growth and account for 44% of revenue this quarter. We made good progress in productivity in Q3 as our non-GAAP operating margin was 28.6%, keeping us on track to meet our 2019 and 2020 operating margin goals; compared to last year's quarter, operating margin was essentially flat, reflecting lower gross margin offset by prudent management of our operating expenses. We achieved milestones on several pipeline assets since our last earnings call, including the FDA approval of Nurtec for the acute treatment of migraine with or without aura in adults. The European Commission approval to expand Trulicity's label to include results from the REWIND cardiovascular outcome study. The presentation of registration Phase 2 data for selpercatinib in non-small cell lung cancer and thyroid cancers and the presentation of overall survival data of Verzenio in metastatic breast cancer. We also made impressive progress with its development program this quarter with the FDA approval of radiographic axial spondyloarthritis or AxSpA along with its submission in Europe. Submission of our non-radiographic axial spondyloarthritis in the U.S. and Europe, which represents our first-in-class opportunity in this indication and positive results from a head-to-head study in psoriasis versus guselkumab in IL-23 antibody. We remain focused on creating long-term value for shareholders as we allocate capital seeking external innovation that will enhance future growth prospects while at the same time we returned nearly $1.2 billion to shareholders this quarter via share repurchase and the dividend.

Thanks, Dave, and good morning everyone. Slide 6 summarizes our presentation of GAAP results and non-GAAP measures, and slide 7 provides a summary of our GAAP results. Looking at the non-GAAP measures on slide 8, you'll see revenue increased 3% or 4% in constant currency. Gross margin as a percent of revenue declined 60 basis points to 79.6%; excluding the impact of FX on international inventory sold, gross margin as a percent of revenue was 78.9%. On this same basis, our gross margin percent declined approximately 140 basis points compared to Q3 2018 driven by the unfavorable impact of product mix due to Cialis, and the negative impact of price on revenue, partially offset by manufacturing efficiencies. Total operating expense grew 2% this quarter. Marketing, selling and administrative expenses declined 3%, as our ongoing cost containment measures and lower litigation charges versus last year were partially offset by increased investment behind recent launches, consistent with our long-term strategy. R&D expense increased 8% reflecting higher development expenses for late-stage assets including double selpercatinib and tirzepatide. Total operating income increased 3% compared to Q3 2018, our sales growth outpaced expense growth, driving operating income as a percent of revenue to 28.6% for the quarter. As our recent launches continue to drive revenue growth and headwinds from Cialis and Lartruvo both sunset in 2020, we expect additional operating margin expansion and bottom-line growth. We are on track and committed to achieving our full-year operating margin guidance of approximately 28% as well as our 2020 target of 31%.

Thanks, Josh. Slide 17 shows select pipeline opportunities as of October 22nd. Positive movement since our last earnings call includes the previously mentioned FDA approvals for Nurtec and the FDA approval for new indication for Taltz, the European Commission approval for Trulicity REWIND and the submission of Taltz for non-radiographic axial spondyloarthritis. The U.S. submission of ultra-rapid Lispro for type 1 and type 2 diabetes. The U.S. submission of Flortaucipir for imaging agent in Alzheimer's, initiation of Phase III testing for mirikizumab in Crohn's disease, and the initiation of Phase 1 for 2 assets. In addition to the positive milestones, we delivered this quarter, we also announced disappointing results from the Phase III Sequoia trial, pegilodecakin in patients with metastatic pancreatic cancer. Pegilodecakin plus FOLFOX failed to show benefit in overall survival compared to FOLFOX alone and is difficult to treat a deadly cancer. While this is a disappointing outcome for patients, we continue to move forward with pegilodecakin in lung and renal cancer, which we've always viewed as the key indications.

Thanks, Dan. Before we go to Q&A. Let me briefly sum up the progress we've made in the third quarter. We delivered robust volume growth of 8% driven by our key growth products and an impressive performance outside the U.S. We continue to demonstrate our launch capabilities and have a diverse portfolio of commercial products to drive future growth. We advanced our productivity agenda controlling operating expenses while investing behind key commercial growth drivers and our late-stage pipeline. In addition, we made important progress toward our margin goals as the operating margin improved 60 basis points versus Q2 2019 to 28.6%. We made important pipeline progress including the initiation of a new Phase 3 program with mirikizumab in Crohn's disease, sharing new registrational data for Olumiant, Taltz, Verzenio, and selpercatinib. Submitting new indications for Taltz and Cyramza and receiving positive regulatory actions for Trulicity. Finally, we returned nearly $600 million to shareholders via the dividend and completed $600 million of share repurchases as well. We are proud of our strong business performance and excited about the opportunities ahead for the company. There has never been a more inspiring time to be working on discovering new medicines and patients and healthcare providers are waiting for the next wave of innovation. We have grown through the headwinds of Cialis and Lartruvo and we expect our strong business performance to continue driven by our newest products and a relative lack of patent exposure ahead and of course by the work of our scientists who continue to redefine what is possible for patients suffering from serious diseases. Looking ahead we are focused on a strong finish to 2019 as we prepare for next year.

Thanks, Dave. We’d like to take questions from as many callers as possible, so we ask that you limit your questions to two or to a single question with 2 parts; please provide the instructions for the Q&A session and then we're ready for the first caller.

Thank you for the questions. First, regarding the pricing dynamics for 2020, are we expecting continued price erosion in the U.S. portfolio this year, or do you think some of these pressures will ease after we get past the donut hole fill and the one-time issues with Trulicity you've mentioned? Additionally, could you provide more insight into Trulicity's access and pricing dynamics in 2020? The pricing information in your prepared remarks is helpful. With the approval of oral semaglutide, are you experiencing a tougher payer environment than before, or are there indications that payers are managing the GLP-1 category more aggressively? Thank you.

Thanks, Chris. We'll go to Josh for the overall 2020 pricing and then to Enrique for your second question more specifically on Trulicity.

Thanks, Chris. I think as we look into 2020, just going back to the guidance that we gave in December of last year. So we were planning for sort of low single-digit net price erosion across the portfolio for the period of '19 and '20. I think that's what we see right now. We are going to see variability in the quarters as you mentioned, we've got donut hole and other things that are particularly I think acute in Q3 of this year, but I think the net as we look and project into 2020 I think sort of low single-digit price decline is probably a fair place to be and that's very consistent with how we thought about 2020 goals and our productivity agenda and otherwise.

So Chris, when it comes to Trulicity coverage, we have unprecedented access. We are right now in the mid '90s from a coverage perspective, which is outstanding and we are projecting that into next year. It is too early for us to be able to say exactly how the discussions of oral semaglutide are going with payers; of course, we'll learn more the further we get into some of those discussions.

Thanks, Enrique and Chris thanks for the question. Next caller, please?

Hi, thanks for taking my question. I'm not sure how to phrase my first one, but I'll go ahead and ask it considering the renewed interest. My question is about the A4 trial, which uses a very high dose of solanezumab tracked over 240 weeks. Since this trial was fully enrolled a couple of years ago, what have we learned so far from any interim analyses that have been conducted? I ask because nearly every patient in this trial has passed the week 76 follow-up. Thank you for any insights on that. Additionally, regarding glip and tirzepatide, what is the median duration of therapy in the real world for Trulicity currently? I ask this in relation to the 20-week titration used in Phase 3, and I'm also curious if there have been any observations from the ongoing titration regimen on a blinded basis. Thank you very much.

Thanks, Umer. We'll go to Dan for the solanezumab question and then Enrique to talk about what we're seeing today with the duration for Trulicity.

Thanks, Umer for your question on solanezumab and the A4 trial. Of course this is a trial of solanezumab as you pointed out for a higher dose and it was tested in the original Phase 3 studies. But what's really interesting about this trial is that we're testing it in asymptomatic elderly individuals who don't have a diagnosis of Alzheimer's but do have amyloid plaque in their brain. It's a 4-year treatment that's planned and so we will get data on this trial in mid-2022. So we just have to wait patiently for those results to see if solanezumab has efficacy in this very early population.

When we examine Trulicity adherence, we often find it to be better than that of other products. One key metric we analyze is refill rates, specifically the second and fourth refill rates. Trulicity generally shows higher adherence than the GLP-1 class, insulin, and even oral medications, which might be surprising, but its simplicity contributes to this advantage. The question of adherence is complex. In terms of medium duration of therapy, we see a significant drop in patients during the first and second fills across all diabetes therapies. By the fourth fill, Trulicity's adherence is in the 60s. However, for those patients who remain beyond the first year, we tend to lose about one-third of them each subsequent year. This provides insight into Trulicity's adherence when considering your models.

Thanks, Enrique, and Umer, thanks for the questions. Next caller, please?

Hi, thanks for taking the questions. Maybe two for me. Just I'm wondering your latest thoughts on the ongoing policy discussions in DC and potential outcomes and impact to your business. And then as we think about Emgality for 2020, I know you don't give product-level guidance, but you've been focused on the second phase of growth year into the primary care market, any update on the progress there as well as the initial European launch. Thank you.

I wish I could give a clear answer about the outcome of the policy discussions in Washington. It's quite uncertain, but it seems likely that the House bill will pass along party lines, and we'll see what happens next. There are several initiatives being discussed in Senate committees that our industry is monitoring, and if a version of these initiatives passes both chambers, it could be a modest positive for us. We believe that discussions around providing an out-of-pocket cap for seniors are vital, and any changes that could adjust the donut hole calculations and other aspects of the benefit would be beneficial, especially for products used for conditions like diabetes. We are closely monitoring this situation. We're fully engaged in these discussions, but considering the current climate in Washington, it's likely that significant legislation won't occur for a while. However, it's important to note that we are advocating for changes, particularly regarding the Part D benefit and measures for affordability, which can impact out-of-pocket costs at pharmacies without drastically altering the U.S. healthcare system, as that could severely harm our business model.

Well, thank you very much. We are very pleased with the overall performance of Emgality and we actually became the leader in new prescriptions in Q3. We have been that for more than 10 consecutive weeks right now and we are also closing the gap in terms of total prescriptions. When we look upon the access to Emgality, it is a best-in-class access with more than 90% today in the U.S. and we are making steady progress in terms of the claims paid. We're making steady progress in that regard as well. We still believe it's very early days for Emgality. We know that we have a population in the U.S. of 6 million eligible for preventive treatment and of the 3 million of those are being treated today and year-to-date, we have approximately 100,000 patients treated with Emgality. So we see a tremendous opportunity also moving forward, and also the prescriber base in the U.S. is still limited, so only 15% of our customers are regularly prescribers of Emgality. So I think that signals very clearly the opportunity we foresee.

Thanks, Patrik and Terence thanks for the questions. Next caller, please?

Good morning, thanks for the question. I just have a couple. Josh on the SG&A side, are there opportunities for more cost savings looking forward beyond what you guys have talked about post the Elanco. So I'm just trying to get a sense for where the Q3 trends can be extrapolated. And then Patrik, another one on the migraine side. So I know obviously early in the launch, but can you leverage the access you just mentioned with Emgality to help benefit? I'm just trying to get a sense for the commercial synergies looking to 2020 and with the CGRP space being a little bit more crowded, how has the pricing environment been so far? Thank you.

Okay, thanks. Jeff, welcome back. On SG&A, yes, I think if you look at what we see in Q3 and what we've been talking about relative to our productivity goals for 2020. We're pretty comfortable with the absolute level of investment we have behind our new launches. If you look at the last few like Baqsimi, which I mentioned in the prepared comments and for example, we're putting those into existing infrastructure and we'll get good leverage there. So we'll continue to invest behind our key launches. But I think the absolute level of SG&A with our ongoing productivity efforts to get more out of each of the promotional dollars we spend, we feel pretty comfortable with that, so you should expect modest to flat growth going forward on that line.

Well, thank you very much. We are also very excited with the approval of Nurtec, and we are waiting for the DA to give an overall assessment by January of next year and launching very early in 2020. Overall, we believe there is a significant need also in the acute treatment of migraine. We know that currently 5 million Americans are being treated for acute migraine, but 35% to 40% of those don't respond or can't tolerate the triptans and approximately 15% of those are contraindicated for triptans, so that's why we believe it's really a tremendous opportunity for the next two decades to launch a new oral treatment for acute migraine. We see some significant synergies with Emgality both in terms of access and the overall infrastructure and particularly being able to capitalize on the learnings that we have had with the launch of Emgality since the beginning of 2018, where we have rapidly been able to take a leadership position, not just in terms of access, but also in terms of new prescriptions and closing the gap in total prescriptions.

Thanks, Patrik. Jeff, thanks for the questions. Next caller, please?

Thank you. I'd like to come back to 2020 and contracting and diabetes. I know you were asked this earlier, but you didn't give much of an answer. The stock down 5% today on a beat and raise. I think that reflects concerns about whether you can hit your operating margin guidance in 2020. The outlook for diabetes, so specifically on diabetes you're in this window of kind of having an idea of where your coverage is going to be for Trulicity and Jardiance in terms of net lives gained or lost, and what the price – so, can you just hopefully give us a little more detail on how we should be thinking about Trulicity specifically and Jardiance as well going into 2020, because there have been changes in the competitive dynamics there. Second question, just going back to Alzheimer's, it seemed like a couple of years ago, Lilly started to quietly pivot away from thinking that any monotherapy that's anti-amyloid would yield the benefit and you started to really go down this combination route, given what Biogen disclosed yesterday and your ongoing work in this area. Just how are you thinking about monotherapy in the anti-amyloid space and really anything you can offer, your impressions of the news yesterday would be helpful.

Thanks, Tim. As we said in the opening, I think if you look at Trulicity and strip out the things that we see in Q3 that we say are concentrated in that quarter. We feel good as Enrique mentioned, feel very good about the access that we have now and the access we project into 2020 and as we said, you should think about Trulicity at a modest year-over-year price decline, which is really just a function of modest price increases, and we like the price and the value that we have in the U.S. today. So we'll do everything we can to preserve that and we feel confident as we head into 2020 that that's a very manageable dynamic.

Yes. Thanks, Tim for the question. Of course, with respect to the amyloid hypothesis and the Biogen data. I think there was a lot of thinking about this when they announced their utility, the main question was whether or not there was evidence that if you removed significant amounts of amyloid, it could result in a slowing of cognitive decline, so everyone was sort of waiting to see with the very highest doses where there was high-level amyloid removal what would happen. So I think the data we saw yesterday, from that respect is an important indicator on the amyloid hypothesis. We've thought for some time that complete removal of amyloid from the brain could be the goal here, doing it early in the right patients could be important, and that underlined the design of our trial which we said should be able to remove plaque more quickly and more deeply than anything else we've seen. So I think yesterday's news is reason to be a little more optimistic about that theory. And as I said before, we're excited to see the results of that Phase 2 trial. With respect to your question on combination therapy, indeed we do think that combination therapy is an important avenue in Alzheimer's disease. I think we're the first and probably the only company to have tried a combination of two disease modifying therapies; unfortunately, we had to stop that, one of the therapies was a base inhibitor, which proved not to be a productive avenue of investigation. But given that we have both tau and amyloid approaches, I think combination in the future is a very rational approach for Alzheimer's.

Thanks, Dan. And thanks for your question. Next caller, please?

Hi, thanks for taking my questions. My first question here is when you first gave your 2020 revenue outlook or your long-term revenue guidance, what did you assume for Skyrizi and oral semaglutide and how have those launches proceeded relative to your expectations there? And then second question is, how do you think the data readouts from ESMO impact your thinking on the commercial opportunity for Verzenio, is there more growth left in the U.S. and how much can your share increase with this positive data? Thank you.

Louise, thanks for the question. Of course, we set the 2020 guidance in the middle of 2016. So many of the products were facing competition from etcetera today were a twinkle in the eye of the inventors back then, including some of our own launches at that time. We set the guidance because we thought there was a distance between what the people who do your work and the company thought about the long-term prospects; not line by line, but looking at a portfolio of opportunities that existed in front of us. Of course, our ability to predict any one competitive situation or product uptake for Lilly is not perfect, but at that time we did project that we would launch 10 medicines by the end of '19 in the first five years of that period and that because of the profound nature of those opportunities, we were confident we would find a way to grow the company; at that point, the pharma business 6%, Elanco a bit slower. We've actually raised that to 7% and I think we're closing in on achieving that goal despite the fact that the way we predicted we got there is not the same way we have. But I think that was the nature of the exercise back then and I think we successfully closed the gap and understanding in terms of what the opportunity for the company to grow was during that time.

Yes, I would be very happy to. So, thanks Louise for the question. Quarter-over-quarter Q3 U.S. sales were up 19% since Q2 and Q3 monthly sales look very strong as well. So we do believe that we are seeing growth from the outstanding survival results that we released and we do hope that we all see some growth for the CDK 4/6 market, although it may be in the single-digit area; for us here at Lilly, this is a relaunch of Verzenio. So the top priority for our team is to ensure that doctors, particularly those in the U.S. are aware of these statistically significant overall survival data nearly 10 months of survival benefit and we'll work with them to share that benefit the patients can have from Verzenio. We do know that oncologists are data driven and we have extremely compelling data and a very strong commercial team that will ensure that we get the word out. So we do hope very much to increase our share of market. Obviously not all of the competitors in this space have been able to demonstrate statistically significant results and so we'll make sure that that data is well communicated, particularly we're going to encourage physicians to identify patients that are likely to do worse. So, you probably saw that data that we released at ESMO on where the cancer recurred or when it recurred and those patients do particularly well on Verzenio with some very robust results. Again we see that as a differentiator from some of the competition. And we do know that physicians and patients number one goal is survival and we've been able to deliver now, as I said, nearly 10 months of a survival benefit, which is really remarkable in this setting. I think this is really a bit of a game changer for this molecule. So we look forward to next year. And then just to comment a little bit outside the U.S. and additional good growth in the U.S. We're seeing a great portion of our growth come from outside the U.S., particularly in Japan and we just got the updated data that in combination in first-line in combination of aromatase inhibitors, we have a 30% share now and in the second line in combination of 45% share. So really outstanding work by our Japan team and a good growth there. And then great work in Europe as well with continued uptake, strong patient uptake in UK, France and Germany and many countries now having reimbursement and often running. So, as we look forward to next year with Verzenio and continue to grow based on this we think very significant contribution to this important medicine.

Thanks, Louise. Next caller, please?

Great, thanks for taking the questions. You gave a lot of color on Trulicity and the pricing dynamics there, just on Taltz. I'm wondering if we could get similar sort of color, specifically UNH recently excluded Taltz from its 2020 formulary help us understand how the access looks for 2020 as you go into those discussions. Do you see any pressure there from some of the other newer entrants? And second question on Jardiance, you have a couple of trials reading out over the next few years. The drug trials and heart failure; how are you thinking about that opportunity, are those trials meant to bolster the profile of Jardiance in the diabetes market or do you actually view the heart failure opportunities as an individual stand-alone opportunity? And if so, could you help us understand if this could be a blockbuster opportunity by itself and then associated with that wondering if the six-minute function tests are fileable by themselves. Thank you very much.

Thank you very much. Access remains a challenge in the immunology field in the U.S., but we are committed to ensuring that through our Taltz clear access program and contracts with payers, patients can access their needed treatments. Looking specifically at 2020, we anticipate it will be similar to 2019 with some improvements in certain areas. We understand not all plans will reflect the same drug benefits in 2020, but as we enter the new year, we feel positive momentum is building. Taltz is now replacing Cosentyx as the preferred IL-17 treatment in key formularies, which cover over 14 million lives in the U.S. Overall, we expect 2020 to mirror 2019 closely, with some areas showing incremental progress.

So we do see heart failure for Jardiance as a significant opportunity for us. I think you described it as a blockbuster type of potential, and I think that's right; clearly, we do have a lot of opportunity for Jardiance in type 2 diabetes. So heart failure is on top of the opportunity in type 2 diabetes. We do have, when it comes to the six-minute walk test, we have a readout later this year. You asked whether we believe that data would be fileable with the FDA and we believe that we can get that data on our label. Clearly, the outcome studies are also critical for us and they will be coming at the end of next year and then in early 2021, so a very significant opportunity for Jardiance and for patients.

And this is Dan. I could just also add in that we are studying Jardiance in chronic kidney disease and Phase III trial that will read out in 2022. Just another exciting opportunity there.

Thank you. Navin, thanks for your questions. And next caller, please.

Thanks very much. So just a couple of quick questions, first for the diabetes market. Enrique, can you just help us understand the mix of payers, how that might be changing from a Trulicity perspective in terms of the next incremental script gained? And then similarly, where is Trulicity gaining the most traction incrementally amongst physicians, is it now really the growth driver growing beyond the ENDO market and pushing into the primary care physician portion of the market? The reason that I ask that is because I think the mix of payers is really important relative to the incremental acquisition cost for each script considering the competition from an oral drug obviously moving and seeking to penetrate the primary care market. The other question is really a kind of bigger picture question on business development. I think Dave, you've said in the past that the focus now that Lilly has launched several successful products in the market today is to really reload the Phase 2 and the Phase 3 pipeline. Can you just give us a sense of where your focus is, do you feel like the current Phase 1 pipeline is sufficient to advance there or is the focus more so or equally on areas outside and maybe you can just give us a sense of where you're most excited about the science going forward. Thanks.

Seamus, we are seeing continued growth across all payers. This includes both commercial and Part D, but we have noted particularly strong growth in the VA, DoD, and other payer types that generally have lower prices. Looking ahead, we anticipate ongoing growth for the product across various payers. In primary care, the class is expanding across all segments, especially with Trulicity experiencing significant growth as it reaches more primary-care physicians. A key factor in this growth is the increasing number of primary-care physicians trying and adopting GLP-1 therapies. Because of its simplicity, Trulicity is a great option for them.

Thank you for your question regarding capital allocation in BD. We believe that a significant investment in our own labs and efforts is crucial. We've had notable success with Phase 1 starts this year and want to enhance that with external opportunities at all stages of development and across all therapeutic areas. Our ability to find and add value is not consistent across different stages of development or therapeutic areas, which influences our strategy. However, we remain open to opportunities in all areas and phases where we can create and identify value. This year, we completed our largest acquisition with Loxo Oncology and made a strategic addition to our pain portfolio. We approach these opportunities without a set financial framework, focusing instead on finding value. Recent declines in biotech valuations have made this search more favorable, as they were quite high over the past 18 months. We are exploring all avenues and expect to be active in oncology, particularly due to the abundance of opportunities in early-stage biotech.

Thanks, Seamus. Next caller, please?

Yes, thanks very much. So I just wanted to go back to the target. So with respect to the 31% operating margin target for 2020 that was reiterated today the street isn't quite there. I don't think I think it's just a tad bit below 31%. What is your sense that the street is over projecting in terms of costs, i.e., where do you think the costs will be lower than what the street is currently assuming? And then with respect to the revenue target that was provided in the second quarter slide, are you still comfortable with that $23.6 billion figure for 2020. Thank you.

Thanks, David. On the targets themselves and margins, I think if you look at how we've progressed since we've established those margins, what you've been seeing is multiple hundred basis point improvements per year and this year we were clear in saying that wasn't going to be the case because of the Cialis overhang that we faced this year. So I think when we look at in 2020, and of course, everybody has got different models, I think it's a combination probably of where we see revenue and how we think we can manage cost again as I mentioned earlier on a prior question. We feel good about the overall SG&A investments that we have. So as we lose the overhang from Cialis and Lartruvo, the volume gains that we're seeing in the new product portfolio and the price that we're projecting gets us I think in a much better growth position on the top line with modest growth on operating expense line. So again we're confident, we've reiterated, as you know we raised this number a little bit, we reiterated every opportunity we have that we will get there. I think it's probably just a function of both top line and more modest increases in operating expense. But again, that is very much in the context of the competitive dynamics we face and with the large growth opportunities we have long-term, we are going to invest behind those. In terms of the revenue piece, I think the answer again is the same as you look at how the portfolios performing on an underlying basis this year where we're confident in the minimum number that we need to achieve in order to get to the 7% compound annual growth rate target that we've outlined.

Thanks, Josh. Dave, thanks for the questions. Next caller, please?

Thank you. And Dave for investors who choose to be skeptical, this quarter has provided things to point to, so you explained Trulicity and Taltz, but Basaglar and Alimta also fell short. The beat was tax rate driven as was the 2019 guidance raise, Enrique is departing at a not ideal time. So, why should we be confident that the weaknesses are temporary? The tax rate lowering will create a tough compare in 2020 since one-time factors occur once and that Enrique's departure doesn't portend difficulty ahead in diabetes. So that's the first question. And with the stock unusually weak this year and given your confidence in the outlook, why not take this opportunity to be more aggressive with share repurchase? Why isn't this a phenomenal opportunity? Thank you.

Great. Steve, thanks for the question. We of course have an answer to all of those things. And honestly, I don't think there has been a more interesting and exciting time to be in this company or more optimistic time and we went through many of those reasons today. We are broad portfolio products that are new in a life cycle with Cialis behind us remembering that Cialis is a 6.0 growth headwind over the last 4 quarters, that's ending now coupled with the one-time price effects, which we went through today, that we really believe are substantially one time either a step-down on the big mergers with our payers or the one-year effect of the donut hole which falls disproportionately on companies like Lilly who have retail-oriented products. Then we look ahead in diabetes; I have to be honest, I think the diabetes pipeline, the growth opportunities ahead whether it be with Jardiance or Trulicity has never been stronger for the company.

Look, I'm sad to be leaving and retiring from Lilly. We're very proud I think of the business that we've built in diabetes as good as I feel about building the business together with all of my colleagues, I feel even stronger about the bright future that diabetes has and Lilly has ahead. Just I think about Trulicity, Jardiance great momentum, leadership brands, but with important catalysts when it comes to Trulicity on REWIND and the higher doses, and when it comes to Jardiance of course heart failure and CKD on top of the opportunity in type 2 diabetes, and I continue to feel very bullish about what tirzepatide could do on both the efficacy and the tolerability profile. So very exciting time for us in diabetes overall and I couldn't be more excited about the future of Lilly Diabetes.

Thank you. Yes, just a couple of points; it's Josh. On share repurchase. As Steve, just to remind everybody, we did $3.5 billion share repurchase in the first half of this year; we did 600 million in the third quarter. And as you say, when we see opportunities on the margins to create value, we're going to be opportunistic in share repurchase. Of course, we want to be balanced here as we mentioned in the comment, we want to ensure we've got the capital capacity to invest in the pipeline and business development opportunities when we see them. But yes, you should expect that when we see outsized movements we'll do what we can.

Thank you, Josh. Steve, thanks for your questions. Next caller, please.

Thank you, couple of questions please. In relation to tau you spoke about access for next year. You didn't talk about pricing net pricing. Perhaps you could talk to that, given it's predominantly a commercial market. I'm assuming the rebating we've seen which looks like 40% is only going to go one way, I note that your 25% higher rebate and your net price on our calculations at least is down 16% year-on-year. So color on where it goes in 2020 will be helpful. And then second, again on net pricing in relation to Trulicity, we estimate that about 25% of Trulicity is Part D, based by volume, I'm obviously coming from point of view of trying to work out the contribution of the additional donut hole impact versus other factors, if you confirm how close we are to where it is, that would be very helpful. Many thanks.

Thank you, Andrew. The pricing dynamics for Taltz differ somewhat from Trulicity, as Patrik mentioned. As we've discussed in previous calls, approximately a third of our prescriptions face access challenges, resulting in them being non-reimbursed, or Lilly becoming the primary payer. As we improve access, we're witnessing interesting price movements. We're pleased to gain access and pay rebates related to that volume since we're moving some patients from free product to reimbursed product. However, there are instances where the product might not be on formulary, but as we navigate the prior authorization process and other requirements, we ultimately achieve 100% reimbursement. Therefore, translating prescriptions to net price for Taltz will be somewhat more challenging. In the third quarter, the primary price dynamic we observed for Taltz was similar to Trulicity, where we experienced a prior period adjustment. Over the past year, as we received invoices, we needed to make an adjustment which accounted for about 20 points of price in total for that quarter, and we do not anticipate this happening again. Looking ahead to 2020, as Patrik mentioned, we see opportunities to gain incremental access that will reflect some price concessions, but this will be more than compensated for by volume. We expect to see a relatively steady price with many underlying changes. Regarding Trulicity, your estimates are accurate; about 30% is in Medicare Part D, which we anticipate will remain stable moving forward. We expect the pricing environment on a contracted basis to remain relatively stable as we approach 2020.

Thanks, Josh. Andrew, thanks for the questions. Next caller, please.

Okay, great. Thanks for taking the question. I just wanted to follow up on the Taltz study that showed encouraging data head to head versus Tremfya at 12 weeks. And it looks like there is a 24-week secondary endpoint coming up and my question is, are there any data points coming up after 24 weeks maybe pushing into 48 weeks? And I ask that because of the eclipse data that showed favorable data from Tremfya versus a different IL-17 but really didn't show the strong data until week 48 and I'm just wondering how you're looking at Taltz position against Tremfya in those sorts of longer durations of treatment. And then maybe a follow-up to that is when you position the product for physicians, is the quick response or potentially a longer response more important from your marketing perspective?

Well, thank you very much. We are extremely excited about the obvious first superiority to try out of an IL-17 over an IL-23 and we just got the data published a couple of weeks ago. So we are now in the phase of disseminating this data among healthcare providers in the U.S. and the rest of the world. The 12 weeks as you said showed superiority both in terms of onset of action and clearance; the next data cut will be at the week 24 and that is driven by the fact that we have seen also the IL-23 peak in terms of efficacy pretty much at that time. If we look into the key attributes, particularly among patients treated in psoriasis, its onset of action, its clearance and its durability. And I think this was the third Phase 3 trial that we have to confirm that Taltz is superior both to STELARA and now Tremfya in terms of both onset of action and the end clearance, and we have 5 years data confirming the durability of efficacy as well; we really believe that there is a lot of good momentum with Taltz right now.

I would just add, you mentioned another IL-17, but we don't see these two IL-17 as similar and it's interesting to note that all our competitors who are doing IL-17 comparisons are choosing Cosentyx and not Taltz. I'm certain today, no one has actually compared any other psoriasis medicine to Taltz and I think that tells you a lot about the powerful efficacy that we deliver with this leading medicine.

Thanks, Dave. Damien, thanks for the questions. And we'll go to Dave for the close.

Great. Well, we appreciate everyone's participation today and your interest in the company. As I said earlier, we've made meaningful progress thus far in 2019 and we're committed to our revenue and operating margin goals in '19 as well as in '20. While we continue to invest in our innovation-based strategy with a diversified and volume driven revenue growth from one of the freshest portfolios in the industry and complemented by a pipeline full of exciting opportunities, some of which Dan commented on today, we believe Lilly continues to be a compelling investment. Thanks again for dialing in. And please follow up with the IR team if you have questions we didn't address in today's call. Have a good day.

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