David A. Ricks - Eli Lilly & Co. Philip Johnson - Eli Lilly & Co. Derica W. Rice - Eli Lilly & Co. Susan Mahony - Eli Lilly & Co. Enrique A. Conterno - Eli Lilly & Co. Christi Shaw - Eli Lilly & Co. Jeffrey N. Simmons - Eli Lilly & Co..

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

LLC Christopher Schott - JPMorgan Securities LLC Geoff Meacham - Barclays Capital, Inc. Tony Butler - Guggenheim Securities LLC David R. Risinger - Morgan Stanley & Co. LLC Umer Raffat - Evercore Group LLC Alex Arfaei - BMO Capital Markets (United States) Vamil K.

Divan - Credit Suisse Securities (USA) LLC (Broker) Marc Goodman - UBS Securities LLC Jeffrey Holford - Jefferies LLC.

Ladies and gentlemen, thank you for standing by. And welcome to the Eli Lilly Q1 2017 Earnings Call. For the conference, all the participants are in a listen-only mode. There will be an opportunity for your questions. Instructions will be given at that time. As a reminder, today's call is being recorded. I'll turn the conference now over to your host, Mr.

Dave Ricks. Please go ahead, sir..

Good morning. Thank you for joining Eli Lilly & Company's First Quarter 2017 Earnings Call. I'm Dave Ricks, Lilly's President and CEO. Joining me on today's call are Derica Rice, our Chief Financial Officer; Dr. Jan Lundberg, President of Lilly Research Labs; Enrique Conterno, President of Lilly Diabetes and Lilly USA.; Dr.

Sue Mahoney, President of Lilly Oncology; Jeff Simmons, President of Elanco Animal Health; and I'd like to extend a special welcome to Christi Shaw, who joined us earlier this month as President of Lilly Bio-Medicines. We're also joined by Kristina Wright, Chris Ogden and Phil Johnson of the IR 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 as outlined in our latest Forms 10-K and 10-Q filed with the SEC.

The information we provide about our products and pipelines is for the benefit of the investment community; it is not intended to be promotional and it is not sufficient for prescribing decisions. Before discussing key events for the quarter, I'll start with a summary of our progress on our strategic objectives since our earnings call in January.

Starting with grow revenue. Q1, we generated worldwide revenue growth of 7%, which was driven by 9% volume growth in our pharmaceutical business, led by our new products.

On our strategic objective of expand margins, our non-GAAP gross margin percent, excluding the effect of FX on international inventory sold, increased by nearly 220 basis points compared to Q1 2016. And total operating expenses as a percent of revenue also declined by nearly 220 basis points.

Under the heading of sustaining the flow of innovation, we launched baricitinib under the trade name Olumiant in Europe for rheumatoid arthritis. While here in the U.S., we were disappointed to receive the complete response letter from the FDA for baricitinib in RA.

We remain confident the benefit-risk of baricitinib as a new treatment option for adults with moderate-to-severe rheumatoid arthritis, and we will work with the FDA to determine a path forward to ultimately bring baricitinib to patients in the U.S.

And as I'll discuss in more detail later, we had a positive Phase 3 read-out for abemaciclib, for Taltz and for Cyramza. Finally, on deploying capital to create value, we completed the acquisition of CoLucid Pharmaceuticals, which adds lasmiditan for acute migraine to our late-stage pipeline.

And we returned over $500 million to shareholders via our dividend. Our continued progress in 2017 keeps us on track to achieve our mid-term goals for each of our strategic objectives. Now let's go to slide five for a more detailed review of the key events that occurred since our last earnings call. On the commercial front, here in the U.S.

in collaboration with Boehringer Ingelheim we launched Synjardy XR, a once-daily combination tablet containing empagliflozin and extended-release metformin for the treatment of adults with type 2 diabetes.

As I mentioned earlier, we launched Olumiant in Europe for the treatment of moderate-to-severe rheumatoid arthritis, following European Commission approval earlier this year. On the regulatory front, U.S. FDA issued a complete response letter for baricitinib for rheumatoid arthritis.

The letter indicated that the FDA was unable to approve the application in its current form. Specifically, the FDA indicated that additional clinical data are needed to determine the most appropriate doses and to further characterize safety concerns.

Lilly and Incyte disagree with the Agency's conclusion, and we look forward to meeting with the FDA in the coming months to determine appropriate next steps. We'll provide you status updates after we meet with the FDA.

Also here in the U.S., the FDA approved an update to the Trulicity label to include use in combination with basal insulin for adults with type 2 diabetes.

And in Europe, along with Boehringer Ingelheim, we received European Commission approval of an update to the Synjardy label to include a change to the indication statement as well as data from the EMPA-REG OUTCOME trial on the reduction of cardiovascular death.

On the clinical front, we announced that MONARCH 2 is a Phase 3 trial of abemaciclib in combination with fulvestrant in women with HR+ and HER2- breast cancer met its primary endpoint of improved progression-free survival. We look forward to presenting data from this study at ASCO in early June.

And we'll hold a call the evening of Saturday, June 3 to discuss these results with the investment community. Finally, we've decided to move the FDA submission of MONARCH 2 from the previously announced timing of Q3 up in to Q2.

And just yesterday we announced that the MONARCH 3 study with abemaciclib met its primary endpoint at an interim analysis, demonstrating that women with HR+, HER2- advanced breast cancer who had not received prior systemic therapy experienced a statistically significant improvement in PFS with treatment with abemaciclib plus an aromatase inhibitor compared to placebo plus an aromatase inhibitor.

The improvement was also shown in a key secondary endpoint of objective response rate. We intend to begin global regulatory submissions of these results in Q3 2017. For the RAINFALL study of ramucirumab in first-line gastric cancer, the independent data monitoring committee recently met to review the primary analysis.

While we remain blinded to the data, we're pleased to report that the IBMC stated that the study met its primary endpoint of improved progression-free survival. Consistent with our prior communications, our expectation remains that regulatory submissions could occur after we have the final overall survival data in 2018.

At the American Academy of Dermatology Meeting, we presented Phase 3 data showing that patients with moderate-to-severe plaque psoriasis treated with ixekizumab, or Taltz, demonstrated superior efficacy at 24 weeks compared to patients treated with Stelara.

And along with Boehringer Ingelheim, we initiated two Phase 3 studies of Jardiance for the treatment of chronic heart failure. These trials will enroll patients with and without diabetes and with both preserved as well as reduced ejection fraction heart failure. Moving to slide six.

As I mentioned earlier in business development news, we completed the addition of CoLucid Pharmaceuticals. In other news, in Japan, the IP High Court ruled in our favor in the invalidation trials initiated by Sawai regarding our vitamin regimen patents for Alimta.

If the patents are ultimately upheld through all the challenges, they could provide intellectual property protection for Alimta in Japan until June of 2021. To support the increased demand for our products in our pipeline, we announced plans to invest $850 million in our U.S.

operations in 2017, including research laboratories, manufacturing facilities and some administrative areas. We also distributed over $500 million to shareholders via the dividend. Now I'll turn the call over to Phil for a discussion of our financial performance for the quarter..

Thanks, Dave. 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 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.

Looking at the non-GAAP measures on slide nine, you can see that Q1 2017 revenue increased 7% compared to Q1 2016, reaching $5.2 billion. Gross margin as a percent of revenue was 78.1%, an increase of 180 basis points over Q1 2016.

The effect of foreign exchange rates on international inventories sold resulted in a benefit to both this year's and last year's quarter, with the benefit being slightly larger last year.

Excluding this FX effect, our gross margin percent increased by nearly 220 basis points, going from 74.9% in last year's quarter to 77.1% this quarter, driven by manufacturing efficiencies. Total operating expense increased 3% compared to Q1 of 2016.

This increase is lower than the increase in revenue, leading total operating expense as a percent of revenue to decline by nearly 220 basis points, to 53.2%. Looking at the component parts of total operating expense, marketing, selling and administrative expenses increased 5%, while R&D expenses increased just 1%.

In marketing, selling and administrative expenses, higher spending to support new products is partially offset by lower spending on late lifecycle products. Other income and expense was income of $50 million this quarter compared to $55 million reported in last year's quarter.

Our tax rate was 21.2%, an increase of 3.3 percentage points compared to the same quarter last year. This increase was primarily due to the net discreet tax benefit of approximately $50 million in last year's Q1. At the bottom line, net income and earnings per share both increased 18%.

We achieved this significant earnings growth by delivering high-single digit volume-based revenue growth, while improving our gross margin percent and reducing our OpEx percent, creating positive leverage. Slide 10 provides a reconciliation between reported and non-GAAP EPS, and you'll find additional details on these adjustments on slide 22.

Now let's take a look at the effect of price, rate and volume on revenue growth. On slide 11 in the gray highlighted row at the bottom of the table, you'll see the 7% revenue growth I mentioned earlier. The effect of foreign exchange on revenue growth was minimal this quarter.

Excluding the slight headwind from FX, our worldwide revenue growth on our performance basis was 8% and was driven entirely by volume. By geography, you'll notice that U.S. pharma revenue increased 16%, driven primarily by volume. Trulicity was the main driver of U.S. volume growth, with meaningful contributions also coming from Taltz and Lartruvo.

The decline in European human pharmaceutical revenue of 5% was driven by the negative effect of price and unfavorable foreign exchange movements, partially offset by higher volume. On a constant currency or performance basis, European revenue decreased 1%.

This performance decrease was driven primarily by Cymbalta and Alimta, partially offset by the uptake of new products, led by Trulicity. In Japan, despite a large negative impact from the entry of generic Zyprexa last June, pharma revenue increased 5%.

This increase was driven by a 6% benefit from higher volumes and, to a lesser extent, from a stronger yen, partially offset by a 4% negative price effect from last year's biannual price cuts. On a constant-currency basis, Japan pharma revenue increased 3%.

While excluding Zyprexa, Japan pharma revenue in Q1 grew 16% on a constant-currency basis, led by Cyramza, with meaningful contributions from Cymbalta and Trulicity. Turning to our pharma revenue in the Rest of World, or RoW, revenue this quarter increased 2%, as volume growth of 7% was largely offset by lower prices and the negative effect of FX.

On a performance basis, RoW revenue increased 4%, as growth in Humalog, Trulicity, Trajenta, Cyramza and Jardiance was partially offset by lower sales of Cymbalta, Alimta and Cialis. Turning to Animal Health, this quarter worldwide revenue increased 2%, driven by higher volume for our acquisition of Boehringer Ingelheim Vetmedica's U.S.

vaccine business. The effect of FX as well as price was minimal. Excluding the BI Vetmedica vaccines acquisition, the rest of our Animal Health revenue decreased 3%. As we've done in recent quarters, let's now take a look at the drivers of our worldwide volume growth on slide 12.

As I mentioned earlier, excluding FX, our worldwide revenue grew 8% this quarter, driven by an 8% increase in volume. In total, our new products comprised of Trulicity, Cyramza, Jardiance, Taltz, Basaglar, Lartruvo, Portrazza, and now Olumiant in the EU, were again engines of our worldwide volume growth.

You can see that these products drove 10.1 percentage points of volume growth this quarter. Humalog contributed 50 basis points, Trajenta contributed 40 basis points and Animal Health, due to the BI Vetmedica U.S. vaccines acquisition, contributed 30 basis points of volume growth.

Lower Cialis volume provided a headwind of 90 basis points, primarily due to lower volume in the U.S. as a result of a decline in the overall ED market as well as increased use of off-label generic sildenafil. Alimta trimmed 1.1 percentage points from our volume growth, due primarily to competitive pressure in the U.

S., while a loss of exclusivity for Zyprexa, Cymbalta and Evista provided a drag of 1.8 percentage points. Now let me turn the call over to Derica..

launching new products with excellence, reloading our late-stage pipeline, driving increased productivity to expand our operating margins, and investing in the core drivers of our business – talent, scientific capabilities and technology platforms to ensure our future growth prospects. Now, this concludes our prepared remarks.

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

Phil?.

Thanks, Derica. We would like to take as many questions from callers as we can. So I would ask that you limit your questions to two or a single two-part question. And we thank you in advance for collaborating with this request. John, if you could go ahead and provide the instructions for the Q&A session, and then we're ready for the first caller..

Certainly. And first we'll go to Tim Anderson with Bernstein. Please go ahead..

Yes. Hi..

Tim Anderson, do you have a question?.

Yes. Sorry about that. My question is on abemaciclib and your latest thinking about the ability to show that your drug is more efficacious than palbo. Because your pivotal trial didn't have Palbo as a comparator, any efficacy comparisons can really only be made on the side-by-side basis. And naturally, that has certain limitations.

So assume that the difference in abema would have to be quite big to really be perceived as a better product. I this something that you think is achievable? I'd like to your latest thinking on that. And then a payer question. If you could just talk about payer trends and rebating trends in SGLT2 category.

If you addressed that earlier, I was on another call so I apologize. And on Cyramza, any additional color on, you I think mentioned U.S. pricing erosion, which is unusual with a medical benefit drug in the U.S..

Okay, Tim, thank you for the questions. So, Sue, if you'll handle the first question that he had on abemaciclib and then the third one on Cyramza. Enrique, if you'd like to comment on the SGLT2 pricing..

Hi, Tim. Thanks for the question on abemaciclib. As you say, there are no comparative studies of the CDK-4 and 6 inhibitors. We believe that it's going to be important that we look at the totality of the data across multiple trials as we look at these agents.

I think I've been consistently saying that we believe that we could have a best-in-class CDK-4 and 6 inhibitor. And I continue to believe that based on the attributes of the molecule as well as, as we say, look at the consistency of data across multiple trials.

And that hopefully we will read out two of them this year and we will have others coming in the future. While I say that, well, as we'll mentioned before, this molecule selectively inhibits CDK-4 versus CDK-6. It's actually 14 times more potent on CDK-4 than CDK-6.

It has the ability to cross the blood-brain barrier and we have seen therapeutic levels on brain tissue. The continuous dosing we believe is important for a self-cycling inhibitor, and not just from an efficacy perspective, but also from a convenience perspective of patients.

And we have seen in our previous trials and have consistent results that the diarrhea, which is the main side effect, is manageable and actually is transient. So we now have our MONARCH-1 trial in our refractory patients. We have had multiple treatments and have seen in that trial single-agent activity with this agent.

We now have two positive Phase 3 trials with the patients on our second-line MONARCH-2 trial, which had a (26:03) therapy. And we're looking forward to presenting that data at ASCO and also hopefully publishing that data this year, too.

And, of course, yesterday we announced the MONARCH-3 first-line study against the aromatase inhibitors, where we saw at the interim and we mentioned previously that we had high bar interim. We saw that at the interim we achieved our PFS endpoint, which is the primary endpoint, as well as a secondary endpoint of overall response rate.

And so we're excited as we look at the whole molecule here. And we encourage you to see the data in the future to look at the totality of the data across all the trials..

On the Cyramza..

Cyramza. With regards to Cyramza, yeah, as we're looking at Cyramza performance in the U.S., Tim, we continue to see challenges in the lung cancer market, mainly due to ILs. And so we've essentially seen sort of flat to declining sales in the U.S.

over the last few quarters, which, of course, is the complete opposite to Japan, where we're seeing phenomenal sales. Our focus in the U.S., it's really a gross to net adjustment that you mentioned there, so I wouldn't read too much into the pricing.

Our focus is to continue to ensure that we have uptake in gastric cancer, which is a very differentiated market. A lot of doctors who treat gastric cancer in the U.S. treat one patient a year. And so really getting to them on time to ensure that they know to use Cyramza in the appropriate patient is our focus on gastric cancer.

And in lung cancer, as people are getting used to knowing where to use the ILs in second-line and then if they move to front-line, we're being clear on the patient that we believe can benefit from Cyramza..

Great. Just to complement Sue's answer, on that gross to net adjustment, it was essentially a benefit that was recognized. We trued up the estimates for rebates and discounts in Q1 of 2016. It's leading to the negative year-on-year compare. So nothing unusual that we're seeing in the actual contracting or pricing for the product.

Enrique?.

Thank you..

So the SGLT2 class, similar to other diabetes classes, is highly managed from a formulary perspective. We are in a unique position given the data and the label that we basically have with Jardiance. And as I have previously shared, even prior to us getting the label, our formulary positioning was very strong.

So just to give a sense, we have nearly 90% access on commercial plans and about 70% in Part D. And we showed that's a very strong position for us. The issue with the 2 class for the most part is being contracted as one of two type contracts, so these are not sole exclusive contracts.

We, of course, we're advocates for open access and, at this point in time, we are excited about the early trends that we're seeing for our products..

Great. Thanks, Enrique. John, if we can go to the next caller please..

And that would be Seamus Fernandez with Leerink. Please go ahead. Mr. Fernandez, your line is open, if you have a question..

Sorry. I was on mute. Thanks for taking the questions. Just a couple of quick ones.

First, on abemaciclib, can you guys talk a little bit about what you think is a differentiated response rate in the setting, whether it be for MONARCH-3? Again, my understanding is that we're seeing in combination with aromatase inhibitors response rates between 52% and 55%.

So it seems like the response rate dynamic is something that you're focusing in on. Love to just better understand what you see as a uniquely meaningful response rate, or if you're really just focused on the monotherapy response rate that you see with abemaciclib and we already knew. The second question.

When I look at the revenue that was generated relative to the scripts for Basaglar, it certainly came in a bit below our expectations. Just trying to get a better sense of what the dynamics are in that market, in particular, that would have the revenue come in below those expectations.

And that's also factoring in the stocking that occurred in the fourth quarter, so I don't see that as a full explanation.

And then lastly, in terms of the dynamics with baricitinib, some of the questions that we get from investors are the reasons why Lilly chose to incorporate the language in the press release with regard to its disagreement with the Agency. That seems to imply that Lilly will pursue all avenues before being forced to do additional clinical studies.

So just trying to get a better sense of why you chose to incorporate that language into the press release. Thanks so much..

Okay, Seamus. Thanks for the questions. So, Sue, we'll start with you for abemaciclib, then the question on overall response rate, Enrique for Basaglar revenue here in the U.S. relative to scripts. And then, Christi, your first question on baricitinib and the language we had in the press release.

Sue?.

Yeah. Thanks, Seamus, for the question.

I think, again, I'll back to I think it's going to be really important when we look at the totality of the data as we look at the trials across multiple trials with the CDK4 and 6 inhibitors and we look at the magnitude and the depth of response, which is a key secondary endpoint that we had in our studies as well as, as we said, the PFS and the totality of the data..

Enrique?.

So, Seamus, as I look at it, destocking does in our view basically explain the difference. Revenue for us and given the script level is basically tracking as we had expected. I think it's important as we look at this product, we are clearly right now north of 20% when it comes to NBRx share.

Importantly, a big part of that is driven by switches, as we've seen different payers take or choose Basaglar as an exclusive option. But I think what we're also encouraged is when we look at basically new patients to a basal insulin, we also see our share basically improving. We're now at 7% on that specific metric.

So we are very encouraged for what we see. And at this point in time, we do think that the revenue and scripts are aligned based on what we had expected..

All right. Thank you, Enrique.

Christi?.

Hi. Yes. Thanks for the question. I think what you read is exactly right regarding bari. We continue to believe in the risk-benefit profile of baricitinib at the four and two milligram. And what we need to do next is really get with FDA and understand specifically what their concerns are. So the answer is, yes, we disagree.

But we want to meet with them and make sure that we understand completely and see if we can find a path forward quickly to allow patients that are suffering access to baricitinib..

Great. Thanks, Christi. And before we go to the next caller, Seamus, I believe the numbers that you're citing for overall response rate are, in fact, for those patients with measurable disease. Just to highlight that when you see data from our trials, make sure that you're looking at a similar patient population and cut of the data.

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

That will be Gregg Gilbert with Deutsche Bank. Please go ahead..

Thanks, team. One two-parter here. First, when you announced the bari delay, you reiterated your 5% revenue growth goal.

My question is, since it will be harder to get there without bari and assuming that doesn't show up in that timeframe, what are the caveats that you would offer in terms of reaching that goal without bari other than the Alimta caveat you've mentioned before? So hoping for a little bit more granularity underpinning your confidence in achieving that.

And secondly, on Animal Health, can you go a little bit deeper into the trends in the quarter, perhaps with and without acquisition? And, Jeff, any sort of headwinds/tailwinds you'd want us to understand in the quarter and as it relates for the rest of the year for your business? Thanks..

Gregg, thank you for the questions. Derica, we'll start out with you for the long-term growth question. And over to you, Jeff, for the Animal Health question.

Derica?.

Good morning, Gregg. And thanks for your question. As it relates to the mid-term guidance of achieving a minimum of 5% on average revenue growth between 2016 and the end of the decade, there are no new additional caveats that I can offer, Gregg.

We feel as confident about achieving that goal today as we did when we put that guidance out last year in July. Recall that we've always said that the growth prospects for Lilly did not reside or rest on a single asset. It really is about the strength across the portfolio of opportunities that we talked about.

And up to now, we launched seven new products, and eight if you include Olumiant in Europe. So we feel very good about our growth prospects going forward. And we factored in that we may not always have 100% success across each molecule. But in aggregate, we are very confident we can achieve that minimum 5% goal..

Great. Thanks, Derica.

Jeff?.

Yes, Gregg, on Animal Health, a few comments. First of all, as we signaled earlier this year, and as Q1 indicates, we anticipate growth for the year will be back-half loaded. This is due to some one-time events in Q1 as well as our SAP 2016 implementation, which will impact Q2.

As such, though, although Q1 was a little lighter than expected, we anticipate improving growth trends later this year. What will drive that, Gregg, is really few things. First of all, launches. We're seeing good uptake initially here with Galliprant, our deal with Aratana, as well as we got some launches in aquaculture.

Secondly, is companion animals, some share shift, and then on the food animal side, vaccines. So that will be the drivers of our second half return to growth. We continue to be excited about the BI acquisition, and that's progressing well.

I also would say, finally, we continue to progress our strategic agenda, focusing on our key growth engines, which we've talked a lot about in vaccines, nutritionals and companion animal therapeutics. The integration of BI, again, is going well and that's on track.

And we've completed the scale of our Dundee, Scotland manufacturing site to Argenta as part of our broader manufacturing agenda. So overall industry, I think the things to watch, I think the fundamentals for the medium and long term are still strong with the trends with durable brands.

I think the things to watch, innovation is representing an increasing amount of growth and becoming increasingly important. We're not seeing, for instance, in food animal as much innovation so that segment has not grown as much. And I think in the slower growth segments we're seeing, of course, increasing competitive pressures.

So those are some things I think to watch going forward..

Thanks, Jeff..

Thanks..

We can go to our next caller, please..

And we'll go to Andrew Baum with Citi. Please go ahead..

Thank you. A couple of questions. You obviously showed some very significant improvement in your gross margin during the quarter, (38:12) manufacturing efficiencies.

Could you just separate out mix versus manufacturing? And then within manufacturing, procurement yield and so on to help us understand how far those will go here? And then second, on Jardiance.

Could you just outline the rate limiting steps for this product, both in terms of class awareness and obviously the pending CANVAS data to grow the awareness of the class? And then secondly, in terms of education of physicians, the potential advantages, what can be done by you in order to break down barriers to accelerate uptake?.

Andrew, thank you for the questions. Derica, we'll go to you for the question on the gross margin percent and then Enrique for the Jardiance questions.

Derica?.

Hi, Andrew. And this question I really have to give kudos to our manufacturing team. The gross margin improvement is really driven by lowering our per unit cost. It's not due to mix effect and that means that it should be sustainable going forward.

Do recall also that in the second half of the year, you're going to see negative pressure on our gross margins because we began to feel the impact of the next round of patent expiries. So we will have lost Strattera and Effient in the U.S. So that's what brings down the drag that we expect in the second half.

But, again, what's helping us to weather that is by the manufacturing team absolutely reducing our per unit costs..

Thanks, Derica.

Enrique?.

Sure. Let me first provide a little bit of color on Jardiance and what we're seeing since the launch of our cardiovascular indication. As you know, we received that indication in December and we launched in mid-January. Since we've launched that indication, we have seen a significant inflection on new patient starts for Jardiance.

So just in three months, we've seen a 70%, 70%, increase on new patient starts. That class overall has grown about 30%, which has driven now the class to basically reaccelerate when it comes to new patient starts. The class was actually quite flat before this indication. As we look at the four-week growth versus the previous year, we're now at 16%.

So we are encouraged in terms of what we're seeing with Jardiance. Now, clearly, we are in a certain way, it is a paradigm shift when it comes to treating diabetes, in particular, the risk of death for people with type 2 diabetes and established cardiovascular disease. And, for us, therefore, peer-to-peer is hugely important.

That's something that we've been quite focused on. We are very excited by our level of activity and interest and attendance to these peer-to-peer sessions. But all-in-all, we are pleased with our progress and we expect more. There are lots of questions when it comes to the outcomes from Canvas.

We basically see, maybe, generally, three types of outcomes. Let me just outline them. But, clearly, if outcomes were to be a negative, a neutral trial when it comes to CV, that probably would be the worst outcome for us. We clearly believe that our data is highly compelling.

But, clearly, we could benefit from that tailwind of having another SGLT2 basically have this similar data. If their data is positive but is not as positive as ours, that's probably the best-case scenario for us. But it's also quite positive if their data looks similar to us.

We clearly have a lot of momentum with our product, so we are hoping that they have a positive trial and are waiting to see what the results are..

Great. Thank you, Enrique.

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

And we'll go to John Boris, SunTrust. Please go ahead..

Thanks for taking the questions. In light of the successful launch of Basaglar across your diabetes franchise, strategically is this a consideration to partner with other companies for biosimilars across possibly oncology or possibly across your immunology franchise with a product like Humira? Second question on productivity gains.

For Derica, what have you learned about YZ that makes you confident as you prepare for another loss of exclusivity in 2018 for Cialis that you're prepared to navigate through that? And any qualitative commentary you can give on the consensus earnings growth of 7% in 2018? I know you haven't given guidance there, but certainly a topical question.

And then lastly, on Jardiance. Certainly the product had some pretty significant renal benefits. Are you doing anything with the Agency to further quantify the benefits for the Agency to possibly go back to them to try and secure that within the label of Jardiance? Thanks..

Thanks, John. Thank you for the questions. We'll go to Dave for the question on our interest in moving more into biosimilars, Derica for the productivity question, what we learned in YZ that can help for next year with 2018. And then Enrique for the Jardiance renal question.

Dave?.

Thanks. Thanks, John. Well, I think we've addressed this question before, but just to reiterate. Basaglar is a great fit for us because we already have an asset base to make the product, we have a commercial investment that can sell the product and we have devices that are world-class that the product goes in.

So it's really a drop-in to a broader insulin play and rounds out an important part of the portfolio we weren't participating in, which is the innovative basal segment, which is obviously a big segment of the diabetes market.

But our core strategy in diabetes is to innovate above and beyond the benefits of glargine in basal insulin as it is all other therapies. And that's really the same as our other therapy areas, oncology, immunology. Our main focus is on innovation to beat the standard of care today for something better for patients.

If those same dynamics played out for a TNF biosimilar or something else, sure, we'd look at it. When you can get a lot of leverage financially and it tucks into your portfolio, that can make good sense. But we don't have a broad-based division associated with biosimilars work. We're not pursuing that at this moment..

Great. Thanks, Dave.

Derica?.

Hi, John. With regards to learnings from our YZ experience, the biggest difference is the fact that with this next wave of patent expiries we are able to offset that with new product launches. When we launched our four largest products during that YZ period, we did not have any new product launches during that period.

So the real key is having new product launches. And then that's really contingent on our ability to sustain the flow of R&D output. So you'll see we're very committed to that. And that's why you saw us announce the CoLucid deal earlier this quarter, which is, again, another increased effort in bolstering our late-phase pipeline.

And then the third learning is just having a sustained productivity agenda. That's why we came out in 2015 in saying, hey – or actually in 2012, we believe we can get to that 50% water mark in 2018 in terms of OpEx as a percent of revenue. We said that we can improve our gross margins between 2015 and 2020.

And while we set the 50% water mark for 2018, we're not resting on our laurels thinking that's the end of the journey. We think we can improve beyond that. We just haven't put those statements out there at this point in time..

Great. Thanks, Derica.

Enrique?.

So, clearly, the renal data for Jardiance is quite encouraging. As we had a number of discussions with the regulatory authorities, it is pretty clear that for us to be able to make a claim, it is quite likely that we will need to do an additional trial..

Thanks, Enrique.

John, if we could go to next caller, please?.

And that will be Jami Rubin with Goldman Sachs. Please go ahead..

Thank you. Just a few questions. This is to Dave and Derica. Is it safe to assume that in reiterating your medium-term guidance out to 2020 that you do ascribe some value to baricitinib? Or, Derica, you also just said that Lilly's not dependent on any one single product but a portfolio of products. So if you could clarify that.

Secondly, just curious to know your plans for baricitinib in the other indications such as AD, lupus, psoriatic arthritis. I know those are studies that are still early, Phase 2.

Are those indications on hold until pending positive resolution on RA, or is it possible that you would go ahead with those plans? Is there a scenario where you decide not to go further with that RA if FDA is requiring large trials that would be expensive and might mean being no longer the first and best-in-class drug on the market? And then just lastly, Dave, solanezumab, unfortunately, that was a very expensive setback, but that happens.

Now we have the baricitinib setback. At what point can you justify to yourself a much more substantial restructuring initiative that really focuses on the company's cost structure? Yes, we acknowledge this quarter we did see good operating margin improvement.

But going out and looking at where Lilly's margins are today relative to the industry average, you've got a long way to go to reach parity. So just wondering if you could share your thoughts on that and at what point you actually start to get more aggressive on the margin side. Thanks very much..

Great, Jami. Thanks for your questions. So we'll have Derica address the medium-term outlook as it relates to baricitinib and clarify our thoughts there. And then, Christi, we'll have you talk about further indications for baricitinib. And then, Dave, the question we got on the longer-term outlook.

Derica?.

Hi, Jami. In regard to our mid-term guidance and the relevance of bari in the U.S., absolutely we are planning for success of that molecule. And we have not given up on the prospect of that opportunity.

So as Christi said earlier, we're looking forward to engaging with the FDA and we'll work diligently to try to find a pathway forward to bring that molecule to patients here in the U.S. That being said, that guidance that we put out there around the 5%, that's what we believe to be the minimum performance that we thought we could achieve.

What we didn't do is provide what we thought was the maximum what we could achieve. Even taking into account the impact of bari, we still believe we could stay above that 5% minimum goal that we established in terms of average growth between 2015 and 2020. So, again, our confidence is still very high in our ability to achieve that objective..

Thanks, Derica.

Christi?.

Sure. So, the first question I'll take is the one on rheumatoid arthritis. We have not contemplated a scenario in which we will not pursue baricitinib for rheumatoid arthritis. We continue to believe, as I said, in the safety benefit-risk profile.

Of note I think it's important to say that the submission that we had in Europe was exactly the same as that we had in the United States. And we stand behind the European decision and the label that they granted. As we look at other studies and clinical studies, we actually are continuing those.

Obviously, we'll take into account our discussions with the FDA. But we are looking at continuing those studies and starting a Phase 3 trial in psoriatic arthritis by the end of this year..

Thanks, Christi.

And, Dave?.

Yeah. Sure. Thanks. I think, Jami, your question is, if I heard it right, is would we undertake some very large cost restructuring programs and sort of make a one-time move in operating margins. Right now, under the scenario we see and per the discussion we also had with Derica today, we see a continuous top-line revenue growth driven by new products.

And the kind of performance we put up in Q1, if we just compound that out I think will yield impressive margin gains. Reminding people 7% top line, 3% cost curve, yielding 18% income growth. I think if we compound that over the next several years, you'll be (51:50) top-tier financial performance out of Lilly.

Ad that's where we're focused on rather than try to have some disruptive event that would perhaps set us back in terms of revenue growth and our R&D productivity. So right now that's what we're focused on.

Of course, we have scenarios, as Derica described, that have different mixes of products that get us to that 5% average top line, some that get us well above it. We're very comfortable with that guidance now..

Just to be clear, Dave, the improvement in operating margin is highly dependent on top-line growth and top-line mix as opposed to any cuts to operating expenses?.

Yeah. It's primarily based on a topline growth, that's right. If you do the math, there are targeted cost reductions, which have been and we'll continue to undertake, to reshape the company and make it as competitive as it needs to be as well as service the R&D engine as well us the launches that are underway..

Thank you..

You're welcome.

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

And we'll go to Steve Scala with Cowen. Please go ahead..

Thank you. A few questions. First on Jardiance. Would you speak specifically to the disconnect between revenue and scripts in Q1? I'm not sure that was fully explained. Secondly, I appreciate that you have not met with FDA yet on baricitinib.

But based solely on what's in the CRL and Lilly's interpretation of it, when would Lilly be in a position to answer FDA questions? Would that be a 2017 event or a 2018 event? And then lastly, would you elaborate on the dynamics around the JUNIPER trial of abemaciclib in lung cancer? The primary completion has moved a couple times now.

One interpretation could be that Lilly is cutting its losses and giving up. But maybe you can clarify. Thank you..

Thank you for the questions. So, Enrique, over to you for the Jardiance question on the disconnect between TRx and revenue. Christi, for the question on the baricitinib complete response letter. And over to Sue for the JUNIPER study with abemaciclib for lung cancer.

Enrique?.

Well, we don't think there's a disconnect between TRx and revenue. The quarter for Jardiance was pretty clean, so we didn't have changes in estimates when it comes to rebates and discounts. Let's recall, and of course, in the case of Jardiance, we share 50/50 the gross margin for the product with BI the way basically what we book as revenue.

And right now I think it's fair to say that the current revenue basically is a good reflection of the underlying scripts..

Great. Thanks, Enrique.

Christi?.

Yeah. In terms of the bari timing, it's really, we can't give you an estimate on whether it's this year or next year until we meet with the FDA, which we are hoping we will do within the next 60 days..

Christi, thank you very much.

Sue?.

Yeah. With regards to the JUNIPER study, we are continuing with that study and very interested in the role of CDK4 and CDK6 in KRAS mutation-positive lung cancer.

We have made some changes to the study to ensure enrollment and to ensure that it hits the high bar given the changes that we've seen in FDA guidance and labeling on erlotinib, but we continue that study and are actively enrolling it..

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

And we'll go to Chris Schott with JPMorgan. Please go ahead..

Great. Thanks very much. Just had two questions here, both on diabetes. Maybe first on Humalog.

With biosimilars coming to market in 2018, 2019, can you really compare and contrast some of the dynamics of the rapid-acting market versus what we're just seeing right now with the basal market where you've launched Basaglar and it's done very well from a share perspective? And the second question was more broadly just discussing longer-term, your latest longer-term views on diabetes pricing.

There seems to be concerns about a market that's been in flux over the past few years. Lilly has obviously benefited from its broader portfolio, but your competitors have struggled.

So, of course, just longer term, do you see the pricing dynamics continuing to erode or even get worse? Or could we see dynamics stabilize a bit here as we've gone through at least a few of these categories pretty aggressive price competition? Does that at some point stabilize, or are you preparing for an environment where things continue to be challenging? Thanks very much..

Thank you, Chris, for the questions. Enrique, they're both for you..

Sure. So the first question is an interesting one because, clearly, we are on both sides of that equation. So you can imagine, we're going to take all the learnings of the launch of Basaglar as we think about how do we ensure that we protect our Humalog franchise.

It is fair to say that Humalog has slightly different make up in terms of – we think of the product, as you know, it's not just rapid-acting, but it's also the mixtures, which are about 30% of volume. Clearly, we do have a strong position when it comes to payers.

And importantly, the contracting already is on exclusive status for really meal-time insulins across all of the major plans. That is different from the type of contracting when it comes to basal insulins where basically we had a number of products in formulary.

So any time that you basically narrow the formulary, there's an opportunity for a payer to have an economic benefit from a larger rebate. So the dynamics are a little bit different. We clearly are preparing and thinking through that. And I won't be able to comment more on that. But I do think that our position with Humalog is quite strong.

When it comes to diabetes pricing, what we basically see is a continuation of the current trends. So we don't see significant step changes. We basically see at this point in time different classes are in different stages.

As I just mentioned, meal time insulins, we are basically – all major plans have made a one-on-one exclusive-type decision when it comes to a meal time insulin. But SGLT2s, there's one of two status for most plans. GLP-1s is something similar. So we basically see is a continuation of trends rather than a step change.

Clearly, we are pretty well positioned given the breadth of our portfolio and really strong share and momentum that we have with our product, which is key as different payers make the formulary decisions..

Great. Thank you, Enrique.

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

We'll go to Geoff Meacham with Barclays. Please go ahead..

Hey, guys. Good morning and thanks for taking the question. On Taltz, I wonder if you can talk about the new-to-brand share trends in the U.S., say, over the past six months.

Are there many plans that you're still have don't have formulary status in? And then in Europe, can you speak to countries that you expect to come on board fully for this calendar year? And then on baricitinib.

I know it's hard to say, but were extension studies for all the pivotals part of the filing? I'm just trying to figure out what data haven't yet been submitted or analysis not yet done that you could add that would be new to the CRL. Thanks..

Great, Geoff. Thank you very much. Christi, if you want to take the first question on the Taltz new-to-brand trends. And feel free if you want to try the second question, we're happy to help with that one as well..

Sure. So, coming new to Lilly, obviously the data we saw in Taltz in these studies plays out in the marketplace. It's really remarkable, the PASI 100 data and how physicians are seeing the benefits play out with patients in their offices. And that's what's really leading to the NBRx share gains and growth. The growth continues.

As you probably know, we passed Enbrel early last year. We passed Cosentyx later in the year. We continue to believe that the IL-17s are the best-in-class and a huge market opportunity for us as we close the NBRx share on Stelara. And that, in spite of not having a lot of formulary access with all of the payers. So we continue to work on that.

So, yes, there is opportunity to grow in that area..

In terms of the data that was submitted, Geoff. So there were data obviously from the four pivotal studies as well as from data (1:01:05) over the course of the review from the extension study. There is additional data that we have generated in the extension study that we have not submitted to the FDA.

As Christi talked about earlier, we'll look forward to meeting with the FDA here in the next 60 days or so to see if any of the additional data that we have could be helpful to them in their consideration of the safety concerns that they raise in the complete response letter.

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

Sure. We'll go to Tony Butler with Guggenheim Securities. Please go ahead..

Yes. Thanks very much and good morning. Two brief questions. Sue, Cyramza in Japan has been perhaps the better geographic growth driver for the product. However, in quarter-over-quarter, it does look as if it had peaked in Q4.

And I'm curious if that is, in fact, the case being down in Q1? And, Enrique, again, back to I guess back to Steve Scala's question on Jardiance. Also, or similarly, the Q4 to Q1, at least Lilly's share of the growth profit is effectively flat and slightly down.

Is it because demand is in a lower revenue-generating channel, for example, perhaps more Medicaid patients are being prescribed your product that maybe those from managed care? Thanks very much..

Great. Tony, thanks for the question. Sue for the Cyramza Japan question and then Enrique for the Jardiance follow up..

Hi, Tony. Thanks very much for the question on Cyramza in Japan. You're right, it is going very well in Japan. The quarter-on-quarter is just the timing. If you look at last year, you would have seen the same dynamics. What we are continuing to see is strong growth of Cyramza in Japan. And the gastric cancer indication right now has a market share of 57%.

In fact, I think Cyramza is one of the most successful oncology launches now in Japan. We also are now seeing uptake in both the lung and the colorectal cancer indications. There's quite a high level – as you know, the prevalence in Japan of gastric cancer is a lot higher than the U.S.

and we are seeing a lot of overlap between uses of Cyramza in gastric cancer and those that treat colorectal cancer. And so we see a good opportunity for uptake in that indication, too. We're currently seeing that and also in lung. So we feel very good about the continued uptake of Cyramza in Japan..

Thank you, Sue.

Enrique?.

Yeah, there's really not an issue when it comes, Tony, to segment mix. We had in Q4 of 2016 a positive benefit, roughly about $15 million worth of Lilly revenue due to changes in the estimates of rebates, discounts and co-pay cards. So that's basically why that comparison doesn't follow the script trend.

If anything, we should see basically improved pricing when it comes to Jardiance just because we made some changes to our co-pay cards. So we are going to be less reliant on them as time goes through. So that should basically give us some benefit over time when it comes to the nebulized prices that we see..

Thank you, Enrique.

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

And that will be David Risinger with Morgan Stanley. Please go ahead.

David, your line is open, if you're on mute maybe?.

Yes, I'm restrained, as many of my peers. And instead, Phil, I'll follow your instructions and ask two questions.

First, Dave, could you please discuss near-term M&A opportunities to acquire small biotech companies with new launch prospects in order to enhance your new launch pipeline flow late decade? And then second, Enrique, I was actually surprised with Jardiance that, given its extraordinary cardiovascular benefit, which is actually better than many drugs that are solely approved for cardiovascular disease, I would have thought that Lilly would have gone to payers and said to payers, we need to reduce our rebate payments to you.

Obviously, from an ethical standpoint, Jardiance has to be tier two irrespective of rebates. And so I guess I'm just hoping that you could provide a little bit more color on why Lilly has to enhance rebates for such an extraordinary drug? Thank you..

Great, Dave. Thank you for the two questions. Dave, we'll go to you for the near-term M&A question and back to Enrique for the Jardiance question..

Yeah. Thanks, Dave. Well, our posture on M&A really hasn't changed. It's a top priority for deployment of capital. Of course, we are very interested in targets that would enhance our position, whether it be pipeline or otherwise, in oncology, in diabetes, in immunology or in Alzheimer's or pain. When we've seen those things, we've moved quickly.

I think CoLucid is an example of that. The reality in the world, though, is, I think, that there are constraints. And one of them is pricing. We're not the only company looking for these assets. The other is strategic fit. We're going to be disciplined to stick to therapeutic areas where we have an ongoing interest.

We think this is where we have information advantage and we want to trade on that. And then I think the asset fit within our pipeline, when we're talking about pipeline assets, we seek to acquire things that can be producing interesting combinations or fill gaps. So we're very focused on this space. Obviously, we had one transaction in Q1.

I hope we can find more like it because we see a lot of value in CoLucid as an example. It's a top priority for me and we continue to scour the planet for good opportunities to add to Lilly's growth story..

Great. Thanks, Dave.

Enrique?.

Okay. I agree that the Jardiance is indeed compelling value for payers. I'm unable to discuss what our rebate strategy is on this forum. But I think it's important. We do have some – there's, of course, public knowledge when it comes to, for example, Germany and Japan.

And in both of those cases, in the case of Germany, we have a new price, a higher price for Jardiance based on the indication. And in the case of Japan, we did not get the price cut. We got a minor – a positive price adjustment. But, yes, we do believe that this product offers compelling value to payers and to patients..

Thank you, Enrique.

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

And that would be Umer Raffat with Evercore. Please go ahead..

Yes. Thanks for taking my question.

So I wanted to ask directly, do you think you need a new trial for bari, number one? And, number two, in a scenario – let's say, there is a scenario where only two milligram dose is approved, do you think bari will be able to get the head-to-head label versus Humira on label?.

What was the question, Umer? I'm not sure if you cut out or if that was two questions..

I'm so sorry. So let me try again. First of all, I just wanted to ask directly, do you think you need a new trial on bari? And, number two, in a scenario where only two milligram dose is approved, do you think you'll be able to get the superiority language versus Humira on label? Thank you..

Christi, would you like to handle this?.

Sure. So we don't know what we'll need until we actually meet with the FDA. As I said before, we believe in the benefit-risk profile of the four milligrams and the two milligrams across dosage groups. And that's what we continue to see with the data.

And we want to make sure that what we provide to the marketplace is something that is effective and safe for the patients that it serves. So, right now, we're looking at a four-milligram and two-milligram and open to the discussions with the FDA. And we'll see how they go and get back to you after that..

Thank you, Christi..

And just as a reminder, the R&D study just had the four milligram in it against Humira. So I think if that's your question, just remind the group that that was the only dose studied in that particular (1:10:10) analysis..

Okay. Thanks, Dave. John, next caller, please..

And we'll go to Alex Arfaei with BMO Capital Markets. Please go ahead..

Good morning. Thank you, folks, for taking the questions. Most of my questions have been asked. A couple more for Enrique in diabetes. First, on Humalog.

How comfortable are you about the sustainability of the exclusive arrangements that you have with payers? Because the economic benefit that you mentioned from the rebates, that's obviously has come under increased scrutiny. So what are the risks there? And then following up, obviously Trulicity is doing well.

What is your competitive outlook on the GLP-1 class, particularly from the oral GLP-1 in Phase 3 from Novo? Thank you..

Okay. Alex, thank you very much for the questions. Enrique, again to you..

Sure. So, clearly as we contract with payers, it's not only the economic benefit, but of course all of the clinical benefits of each one of the products. In the case of Humalog, it's always difficult to say as we go through the contract in season.

But I think what we can say is, as we looked at historically, once a payer has made a decision on a particular product, basically once it comes time to renew, they typically have continued with that choice that they initially made, in particular when there are not new entrants basically coming in to the mix.

So we see this not only in diabetes, but I think in other therapeutic classes. As you can imagine, if we have a market where we have two major players, in this particular case maybe Lilly and Novo, and we were in dual status and we go to exclusive status, you are switching 50% of the patients.

But once somebody is on exclusive status, now you basically – the disruption is significantly higher. And clearly, the economics from a benefit of the rebate perspective are really not going to be there because they are already getting basically top exclusive rights. When it comes to Trulicity, clearly the product is doing extremely well.

We are very excited about the overall growth of the class. So we see significant expansion of the GLP-1 class continuing. And of course, Trulicity has superior share performance within that class. We do see additional competition coming in both – when it comes to semaglutide as well as the oral GLP-1. Of course, we need to wait for additional data.

What type of label will these products get. Clearly, the efficacy of sema is, we believe, very good but they also had a signal when it comes to retinopathy. So we need to see what is the label going to look like because we do think that it's not just efficacy but the entire profile.

And finally, one of the great benefits that Trulicity I think is offering is we basically feel that Trulicity is almost redefining the first injection experience because patients don't have to touch the needle or see the needle. In a certain way, the feedback that we get from the experience I think is just fantastic.

We've said that we are interested in oral GLP-1, and that's something that we're actively working on..

Thanks, Enrique. John, next caller, please..

And that will be Vamil Divan with Credit Suisse. Please go ahead..

Great. Thanks so much. So one just follow-up on the diabetes side. Can you give us a sense of the share now for the SGLT2s and the GLP-1s that's coming from primary care physicians as opposed to specialists? I guess if you want to throw the DPP-4s in there as well, that'd be helpful.

And then my second question, just on the 2017 guidance, just wanted to clarify. I believe you have not incorporated any expectations around the potential approval from KEYNOTE-021G for Alimta in combination with carbo and Keytruda. Can you just confirm that's correct and would that then be upside if that approval does come next month? Thanks..

Okay, Vamil. Thank you very much for the questions. Enrique, if you'd like to handle the question with regard to split between PCP and specialists for SGLT2s and DPP-4s as well, if you have it. And then, Derica, any comment you have on how the KEYNOTE-021G approval, if that comes through, how it could impact our expectations for 2017.

Enrique?.

Yeah, so when it comes to orals and SGLT2s and DPP-4s are pretty alike. We basically see primary care basically driving about 80% of the overall scripts. Now, one thing that we've been watching is basically, what about cardiologists. And what we basically see that is while cardiologists, in the case of Jardiance, are a significant source of authority.

And while we have seen an increase, the base of prescribing is extremely, extremely small. I don't have the actual split for the GLP-1s, and I'm cautious about making it because that class has been evolving very, very quickly. And what we basically see is huge growth when it comes to primary care right now. But that class used to be about 50/50.

And we'll provide the specifics of where we are now..

Great. Thank you, Enrique.

Derica?.

In regards to the guidance, as you saw in our press release and in our remarks here this morning, we reaffirmed our guidance for 2017. As it relates to the KEYNOTE data, we're excited about the data itself. We look forward to hearing the feedback and the outcome with the discussions with the FDA.

Clearly, if it's positive, it would go to support that guidance.

But when we put our guidance together, we contemplate, again, as I stated earlier, a number of various scenarios that we will have to contend with, whether it's over the next 12 months in terms of our annual guidance or as it relates to our mid to longer-term guidance when we're talking about the 5%.

And this would be just one of those additional scenarios that's factored in..

Thanks, Derica. John, next caller, please..

That will be Marc Goodman with UBS. Please go ahead..

Good morning. Sue, can you talk about how your oncology strategy's evolved? And what are the key Phase 2 assets we should be focused on? And then second, just on Animal Health, can you tell us what was the impact of the BI sales in the quarter of the acquisition? Thanks..

Hey, Marc, thank you for the question. Sue, for the oncology strategy question and highlights on Phase 2 assets. And then, Jeff, back to you for a commentary on the impact of the BI Vetmedica acquisition and the results for quarter.

Sue?.

Sure. Yeah, thanks for the question. Clearly, as we're looking at our strategy, the oncology environment is changing pretty rapidly and we want to make sure that as we're looking at agents, that we're bringing through really agents that are standard of care change or have potential to be standard of care change and to be foundational agents.

We believe that we have a number of those. We just launched Lartruvo for soft tissue sarcoma, which is the first agent that has been approved to show an overall survival advantage over standard care in 40 years, and showing an improvement of 12 months nearly in soft tissue sarcoma.

So I think that is one that we can say clearly has the potential standard of care changing and foundational. We have abemaciclib data that we're excited about, too. We have a number of assets in our portfolio.

We're actually currently going through a strategy review and prioritization which we are looking forward to giving you more details on over the next months. There are a number of agents that we're excited by. I think that we look at our checkpoint inhibitor, prexasertib.

Data on that is pretty exciting and you should see more on that coming through over the next few months as you see how we're continuing to develop that further. With regards to our ERK inhibitor, we're pretty excited about that, too. That's in Phase 1 at the moment.

And we also have a potential combination options with our PI3K/mTOR inhibitor and abemaciclib. So you're going to see more as we continue to roll out our prioritization of our portfolio. We have a number of assets in our portfolio now.

What we want to do is really focus on those ones that have the potential to be foundational standard of care changing and have rapid development of those. And that's where our focus is..

Thanks, Sue.

Jeff?.

Yes, on the impact of the BI, we sold $40.8 million in the first quarter. That's aligned with our plans. And again, as mentioned in the results, we were up 2% with the impact of BI. Without it, it was minus 3%..

And just, Marc, overall, if you saw from our prepared remarks, that Vetmedica added about 30 basis points of our overall 8% volume growth in the quarter..

Thanks, Derica.

John, next question, please?.

And we'll go to Jeff Holford with Jefferies. Please go ahead..

Hi. Thanks for taking my questions. So, clearly, Trulicity has been having a great launch and is expected to going forward. But I get a lot of questions from investors just around sustainability of pricing in the GLP-1 segment.

So just maybe ask you to gaze into crystal ball a little bit through maybe the upcoming contracting and one or two years out, how you just see that potentially being different from the insulin markets, obviously where pricing pressure's been a bit more difficult.

And then the second question, just really going back to baricitinib a little bit and the clinical trial design there. There is quite a lot of crossover in some of those clinical trials and up and down dosing.

Just wanted to get any feedback that you can potentially give us on how comfortable the FDA was with that design right from the outset and whether any of this crossover and up and down dosing in the trials was potentially discussed at mid-cycle review? Thank you..

Hey, Jeff, thank you for the questions. Enrique, if you'll comment on Trulicity pricing question.

And then, Dave, do you want to take the question for the baricitinib trial time? Enrique?.

Sure. Just on Trulicity. First, our access right now is outstanding. I think it reflects the – given the clinical and business performance of the product, Trulicity is now basically added in most plans. So our access in both commercial and Part D is north of 80%. Unfortunately, I'm unable to provide forward-looking expectations in terms of pricing..

Enrique, thank you.

Dave?.

Yeah, and just briefly on baricitinib. You're correct in saying that the program had a number of step ups after the initial placebo-controlled phases. So many patients moved from two to four milligrams or placebo to four (1:21:50) standard in RA studies. And we also in the long-term study everyone rolled into, we had a step-down feature.

So we have a lot of data about two versus four, and we look forward to talking to the FDA more about that data in the coming weeks and days..

Thanks, Dave. John, next caller, please..

And we actually have no further questions in queue..

Okay. Let me just give a few seconds to see if someone wants to queue. If not, we'll go to close. So let's give a couple seconds for that, please.

Did anyone queue, John?.

No further questions coming in..

Thank you very much.

Dave, would you like to go ahead and close out the call?.

Okay. Thanks, Phil. We participate your participation in today's earnings call and interest in the Eli Lilly & Company. As we've discussed before, Lilly is entering a period of growth driven by new product launches.

The diversity in our portfolio, our top-line growth prospect and the opportunity for margin expansions over the balance of the decade provide a compelling thesis for investors. I look forward to our continued interactions and keep you informed of our progress. Please follow up with our IR team if you have any questions we didn't address today.

Thanks again. Have a good day..

Ladies and gentlemen, that does conclude your conference. Thank you for your participation. You may now disconnect..