John C. Lechleiter - Chairman, President & Chief Executive Officer Philip Johnson - Vice President, Investor Relations Derica W. Rice - Chief Financial Officer & EVP-Global Services David A. Ricks - President-Bio Medicines & Senior Vice President Jan M.

Lundberg - Executive Vice President, Science and Technology; President, Lilly Research Laboratories Susan Mahony - Senior Vice President & President, Lilly Oncology Enrique A. Conterno - Senior Vice President & President, Lilly Diabetes.

Gregg Gilbert - Deutsche Bank Securities, Inc. Jami Rubin - Goldman Sachs & Co. Timothy Minton Anderson - Sanford C. Bernstein & Co. LLC Andrew S. Baum - Citigroup Global Markets Ltd. Mark J. Schoenebaum - Evercore ISI Steve Scala - Cowen & Co. LLC Seamus Fernandez - Leerink Partners LLC John T. Boris - SunTrust Robinson Humphrey, Inc.

Christopher Schott - JPMorgan Securities LLC Vamil K. Divan - Credit Suisse Securities (USA) LLC (Broker) David R. Risinger - Morgan Stanley & Co. LLC Geoffrey Meacham - Barclays Capital, Inc..

Ladies and gentlemen, thank you for standing by. Welcome to the Q1 2016 Earnings Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will be given at that time. As a reminder, this conference is being recorded. I'd now like to turn the call over to John Lechleiter.

Please go ahead..

Good morning everyone, and thanks for joining us for Eli Lilly's & Co. first quarter 2016 earnings call. I'm John Lechleiter, Lilly's Chairman, President and CEO. Joining me on today's call, and some from remote locations, are Derica Rice, our CFO; Dr. Jan Lundberg, President of Lilly Research Labs; Dr.

Sue Mahony, President of Lilly Oncology; Enrique Conterno, President of Lilly Diabetes; Dave Ricks, who is President of Lilly Bio-Medicines; Chito Zulueta, President of Emerging Markets; Jeff Simmons, President of Elanco Animal Health; and Ilissa Rassner, Brad Robling and Phil Johnson 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 three and those outlined in our latest Forms 10-K and 10-Q filed with the SEC.

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 it's not sufficient for prescribing decisions.

Successful execution of our innovation-based strategy has put Lilly on a positive trajectory that became most evident in 2014 and 2015, particularly with regard to sustaining the flow of innovation. Building on that positive momentum, 2016 is off to a good start.

Let me begin our call today by recapping progress we've made on our strategic objectives since our last earnings call in January. Slide four should be familiar to you, depicting the four strategic objectives for our post-patent expiration period that we first laid out in January of 2015.

On our first strategic objective, grow revenue, in the first quarter we grew revenue 8% on a constant currency for-performance basis. Nearly all of this performance growth was driven by volume. And in total, our new products, Trulicity, Cyramza, Jardiance, Basaglar and Portrazza drove five percentage points of this volume growth.

Starting with today's call, we'll include in our earnings calls an update on the performance of new products for their first three years on the market. In addition, you'll see that we've included additional product information in our supplementary slides. Course, we welcome your feedback on this approach.

Turning to our next strategic objective, expand margins, our non-GAAP OpEx as a percent of revenue was up slightly compared to the first quarter 2015 due to the baricitinib milestone payments paid to Incyte, which totaled $55 million in the quarter. Excluding these payments, our OpEx percent was flat.

We're on track to achieve our full-year guidance, which, at the midpoint of our ranges, implies an improvement of 200 to 250 basis points in OpEx as a percent of revenue, even including the baricitinib milestones. Under the heading of sustaining the flow of innovation, I've highlighted a few examples of the continued success we're experiencing.

Along with AstraZeneca, we announced that our BACE inhibitor advanced into the Phase 3 portion of the AMARANTH study in early Alzheimer's disease. Taltz, discovered here at Lilly, was approved in the U.S. for moderate to severe plaque psoriasis, and initial shipments left our warehouse earlier this month.

And just yesterday we received European approval. Also, olaratumab, a monoclonal antibody from our ImClone acquisition, has now been submitted to U.S. and European regulatory authorities for soft-tissue sarcoma. During this call we'll provide a more complete list of the pipeline progress we've achieved over the last three months.

Finally, on our strategic objective, deploy capital to create value, during the quarter we returned over $800 million to shareholders through our quarterly dividend and ongoing share repurchase plan.

On the business development front, we completed a number of smaller deals including the Aratana deal, to bolster our companion animal business, and we continue to actively pursue external opportunities to enhance our future growth projects.

In summary I'm confident that we're on track and achieve each of our strategic objectives and assure you that their achievement remains a top priority of our entire management team. Now, let's move on to a review of the key events that occurred since our last earnings call.

On the commercial front, in Europe following European Commission approval in late January, we launched Cyramza for second line, non-small-cell lung cancer and for second line metastatic colorectal cancer.

We also received European Commission approval for, and earlier this month launched, Portrazza for first-line EGFR expressing squamous non-small-cell lung cancer. As I just mentioned, earlier this month we launched Taltz in the U.S. for the treatment of moderate to severe plaque psoriasis following FDA approval in the first quarter.

And also here in the U.S., we launched the Humulin Regular U-500 KwikPen. It was a busy three months on the regulatory front as well. In addition to the U.S. and European approvals of Taltz and the European approval of Portrazza, in Japan we submitted baricitinib for the treatment of moderately to severely active rheumatoid arthritis.

This represents an outstanding achievement, as regulatory submissions in the U.S., Europe and Japan occurred within a span of less than 40 working days. This also demonstrates that our focus on development execution is paying off.

As an update to the submission announcement we made with Incyte, here in the U.S., the FDA has now accepted our submission for baricitinib, and we look forward to regulatory action in early 2017. As I mentioned earlier in both the U.S. and Europe, we submitted olaratumab for the treatment of soft tissue sarcoma.

In collaboration with Boehringer Ingelheim, we submitted the once-daily combination tablet of empagliflozin and metformin XR to the FDA. And on the Animal Health front we received U.S. approval for Imrestor, a non-antibiotic Animal Health product for reduction of the incidents of clinical mastitis in dairy cows.

Imrestor is a protein and a first-of-its-kind therapy that helps support the natural function of a dairy cow's immune system during the critical time around calving, when the risk for mastitis is heightened.

On the clinical front, we announced a change to the EXPEDITION3 trial, solanezumab, in patients with mild Alzheimer's disease, making the ADAS-Cog14 cognitive scale the sole primary endpoint. Functional outcomes will be evaluated as key secondary endpoints.

Along with AstraZeneca, we announced that AMARANTH, a Phase 2/3 study of AZD3293, an oral beta secretase cleaving enzyme or BACE inhibitor, currently in development as a potential treatment for early Alzheimer's disease, will move into the Phase 3 portion of this Phase 2/3 seamless trial.

This movement into Phase 3 triggers a milestone payment from Lilly to AstraZeneca which will result in a second quarter pre-tax charge of $100 million to Lilly's GAAP and non-GAAP research and development expense.

As mentioned at our December 8 Investment Community Meeting, the transition of AMARANTH into Phase 3 will also trigger the start of a second Phase 3 study with AZD3293. That study, called DAYBREAK, will focus on patients with mild Alzheimer's disease and is scheduled to begin enrolling patients in the third quarter this year.

Similar to the EXPEDITION3 trial of solanezumab, also in patients with mild Alzheimer's disease, DAYBREAK will use a single cognitive primary endpoint. In this case, ADAS-Cog13. Further, the AMARANTH trial in patients with early Alzheimer's disease will also be changed to use ADAS-Cog13 as a single primary endpoint.

So we're consistently moving to a single cognitive primary endpoint across our trials in the early stages of Alzheimer's disease.

And following the successful results of the EMPA-REG OUTCOME trial along with Boehringer Ingelheim, we announced plans to conduct two outcome trials investigating Jardiance for the treatment of people with chronic heart failure.

The trials are expected to begin within the next 12 months and are planned to enroll people with chronic heart failure both with and without type 2 diabetes. On the business development front, we modified our existing baricitinib agreement to provide Incyte with the right to develop ruxolitinib or Jakafi for graft versus host disease.

We retain rights to develop baricitinib for this indication. As part of this deal, Lilly will receive a $35 million upfront payment that will be recognized as other income in the second quarter both in our GAAP and non-GAAP results.

On the Animal Health side of the business, yesterday we announced that we licensed rights to Aratana's Galliprant, an FDA approved therapeutic for the control of pain and inflammation associated with osteoarthritis in dogs.

This deal includes an upfront payment of $45 million plus additional milestone and royalty payments upon meeting certain development, regulatory and sales milestones. Galliprant will support the growth of our companion animal therapeutic segment, one of the key growth engines for our Animal Health business.

In other news, the UK High Court decided the Alimta vitamin regimen patent would not presently be infringed by Actavis marketing pemetrexed trometamol in the UK, France, Italy and Spain with instructions to dilute the product only with dextrose solution. We plan to appeal this decision to the UK Court of Appeal.

Finally, in the first quarter, we repurchased $300 million of stock, leaving $2.65 billion remaining on our $5 billion plan. During the quarter, we also distributed over $500 million to shareholders via our dividend. We remain committed to providing a robust dividend and to returning excess cash to shareholders.

And now, I'll turn the call over to Phil for a discussion of our financial performance for the quarter..

Thanks, John. Slide seven summarizes our presentation of GAAP results and non-GAAP measures, while slide eight provides a summary of our GAAP results.

I'll focus my comments on our non-GAAP adjusted measures to provide insights into the underlying trends in our business, so please refer to today's earnings press release for a detailed description of the year-on-year changes in our first quarter GAAP results.

Of note, you will see in our GAAP other income and expense we have recognized a pre-tax charge of $204 million equivalent to $0.19 per share related to the significant deterioration of the Venezuelan economy and its impact on the bolivar. This charge represents the effect of revaluing our bolivar-denominated assets and liabilities at a rate of 275.

Moving to non-GAAP measures on slide nine, you can see that Q1 2016 revenue increased 5% compared to Q1 2015 reaching $4.865 billion. Foreign exchange rates continue to provide a top line headwind.

Excluding FX, our Q1 revenue increased 8% driven by higher volume from Trulicity, Cyramza, Humalog, Jardiance, and Trajenta among others, as well as by the takeback of North American rights for Erbitux. The effective price was 1%. Gross margin as a percent of revenue decreased 1.9 percentage points to 76.3%.

This decrease was primarily driven by the effect of foreign exchange rates on international inventory sold. This effect resulted in a benefit both this quarter and last year's quarter, but the benefit this quarter was substantially smaller than the benefit realized last year.

Excluding this FX effect, our gross margin percent decreased by 40 basis points going from 75.3% in last year's quarter to 74.9% this quarter, driven primarily by product mix and the timing of production. Total operating expense, defined as the sum of R&D and SG&A, increased by 7% compared to Q1 of 2015.

Breaking this into its component parts, marketing, selling and administrative expenses declined 1% while R&D increased 17%. The reduction in marketing, selling and administrative expenses was due to the favorable impact of foreign exchange rates and lower litigation expenses, partially offset by expenses to support new products.

The increase in R&D expense was driven primarily by higher late-stage clinical development costs, including $55 million in milestone payments to Incyte triggered by regulatory submissions for baricitinib in the U.S. and Europe.

These milestone payments added over 5 percentage points to R&D expense growth and over 2 percentage points to total operating expense growth. Excluding these milestone payments, total operating expenses increased about 4.5% which was slightly slower than revenue growth.

Other income and expense was income of $55 million this quarter and this represents a reduction of $38 million compared to Q1 2015, primarily due to lower net gains on investments. Our tax rate was 17.9%, a decrease of 5 percentage points compared to the same quarter last year.

This decrease is due to a net discrete tax benefit of roughly $50 million this quarter and the benefit of certain U.S. tax provisions including the R&D tax credit that were in force during this year's quarter but had lapsed during last year's quarter.

This was partially offset by a higher percentage of earnings in higher-tax jurisdictions this year compared to last year. At the bottom line, net income decreased 4% and earnings per share decreased 5%.

While I'll cover the FX effect on our income statement in a subsequent slide, I would highlight that when excluding the effect of FX, non-GAAP net income and EPS actually increased 5% this quarter. Slide 10 provides a reconciliation between reported and non-GAAP EPS and you'll find additional details on these adjustments on slide 23.

Now let's take a look at the effect of price rate and volume on Q1 revenue growth. On slide 11 in the yellow highlighted row at the bottom of the table, you'll see the 5% revenue growth I mentioned earlier. When compared to Q1 last year, the strengthening of the U.S.

dollar against many foreign currencies was a headwind to revenue growth, as shown by the 3% negative effect from FX this quarter. On a performance basis, our worldwide revenue grew 8%, driven by volume growth of 7 percentage points with price growth of 1 percentage point. By geography, you'll notice that U.S.

pharma revenue increased 17%, driven by volume, and to a much lesser extent, price. Trulicity, Humalog, Jardiance and Humulin all made substantial contributions to U.S. pharma volume growth. Having completed the takeback of North American rights for Erbitux on October 1, we also benefited from booking a full quarter's end sales of Erbitux.

The decline in EuCan revenue of 5% was entirely driven by the negative effect of FX, while on a constant currency or performance basis, EuCan revenue increased 1%.

This increase was driven by volume gains on many products, most notably Trulicity and Cyramza, but also including Basaglar, Forteo, Jardiance, Humulin, Trajenta, and Strattera that more than offset a substantial reduction in European Cymbalta sales resulting from loss of data package exclusivity.

Excluding Cymbalta, EuCan sales increased 10% in constant currency term. In Japan, pharma revenue increased 16% in total, driven by high teens' volume growth. You'll also see a slightly larger negative impact from price as the latest round of price revisions in Japan took effect on March 1.

On a constant currency basis, Japan pharma revenue increased 14%, and this performance growth was attributable to a number of products, led by Cyramza but also including Strattera, Basaglar, Trajenta and Alimta, as well as by Cymbalta following a restructuring of our agreement with Shionogi last April.

Turning to emerging markets, we saw revenue decline 17%, driven primarily by the negative effect of foreign exchange.

On a performance basis, emerging markets' revenue decreased 7% due to the continued impact of generics including Cialis in Brazil and Korea and Alimta in Australia and Korea, the impact of the Brazil federal Humulin tender and stocking patterns in Russia and China.

Also this quarter, our pharma revenue in China decreased 14%, or 9% on a constant currency basis, with the growth rate negatively affected by high customer buying in Q1 of last year. Adjusting for customer buying patterns, we see growth in our China pharma revenue.

Turning to Animal Health, we completed the Novartis Animal Health acquisition on January 1 last year, so year-on-year revenue growth comparisons are now on an apples-to-apples basis. This quarter, Elanco Animal Health revenue increased 1%. Excluding the negative effect of FX, it actually increased 5%.

This performance increase was primarily driven by U.S. products, both food animal and companion animal, including contributions from recent launched products Interceptor Plus and Osurnia.

As I mentioned a moment ago, excluding FX on worldwide revenue, our worldwide revenue grew 8% this quarter with nearly all of that growth, 7%, coming from higher volume. Our new products, Trulicity, Cyramza, Jardiance, Basaglar and Portrazza, were the engine of our worldwide volume growth.

Slide 12 shows that these products drove over 5 percentage points of volume growth. The takeback of Erbitux contributed 1.7 percentage points of volume growth while in total, Humalog, Animal Health, Trajenta, Forteo and Alimta contributed over 2 percentage points of our volume growth.

You'll also see that the loss of exclusivity for Cymbalta and Evista, while largely in the rearview mirror, still was a negative drag of over 150 basis points on our volume growth this quarter.

To anticipate a couple of likely product-specific questions, on this slide you can see that Humalog contributed nearly a full percentage point to our worldwide volume growth. You'll also see in our press release, however, that our U.S. sales declined 14% this quarter. This decline is not reflective of the underlying trends.

Adjustments for estimated rebates and discounts, primarily related to the fourth quarter of last year, affected our reported results for Q1 this year. We believe the underlying revenue trend for Humalog is similar to the first nine months of 2015, representing mid-single-digit growth.

And for Alimta, you can see that it contributed about 30 basis points to our worldwide volume growth this quarter. I'd highlight that in the U.S., our year-on-year growth rate benefited by a few percentage points from customer buying patterns, while in Europe our sales benefited from increased clinical trial demand.

We continue to be exposed to generic entry in multiple countries in Europe during 2016 that may erode sales significantly from Q1 levels. Now let me turn the call over to Derica..

thriving revenue growth, expanding margins, sustaining the flow of innovation and deploying capital to create value. Continued execution of this strategy should position us to make major contributions to medical progress and create value for shareholders. This concludes our prepared remarks.

I'll now turn the call over to Phil to moderate the Q&A session..

Great. Thanks, Derica. As we have on most recent calls, if you would do us a favor and your colleagues that are going to be asking questions after you, of limiting your questions to two, or a single two-part question, that would be very much appreciated.

Dave, if you could give the instructions for the Q&A session and then go to the first caller please..

It'll be just a moment for our first question. And the first question will come from the line of Gregg Gilbert with Deutsche Bank. Please go ahead..

Thank you. First on sola [solanezumab], how would you characterize your interaction with regulators around the decision to tweak the end point? And secondly, can you remind us on abemaciclib, update us on what you will learn and when over the course of this year? And then the updated thoughts on positioning and differentiation. Thanks..

Great, Gregg. Thank you for the questions. Dave, if you'll take the first question on regulatory interactions for solanezumab, and Jan, feel free to complement that answer if you'd like. And then Sue, if you'll give the update on what we expect for the rest of the year for abemaciclib and how we see this one fitting in to the CDK4/CDK6 landscape.

Dave?.

Sure. Yeah. As we said in the March press release, we have made this change and it's really a decision of the sponsor. We inform regulators but don't actively seek a formal approval step. That's really in the category of a pre-submission or submission meeting.

FDA and other regulators have been consistent over the last four or five years that they would like to see co-primaries in these studies.

However, I think Lilly's belief, and I don't think we're alone in the field, is that the field has moved, and that both detecting changes and function in these early patients, as well as maybe the utility of the scales we're using, is more questionable than before. However, cognition is clearly something that can be detected easily.

As you know, we've moved cognition to the key secondary endpoint – or function, rather, so that we'll continue to measure this and if we hit statistical significance on that as a key secondary, we feel confident that this is not very different in the scientific sense from dual primaries.

And I think it does allow us some additional degrees of freedom in submission to look at two different ways to measure function in early Alzheimer's patients..

And Jan here. I can add that we will give FDA a robust analysis of the overall solanezumab's effect on cognition as well as function, including also the analysis of caregiver burden and various biomarkers including imaging of amyloid and tau as well then as safety, the way the microhemorrhage and edema, then detection using MRI.

So I think we will have a comprehensive program..

Great. Thank you, Jan.

Sue?.

Okay. With regards to the question on abemaciclib, we continue to believe that we could have a best-in-class CDK4/6 inhibitor, based on the differential potency of CDK4 and CDK6 based on the ability to continuously dose this agent and on the robust single-agent activity that we have seen.

We have submitted the interim data for MONARCH 1, which is the single-agent Phase 2 single-arm study. We've submitted that to ASCO and we have a presentation at ASCO on the Friday. That is based on the eighth month interim analysis. We hope to have the final data before ASCO and to include that data in the presentation.

Additionally, as you're aware, we have two Phase 3 trials ongoing, MONARCH 2 and MONARCH 3. The final data on those studies should be next year, although we do have interims planned for this year, and they are based on events..

Thanks..

Dave, we can go to the next caller, please..

The next question comes from the line of Jami Rubin with Goldman Sachs. Please go ahead..

Thank you. John, my first question's for you is sort of generally, if you could talk about sort of the drug pricing headwinds debate. You've been obviously very proactive in defending the industry and calling attention to the big difference between list and realized price.

Don't know if politicians understand that yet, but I think it's an important story to be told.

Can you just talk about how – is the 4% price that you took or were able to sustain in the first quarter, how sustainable is that? What do you see with respect to realized price going forward for the industry? And if you could comment on whether or not there has been a change in gross to net in various therapeutic categories, specifically, I think we've seen some differences in diabetes, if you can comment on that.

And then, too, maybe if you could comment generally on just the impact of your oncology portfolio from PD-1 antibodies. We saw a bit of the impact this quarter, but generally, if PD-1 antibodies in monotherapy work in frontline lung, what sort of impact should we see across your portfolio? Thanks very much..

Great. Thanks, Jami.

John?.

Okay, Jami. Thanks for your question. I think a bit of the irony to me is as we hear a lot of rhetoric about drug prices increasing sort of in the, I guess what you'd say the lay press, I don't think that there's ever been a time when there's been a more competitive – when this marketplace in the U.S. has ever been more competitive.

And I think that means ultimately that medicines that provide clear differentiation and clear value propositions are going to fare better in the future here than medicines that can be easily commoditized, which really don't adequately differentiate themselves from lower-cost alternatives.

Your question about is the 4% price, net price, we realized in the U.S. in the first quarter sustainable, well I think that's difficult to say. I mean, obviously there are different dynamics going on within different categories.

For Lilly, I'd say, and for most companies, I think diabetes tends to be one of the most price-competitive parts of the business. I think we've seen that and felt that with respect to net-realized prices on our insulins, for example, over a rather prolonged period of time.

I recently, I think in the Wall Street Journal piece, talked about Lilly's sort of net realized price, and clearly we get better pricing in commercial plans by far than we get from government programs where there's largely, based on the regulatory mandates, a much greater discount realized.

So I think to answer your question, rather than to say there's going to be different pressure in different therapeutic areas, and I think it's going to come down more to the products that are competing against one another. And I think products really do differentiate themselves.

We believe that a number of the products we're launching really do differentiate themselves and therefore while uptake, as you know, tends to be somewhat slower today based on getting listed on formularies because of the way the calendar often works, we nonetheless remain very optimistic about the prospects for those new products..

Great. Thanks, John.

Sue, on the PD-1 impact to our oncology franchise?.

Yeah. Thanks, Jami, for the question. Yeah, we are seeing an impact in the second line setting on Alimta and Cyramza from PD-1 uptake. And I think it's hard to say from a first line perspective what may or may not be the impact because there are a lot of questions that remain at this point in time.

Will they be selected patients? There's a lot of combo studies ongoing, for example, with Alimta, and we have combination studies with Cyramza as well. So I think there's a lot of questions to be asked that we'll see over the coming months and years.

I firmly believe that we will continue to have an important role for both Alimta and Cyramza and Portrazza in the non-mutated patient population. And what's going to be key going forward is really identifying those patients that benefit from particular agents and the role of combination therapies.

Also I think of note it's important that as we're looking at our Cyramza sales, the majority of our Cyramza sales actually now are in the GI setting with both gastric and colorectal cancer.

So I continue to see – although the lung space is going to continue to be increasingly competitive, we have plenty of opportunity to continue to grow in the other indications as well..

Dave, we can go to the next caller, please..

The next question comes from the line of Tim Anderson with Sanford Bernstein. Please go ahead..

Thank you. A couple questions. On Jardiance, obviously the product has a natural tailwind because of EMPA-REG, but other SGLT2s are presumably trying to preserve their positioning in the market. If I look at slide 38 on Jardiance new-to-brand share of the market, it suddenly seems kind of flat from the start of 2016.

I'm wondering if you can talk about the dynamics in 2016 in terms of formulary shifts and possible price competition as other companies like J&J are trying to hold share here; trying to understand why slide 38 shows what it does. And then second question is on Alimta patent litigation in the U.S.

Is year-end the likely timeframe when we would have an appeals court decision? And also related to Europe, what is your guidance for 2016, assume about European generic entry in the markets that were covered by that earlier UK ruling?.

Great, Tim. Thanks for the questions. Enrique, if you'll take the first question on what we're seeing with Jardiance new-to-brand trends and what we're seeing in terms of formulary shifts, and then Sue for the patent situation for Alimta.

Enrique?.

Very good, Phil. Well we are pretty enthusiastic about our prospects with Jardiance overall, not just in the U.S. but outside of the U.S. Probably the most significant aspect to our overall growth for this important product is going to be the overall class growth.

We are pretty pleased with the type of share growth that we have seen when it comes to new patient share on total prescriptions, and there are indeed some dynamics at the beginning of the year when it comes to switching and so forth, but our overall access is very good. It's 85% plus in commercial and over 65% when it comes to Part D access.

Now the one piece that we have a watch-out for is once again, when we look at the class growth, even though total prescriptions are still growing above 30%, 46% I believe year-to-date, when we look at new patient growth, that is basically in single digits.

Now we may recall that last year we saw the class starting to slow its growth with some of the reports when it comes to DKA and so forth. With the EMPA-REG OUTCOME data, we saw some rebound in overall class growth when it comes to, once again, new patients. So overall I think we have to wait and see.

Once again I think what I have shared is that it is critical that we see both a new label and new treatment guidelines on both of them. Each of them independently will represent important inflection points. I do want to provide a little bit of color on Jardiance outside of the U.S.

because we are seeing some acceleration of the overall class growth outside of the U.S. and we see our share, whether it's Germany at over 30%, Spain at 22%, Italy at over 40%, and in the UK and Canada over 10% basically a few months after launch. All of the trends are very positive and we're actually very bullish when it comes to Jardiance overall..

Great. Thank you, Enrique.

Sue?.

Yeah. With regards to the Alimta patent, in the U.S., as a reminder, we won our infringement and validity cases at the District Court. This has been appealed but we don't have a date set yet for the appeal, although we do anticipate that a decision would be expected towards the end of this year, as you said.

With regards to guidance, we continue to actively defend our patent and believe that it is valid and would be infringed by the launch of generic products.

That said, as we mentioned in our guidance call, we have been prudent in our guidance and it does contemplate the entry of at least one competitor with an alternate thought form diluted indexed rows across major European countries..

Great. Thank you, Sue. Dave, next caller please..

The next question comes from the line of Andrew Baum with Citi. Please go ahead..

Sorry. So a couple of questions on Jardiance, please. for Enrique. So firstly, given the excitement over the EMPA-REG OUTCOME's cardiovascular benefit and the rapidity of how quickly the curves diverged in that trial, I imagine recruitment would be fast. These trials, if there is a real treatment effect in heart failure, could be completed very quickly.

So in your expectations, do you think you could get a heart-failure label for Jardiance by the end of 2020 or somewhere around that timeframe? So that's the first question.

Second question is do you plan to include Entresto in the control arm of the patients with reduced fraction at CHF within either of those two planned trials?.

Great, Andrew. Thank you for the questions.

Enrique, were you able to hear those fine?.

I did, yes. So, clearly, we are very excited about the opportunity to conduct both trials when it comes to heart failure for Jardiance. I'm not in a position at this stage as we're finalizing our protocols to comment on whether we're going to be looking at Entresto and so forth.

As you can imagine, all of those are important considerations as we're finalizing that. Clearly, we are trying to expedite this trial as much as possible. We did see a very fast separation of the curves on EMPA-REG OUTCOME.

Will that repeat itself in the heart failure trial, the hypothesis is likely yes, but we do need to conduct the trial and I don't want to speculate on what the indication will read like. We really need to conduct these trials and see what the results are, and then we can discuss more appropriately.

I'm unable to provide a timing, but given what we've seen, you can expect that we're going to conduct this in an as expedited fashion as possible..

Great. Thank you, Enrique. Dave, we can go to the next caller, please..

The next question comes from the line of Mark Schoenebaum with Evercore. Please go ahead..

Hey, guys. Couple things. Number one, hey, John and Derica, I'd just like to congratulate you for taking leadership in the mega drug biotech universe, I don't know, four or five years ago, providing long-term guidance and delivering on it.

Number two, Derica, this is one of these questions that's always awkward for an analyst to answer, but I think you owe it to your shareholders to come clean here. Did you root for the Blue Devils or the Hoosiers in the NCAA tournament? And answering that you rooted for both of them is an unacceptable answer. Then I have a follow-up..

Well, Mark, I rooted for the Hoosiers and I actually serve on the Board of Trustees, so my roots run deep..

Well, there were just nasty rumors out here on the East Coast that you were rooting for the Blue Devils. So I just wanted to clear that up. I thought you had a better ethical integrity than that, but I appreciate it.

Hey, and maybe, John, on the Part – specifically back on reimbursement, kind of where Jami was probing you guys are on, on the specific proposal, the Part B, CMS's outline for the way Part B works, I'd just like to know your thoughts on those proposals.

Are those good ideas, bad ideas, incomplete ideas? Do those form a structure for where things are going to go going forward in the Part B market, which of course is a relatively small part of the drug market? And number two, Enrique, I just wanted to – we've asked you about this in prior calls.

Just data continues to emerge, that the oral GLPs mainly out of Novo Nordisk, those seem to look pretty good. And if they continue to look that good, could that cause some type of an existential threat to the oral GLP business like Trulicity. Just love to hear updated observations on what's going on there. Thanks a lot..

Great. Thanks, Mark. And just for the record, it was Ilissa that was rooting for the Blue Devils. John, if you'd go ahead and handle the Part B proposal question, and then Enrique, if you'll give your updated thoughts on how you see the oral GLP-1s evolving and potentially being a threat to the injectable franchise..

Yeah, so, Mark, thanks for your question. This is John. So this so-called Part B is a pilot pricing scheme which has been laid out by CMMI within CMS. We believe it's bad policy, and ultimately we believe it's bad medicine.

This is – the term is pilot, but it's going to be virtually cover – it's going to cover everybody and it's going to essentially I think lay out an experiment on the backs of some very sick people who we want to make sure remain able to gain access to the medicines they need and not be directed toward a certain course of treatment based on how this formula is going to, in essence, change physician or potentially change physician prescribing behavior.

So we've made it very clear that we're opposed to this. We've made our elected officials very clear that we're opposed to this, and we'll continue to fight it..

Great. Thanks, John.

Enrique?.

Mark, first I have to say that the Blue Devils are planning to come back next year, okay? But on your question on oral GLP-1s, first just providing some context on Trulicity, because I think it's important as we look at the type of acceptance that the product is having right now.

We're seeing excellent sequential growth; $74 million in Q3, $113 million in Q4 and $144 million in Q1 of 2016. Class growth is exceptional, higher than we had expected. You may recall before Trulicity launched, we were in high-single digits hovering around 10%.

So we did see Trulicity as a catalyst for the growth of the overall class, and that has actually exceeded our expectations. And Derica spoke to this, about our share gains and so forth. We are now at 18% when we look at the total prescription growth.

But probably the one element that I do want to share is that the feedback that we see from patients and physicians, from using the product from adopters of the product is truly exceptional. So, unprecedented rates in terms of overall satisfaction and reception of the product.

Now, so what does that mean with we look at oral GLP-1s? We like where Trulicity stands. We do believe it's going to be a very important option long term for us, regardless of whether oral GLP-1s come into the market or not. Now Oral GLP-1s are going to have to show appropriate efficacy and tolerability.

I think given the bio-availability of some of the options out there, you have to question what is going to be the relevance outside of the U.S from a cost of products sold; how profitable is that going to be? Now having said all of that, we do like oral GLP-1s but we are behind Novo.

It is an area of interest and one that we are investing to try to catch up..

Great, thank you, Enrique.

Dave, if we can go to the next caller?.

The next question comes from the line of Steve Scala with Cowen. Please go ahead.

I have two questions; first, I assume Lilly has not submitted the abemaciclib interim data to FDA, but what are the FDA requirements that MONARCH 1 has to meet in order to be registrational? Is there a specific response rate or durability of response, or a median PFS that needs to be hit? And is this bar lower at the final look than it was at the eight-month interim look? That's the first question.

The second question is, in the last decade, how many times has Lilly increased guidance after Q1 results? I think it's quite rare, so what gave you the confidence to do it this quarter? Thank you..

...Steve. Sue if you'll take the abemaciclib question, and then Derica, the Q1 guidance change question.

Sue?.

Steve, as I mentioned earlier, we have the interim eighth-month data. We are hoping to get that the final data and to present that at ASCO. We have breakthrough therapy designation on this, so we will work with the FDA regarding the best regulatory path forward. And of course we've got the two Phase 3 studies up and coming as well.

I can't comment on specifics with regard to FDA discussions. They generally will look, as you know, at the totality of the data and we look forward to having discussions with them on this..

Thank, Sue.

Derica?.

Steve, we continue to feel very good about the underlying fundamentals of our business. We continue to execute very well and very consistently with the guidance that we shared at the beginning of this year.

So from our perspective, everything continues to be on track, and really spurred by the uptake of the new product launches that we've been talking about. In regards to the change in guidance, it really was just two things. One, we made some assumptions at the beginning of the year about the FX rate.

While it's a headwind, it's been a bit less of a headwind than we had anticipated, so it has a line item impact, but not a bottom line impact. What drove the EPS change is really the discrete tax benefit that we received in the first quarter, and we're essentially saying that should carry through for the year.

So that combined with the continuation of our strong underlying business fundamentals is what gave us the confidence to raise our guidance for the year..

Great. Thanks, Derica. Dave, if we can go to the next caller, please..

Next we go to the line of Seamus Fernandez with Leerink. Please go ahead..

Oh, thanks a lot. I have a question for Enrique and one for Dave. Enrique, can you clarify what you've submitted to the agency with Jardiance? Specifically, are you requesting an indication and a claim or just inclusion of efficacy data in the clinical section? And just to clarify, can you just help us understand how promotion in the U.S.

can differ with an indication versus just inclusion in the label and what your base-case planning assumptions are? And then my question for Dave is, can you just give us a sense of early feedback on Taltz and the label, some of the differences in the label versus the current IL-17 competitor and how you see that competitive landscape continuing to evolve? Thanks..

Thank you for the questions. Enrique and Dave, since you're both remote, if you did not hear the questions, let us know and we can repeat it. But if you heard it, we'll go ahead to you first, Enrique, and then we'll swing it over to Dave.

Enrique?.

Very good. Well, we are requesting an indication for Jardiance and Glyxambi. We do believe we have the data to be able to request that.

I'm not going to speculate in terms of what the indication would read, but if it were just adding the data on the label from an efficacy perspective and so forth, it will really fall short of the expectations that we have. Now there are differences in terms of what we can do.

And in terms of the value and how payers will see that and also in terms of how we will be able to promote the product. Of course we plan for different types of scenarios, but right now our expectation is that data warrants full indication for the product..

Great. Thanks, Enrique. And before we go to Dave, just a point of clarification. You had said Jardiance and Glyxambi; I think you meant to say Jardiance and Synjardy..

That's correct..

As the products to be submitted to FDA.

Dave? If you'd like to take the next question then, on Taltz?.

Yes. Thanks, Seamus. So as was mentioned in the prepared text, we've launched in the U.S. now. Just a week and a half or so ago began shipments.

At the beginning of the month we began active promotional rollout and that's happening cross-country now, as well as we're excited that EMA approved Taltz last night in Europe and promotion will begin in June in certain geographies in Europe based on the approvability of access that happens over here.

So again, how will we differentiate? We're focused on the really outstanding efficacy of Taltz, which again has proven a 90% PASI 75 rate, 70% PASI 90, and 40% PASI 100; really, rates not seen in any other program with all the caveats on comparisons of these programs. The drug works very fast. It lasts a long time.

This data's been published most recently in AAD. And I think we provide a really uniquely positive and easy use experience for the patient and the doctor. So we're really excited as the class of IL-17s appears to be demonstrating really the unmet need and the benefits of this new threshold of efficacy which we think Taltz has best-in-class data on.

And so we'll have to see about exactly the business results that come as we execute, too. But so far so good, qualitatively. The team's excited, physicians are excited, and the rollout's under way..

This is Phil, just to add on briefly to Dave's comment.

To date we've seen relatively limited use of biologics in the treatment of psoriasis compared to something like rheumatoid arthritis, and we certainly see these higher levels of more complete clearance that this whole class offers, including Taltz, as being essentially a catalyst for significant increases in the use of biologics to help patients deal with this disease.

So we very much look forward, as Dave said, to our upcoming marketing activities and believe this class can be a very significant one for the treatment of psoriasis.

Dave, if we can go to the next caller, please?.

Next we go to the line of John Boris with SunTrust. Please go ahead..

Thanks for taking the questions. First question for John, obviously Japan appears to be becoming a much, much more important market as you're able to launch your products almost in line with launching in the U.S. and EU.

Volume growth was 18%; however, Japan does have every-other-year price increases and are contemplating going to every-year price decreases going forward.

What is the industry doing to help educate the Japanese market to potentially prevent them from going in that direction? Second question for Derica or Phil, on the gross margin benefit from the improvements made to your insulin production.

Can you quantify what that benefit is in your gross margin? And then last question just for Jan on Jardiance and the two heart failure trials, have the companies been able to identify, aside from the diuretic effect, what other effect is occurring that could potentially benefit heart failure patients here pre-clinically?.

Great, John. Thank you for the questions. John, if you'll start off with the Japan questions, and Derica and I may tag team the insulin manufacturing, and then Jan for Jardiance..

Okay, John. Thanks for your question. With respect to Japan, I think Lilly, first of all, I'd say Lilly is well-positioned in Japan. We've been one of the fastest-growing, if not the fastest growing company in Japan now for a number of years actually. And these recent new product launches are keeping us on a strong trajectory there.

We are very concerned about the threat of annual repricing. The industry's been quite active in engaging with the policy makers in Japan. I myself have been engaged in that quite recently. Japan is seeing a more rapid uptake of generics. They're ahead of the time scale for generic adoption that was initially laid out by the government.

We believe that, in combination with the current biennial price decreases, puts Japan on a trajectory to keep their drug costs essentially flat for the remainder of this decade and beyond. Now, of course there are macroeconomic considerations that the government is sort of building into the entire calculus there.

They try to help the economy recover, but certainly part of that economic recovery – a key part of Abe's platform has been to actually develop and grow the indigenous biopharmaceutical industry there. So part of our messaging has also included the fact that without an opportunity to realize full value from the products that we do launch there.

I think the emphasis on the discovery and development of innovative new medicines in Japan is going to suffer as well..

Great. Thanks, John.

Derica?.

John, in regards to your gross margin question regarding the impact of our insulin agenda or tech agenda, it's about, we anticipate about an $80 million benefit for the full year 2016.

But also recall in addition to that, the fact that we can utilize our current footprint also allows us to have significant capital avoidance, meaning that we do not have to build a new bulk insulin manufacturing facility, and that would be in the hundreds of millions of dollars..

Thanks, Derica.

Jan?.

Yeah. So let me just remind you that Jardiance had an impressive reduction in hospitalization for heart failure, which was kind of an unexpected finding.

We are now planning then to perform studies in both types of heart failure patients, both with a preserved injection fraction where the filling is a problem and the reduced injection fraction, where it's more contractility of the heart that is a problem.

And we will do these not only in type 2 diabetics, but also in non-diabetes patients to see if we see similar benefits there. Regarding the mechanism, as you know, Jardiance has reduction in blood pressure. It causes diuresis, which together then could be an overall volume reduction benefit.

There could be other vascular effects still could be characterized. And we should also emphasize that Jardiance not only has an effect on CV outcome, but also kidney benefits that I think need to be characterized further. So overall, we are very excited about this opportunity, but I think the exact mechanism, there are more to be learned..

Thank you, Jan. John (sic) [Dave], if we can go to the next caller for the next question, please..

The next line is Chris Schott with JPMorgan. Please go ahead..

Hi, great. Thanks very much for the questions. Just two here.

Following up on the BACE commentary earlier, can you just elaborate a little bit about how you're thinking about end points for Alzheimer's studies going forward? I guess specifically ADAS-Cogs versus CDR Sum of Boxes? I guess what type of functional data if any do you think you're going to need for these early Alzheimer's studies? And just any comments there would be appreciated.

Second was on Trulicity and how you're thinking about the Victoza CV outcome study. It clearly seems for the class, and to the extent you're studying it as well, it's a positive.

But I'm more interested in the near-term dynamics as you're ramping Trulicity and as you think about a competitor with CV outcomes data, how that plays into the nearer term ramp of the drug? Thanks very much..

Thanks for the questions. Chris. Dave, if you'd like to start off on the question with regard to endpoints in the Alzheimer's disease studies. Jan, feel free to compliment that answer if you'd like. And then Enrique, if you'll take the Trulicity CV outcomes question that Chris had.

Dave?.

Yeah, thanks, Chris. And Jan, jump in as we go through this. In terms of the base announcement today, which are that we're bring coherence to the idea that early Alzheimer's studies, the primary endpoint should be cognition. We're using it as Cog14 in the sola [solanezumab] study and 13 in the two AZ BACE studies.

That's just purely a function of two very similar instruments, and one we started with in AZ BACE was different than sola [solanezumab], but we expect them to yield very, very similar outcomes.

And as we said before in the sola [solanezumab] announcement, we think that this is a much better way to detect changes in cognition, preclude and predict changes in function.

And then measuring function anyway in early Alzheimer's is a difficult prospect, both because patients are losing function typically at a very, very slow rate early and then accelerating as they go through the disease, but also because the instruments being used really are unproven in drug trials.

As you know, Chris, we've done a lot of drug trials, both placebo-controlled and active, failed, and some with some positive results. You mentioned CDR Sum of Boxes. This is a composite index that looks at both function and cognition. It's quite a complicated instrument.

Training and implementation at sites is one of the more onerous ones, and although it does show coherence with disease progression across the whole continuum, we have had less of that observation in our programs and find that ADAS-Cog, and for function IADL and the FAQ and other measures of function probably are a bit better in early disease.

Final comment is AMARANTH includes prodromal patients, so this is really pre-diagnosis Alzheimer's. The new study, DAYBREAK, will include mild and of course EXPEDITION3 is mild. We think the appropriate primary endpoint is all those settings is a cognitive endpoint with multiple secondaries and a measurement of function as well as biomarkers..

Yeah, and I can complement by just some future then opportunities in relation to biomarkers as potential surrogate markers of efficacy.

And here, as you know, we have our tau imaging agent in Phase 3 which is undergoing studies then right now to correlate on the PET imaging and be able to autopsy location of tau, and we're also following disease progression.

And we are using this as a potential surrogate marker then, in EXPEDITION3 for sola [solanezumab], and also then we include this in our base studies to see then if anti-amyloid reduction can influence actually the tau signals spreading in the brain. And we also have a tau imaging in the A4 and DIAN studies, all pre-clinical Alzheimer's.

So I think that's a potential next evolution that could then also reduce the time needed then to do potentially studies in the Alzheimer's space if we could have a surrogate marker, actually, of efficacy..

Thank you, Jan.

Enrique?.

Sure. So we view in a positive way the CV result of liraglutide. We think this is going to have a huge positive overall – it's going to be a huge catalyst for the overall GLP-1 class. And we view it with optimism because of REWIND. You may recall that we have powered REWIND, our trial, our CV trial for Trulicity, is powered for superiority.

We expect to have an interim look sometime later this year and the trial is expected to be concluded sometime in late 2018. Before I can comment on any type of near-term impact, I'd like to see the data, which is going to be released in detail at ADA..

Enrique? Dave, if we can go to the next caller..

The next question comes from the line of Vamil Divan with Credit Suisse. Please go ahead..

Great. Thanks. Thanks for taking my question. So the first one, again on sola [solanezumab]. Just to clarify, I think you've mentioned before the final patient for EXPEDITION3 in October and then we should get some sort of top line press release by the end of the year.

I'm just curious, will that top line release also include some of the functional endpoint information? Or will it strictly stick to the primary that's on the cognition side? And then my second one also on sola [solanezumab], I'm just curious, you talked a lot about the regulatory side and kind of the change in endpoints here and how cognition may be the better way to look at this earlier group of patients.

What about on the commercial side? Do you see any more challenge in terms of reimbursement for a product if it's only showing cognition benefit and maybe a very mild sort of impact on the functional side? And maybe you could comment on U.S. versus ex-U.S.

dynamics there in terms of acceptance of a product that's more driven by a cognition benefit and less on the functional side..

Great, Vamil. Thank you for the questions. Dave, if you'd like to take those, feel free to flip the first one back to me if you'd like, but if you want to comment on either or both of those, please do so..

Sure. You have the timeline correct from our previous communications in terms of what we expect; October and then sometime before Christmas, maybe just before, a top-line readout.

I think it's probably premature to comment on the exact content of that, although as usual, we'll try to be transparent with our investors as we can be without jeopardizing publication.

I think we've also said it's difficult to predict right now what meeting we will be presenting that data, because there isn't actually an obvious one shortly after that.

So we're working on finalizing all of this, and if we can, we'd like to be as transparent as we can with the top-line results, including key secondary endpoints like function and make sure we guard against jeopardizing the publication, which hopefully will be shortly thereafter. Feel free to jump on that, Phil, if I got any of that wrong.

And then in terms of commercial impact, we do believe demonstrating impact on function as well as biomarkers is important. But I think the most important thing is to establish that solanezumab is a disease-modifying agent, meaning unlike symptomatics, that if you remove the therapy, patients don't simply return to their previous state.

But there's a permanent alteration in the trajectory of decline. And decline measured by whatever measure we want, whether that be function or cognition.

I think we've established some important information around that with the EXPEDITION extension data presented last summer, but obviously, we need to repeat that finding in EXPEDITION3 and really demonstrate that there's a building effect through time, and that in the open-label extensions that come out of all these studies, we can again replicate that.

So disease modification is the key commercial handle I think to set up a new class for really changing the outcome for patients with Alzheimer's..

Great. Thanks, Dave. And you summarized the team's plans for disclosure for the EXPEDITION3 trial perfectly well, so I have nothing to add to that. Dave, if we can go to the next caller, please..

The next one would be David Risinger with Morgan Stanley. Please go ahead..

Yes. Thanks very much. So my questions are also on sola [solanezumab]. I guess I'll start with sort of a constructive question and then transition to a more critical question.

So with respect to changing the endpoint, could you just talk a little bit how making cognition the only primary endpoint makes it easier to achieve statistical significance? And explain how the statistics are now different in that function, I believe I guess will be tested as a 0.05 statistical hurdle previously as a co-primary endpoint.

The statistical hurdle would have potentially been more challenging. So if you could just please explain how the statistics benefit, that would be helpful.

And then, in looking at and trying to understand the lack of confidence that you have in showing a functional benefit, it's a little bit perplexing, because Aricept shows a functional benefit within six months in just a few hundred patients. Now, granted, it's a different type of drug, and their tests did include moderate patients.

But since EXPEDITION3 has 2,100 patients, so it's dramatically larger than historical Alzheimer's trials, I'm just wondering how to think about a potential lack of functional benefit over 18 months, particularly since the mild patients will transition to being moderate patients over time.

And I think Lilly's conclusion is that sola [solanezumab] doesn't work in moderate patients.

So just I guess the question is specifically, how should we think about a potential lack of functional benefit in a 2,100-patient trial if patients are progressing towards being moderate and the general view is that sola [solanezumab] doesn't work in moderate patients? Thank you..

All right, Dave. Thanks for the questions. We'll go to the tag team again of Dave Ricks and Jan Lundberg. So, Dave, if you'd like to lead off, and Jan, feel free to fill in..

FAQ is another instrument, a more tailored instrument for early Alzheimer's; and the IADL, which I've described already. Additionally, as Jan mentioned, we're measuring caregiver activity in a broad light and many, many other instruments we can draw upon.

We think this will maximize the chance of both a submission and potential for approval, and that's why we made this move, just to be clear on all of that. I think it's – we already have shown data that intervening with disease-modifying agent in mild Alzheimer's disease does carry over into moderate phase.

That was published last year in the EXPEDITION extension data, and we can talk about that offline if you'd like to. Finally, your first question was how do the statistics work? And I just want to highlight we have not finalized our statistical analysis plan in the finer point of detail, so I'll just talk in broad strokes here.

But when you have dual primaries, you need to split your 0.05 alpha in half and allocate it to the two primaries to achieve the statistical significance on both versus just one.

So in this way, there's a little wider moat on achieving ADAS-Cog14 – based on our previous finding, I'm not sure that's critical to achieve ADAS-Cog14, but it is a point to note. And then we can then divide the alpha that's left among the key secondaries, which in this case will be the FAQ as well as the IADL functional instruments.

So in theory, there could be more alpha allocated to the IADL or the FAQ based on our final design. So there is an incrementally positive impact on statistical calculations at the end of the day. Again, that's not the primary reason we're doing all this. It's because we really do believe cognition matters.

It predicts functional decline, and we've powered this study, as you point out, to achieve significance on both..

Okay, great. That's an excellent response. No further comments from the group here, so, Dave, if we can go to the next caller, please..

We will next go to the line of Geoff Meacham with Barclays. Please go ahead..

Morning, guys. Thanks for taking the question. One on the BACE and one on Taltz. So on the BACE, I know there's a safety look.

Was there any efficacy hurdle at all to transform or to transition AMARANTH to Phase 3? And then how do you think about the rate of amyloid plaque reduction or cognitive decline for the BACE class in general compared to direct beta amyloid antibodies? And then on Taltz, I mean, clearly your competition has informed us, the market about the attitudes towards the IL-17 class, but as you guys prepare for the EU reimbursement discussion, what, if any, are there subtleties between the U.S.

and European markets, and how much of a role do you think switching will play in the initial stages of the launch? Thanks, guys..

Great, Geoff. Thank you for the questions. Dave, if you'd like to start off on those, and then, Jan, feel free to add what you like on particularly the rate of amyloid reduction that we might expect with BACE inhibitors, what we've seen already either in pre-clinical or clinical studies.

Dave?.

Yeah, I think my part on that will be short because as we previously announced, the interim look on efficacy which triggers a move, or a safety rather, which triggers a move of the BACE inhibitor from Phase 2 to Phase 3 was predefined and really focused only on safety. We do have biomarker data on Abeta clearance.

Maybe Jan can comment on here with the AZ BACE inhibitor, but we really just focused on discharging safety in a class that has had off-target safety effects. And we were pleased with the result announced earlier this month.

Maybe I'll transition to Jan on the mechanistic question in Alzheimer's and then we can go back to Taltz in the EU and switching question..

Yeah, as you know, solanezumab is an antibody that has a limited penetration to the brain, about 0.1%, and it binds free amyloid beta. BACE inhibitors, on the other hand, are oral agents that better penetrate the blood/brain barrier and prevents the formation of amyloid beta from the amyloid precursor protein.

No real clinical comparisons have been made then on these agents. What actually happens with the amyloid contents overall in the brain realizing that the amyloid in the brain is probably in different forms, and yes, there is plaques which are very solid, but they're also then intermittent forms and free amyloid there.

I think what we have seen in pre-clinical models is that the BACE molecules can reduce the amyloid load then in the various transgenic mice models. And the effects of solanezumab in those models have been more difficult I think to demonstrate in the same way. But you know, I think overall we will have to look at the clinical data in the end.

Sola [solanezumab] has a very favorable safety profile if you look overall, even than compared to some other anti-amyloid antibodies, which are in development, whilst the safety of the BACE inhibitors, particularly in larger trials, have still to be proven.

And recognizing that old-age Alzheimer's patients are fragile, and you need also very safe agents. So more to come..

Great. Thank you, Jan.

Dave on Taltz in Europe?.

Yeah. So as you point out, we were quite encouraged by the early adoption of the class. I didn't read it too carefully, but I noted the Novartis antibody had strong success O-U.S. I think particularly in Germany, the early uptake.

As we look at Europe, which we do expect rollouts and launches beginning this summer and then through really the end of 2018, that's the cycle for reimbursement assessment. So the full revenue picture won't be elucidated till after 2018 really. But in Germany, we will get an early read, because of the way the reimbursement works.

We have a very strong and competitive label in Europe, including first-line indication for treatment of moderate to severe plaque psoriasis. All of the same efficacy endpoints and maybe a few others that I mentioned from the U.S. question earlier. The drug works rapidly. That's noted in the label, and consistently with long duration of effect.

Switching is an important factor in this market, but perhaps not in the sense that someone achieves success and then switches to a brand that could give them even better success. What we see is a lot of patients try and lapse treatments.

And as Phil mentioned earlier, we estimate less than 1 in 10 patients with moderate to severe plaque psoriasis is currently on a biologic. But there's quite a number that have tried one in the past and are no longer using it. So in this way switching, meaning they were on something before and now can reinitiate on this promising new therapy, Taltz.

And our share of label in Europe highlights that, that the drug is both durable and effective in patients independent of words, whether it's a first-line, naive biologic, a switch, a lapse biologic, or some refractory to multiple biologics. So that's an important pool of patients as we have early launch and uptake.

And again, we're very optimistic for this product..

Great. Thank you, Dave. I think about the count clerk we got through about a dozen callers in the hour of Q&A that we have. I do apologize for those of you that are still in the queue, but we have reached the end of the call. The IR team will give you guys a call back and gals a call back after this call concludes.

I'll now turn it over to John for some closing remarks..

Okay. Thanks, Phil. We appreciate everyone's participation in today's earnings call and your interest in our company. Now, we hope you'll take part either live or via webcast in our Investor Event on May 24 in New York City. Last December in Boston we reviewed our Animal Health business and our broad R&D program in Alzheimer's disease.

At our May 24 meeting, we'll review in detail our research and development efforts in oncology, diabetes, immunology and pain. We hope these periodic updates allow you to more fully appreciate the substantial opportunities before us and why we're bullish on our future.

Finally, if you have questions we didn't address, as Phil said, please contact our IR team. They will be happy to help. Thanks and have a great day..

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