Source: Seeking Alpha
Eli Lilly and Co (NYSE:LLY)
Q2 2014 Results Earnings Conference Call
July 24, 2014, 09:00 am ET
John Lechleiter – Chairman of the Board, President, Chief Executive Officer
Phil Johnson – Vice President, Investor Relations
Derica Rice – Chief Financial Officer, Executive Vice President – Global Services
Enrique Conterno – Senior Vice President and President – Lilly Diabetes
Dave Ricks – Senior Vice President and President, Lilly Bio-Medicines
Jan Lundberg – Executive Vice President – Science and Technology, President – Lilly Research Laboratories
Sue Mahony – Senior Vice President and President – Lilly Oncology
Ilissa Rassner, Director, Investor Relations
Tim Anderson – Sanford Bernstein
Mark Schoenebaum – ISI Group
Jamie Rubin – Goldman Sachs
John Boris – SunTrust
Chris Schott – JPMorgan
Seamus Fernandez – Leerink
Steve Scala – Cowen
Vamil Divan – Credit Suisse
Colin Bristow – Bank of America Merrill Lynch
Jeff Holford – Jefferies
Alex Arfaei – BMO Capital Markets
Marc Goodman – UBS
Damien Conover – MorningStar
Gregg Gilbert – Deutsche Bank
Mark Purcell – Barclays
Ladies and gentlemen, thank you for standing by. Welcome to the Q 2014 earnings call. At this time, all participants are in a listen only mode. Later we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded.
I would now like to turn the conference over to our host, Chairman, President and CEO, Dr. John Lechleiter. Please go ahead.
John Lechleiter – Chairman of the Board, President, Chief Executive Officer
Thank you. Good morning, everyone. Thanks for joining us today to discuss Eli Lilly and Company’s second quarter 2014 earnings. As the operators said, I am John Lechleiter, Lilly’s Chairman, President and CEO.
Similar to our last call, this morning we are bringing more of our senior leaders into the room here to participate and to answer your questions and we hope that this enhances the quality of the information we provide you during these sessions. Joining me on today’s call are Derica Rice, our Chief Financial Officer, Dr. Jan Lundberg, our President of Lilly Research Laboratories, Sue Mahony, President of Lilly Oncology, Enrique Conterno, President of Lilly diabetes, Dave Ricks, President of Lilly Bio-Medicines, Chito Zulueta, President of Emerging Markets, Jeff Simmons, President of Elanco Animal Health and Ilissa Rassner, Brad Robling and Phil Johnson of Lilly’s 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 Securities and Exchange Commission. The information we provide about our products and our pipeline is for the benefit of the investment community. It’s not intended to be promotional and is not sufficient for prescribing decisions.
Before we get into our Q2 results in detail, I would like to offer this context. Even as we feel the full brunt of our patent expiries, we continue to execute our strategy. Our performance is in line with our expectations and we are on track to meet the goals we have shared with you for the year. And the steady advance of our pipeline only strengthens our confidence in our innovation-based strategy.
Cyramza launched to a good reception in the U.S. Empagliflozin has been granted approval in the EU. Our insulin glargine product has been recommended for approval in Europe. And we presented positive data on a number of late stage molecules at the recent ASCO and ADA meetings. We anticipate a number of additional regulatory actions this year as well as additional regulatory submissions and important Phase 3 data readouts. And we continue to manage our expenses rigorously even as we invest to ensure successful launches and continue to advance our pipeline.
With that, let’s turn to the key events since last quarter’s call. Since our last call, we launched Cyramza in the U.S. as a single agent treatment for patients with advanced or metastatic gastric cancer or gastroesophageal junction adenocarcinoma with disease progression on or after prior chemotherapy. We are pleased with the uptake we are seeing with the reports we are receiving from the sales organization and with feedback from customers on their experience to-date.
We have also a number of positive developments on the regulatory front spanning diabetes and oncology. The European Commission approved empagliflozin or Jardiance indicated in the treatment of Type II diabetes to improve glycemic control in adults. As I mentioned on last quarter’s call, Lilly and Boehringer Ingelheim anticipate launch of the product in European countries to begin this quarter.
In the U.S., Boehringer Ingelheim resubmitted the empagliflozin NDA to the FDA. This was deemed a Class I resubmission, which carries a two month review period. Consequently, we expect FDA action this quarter. In Europe, Boehringer Ingelheim submitted the fixed dose combination of empagliflozin and metformin. Also in Europe, the CHMP issued a positive opinion recommending approval of our new insulin glargine product for the treatment of Type I and Type II diabetes. This product, which is part of the Lilly-Boehringer Ingelheim Diabetes alliance is the first biosimilar insulin recommended for approval in the European Union.
Moving now to oncology. In the U.S., based on data from the RAINBOW study, we submitted a supplemental BLA for Cyramza as combination therapy in patients with second line gastric cancer. This will be a standard review and therefore we expect FDA action in the first half of 2015. In Europe, where our initial submission was based on the REGARD monotherapy study, we have now incorporated the RAINBOW data in our submission dossier which is currently under review. And finally, we announced that the FDA granted fast track status for our BLA for necitumumab as first-line treatment of metastatic squamous non-small cell lung cancer. We continue to expect FDA submission before the end of this year.
In clinical news, we had a number of detailed data presentations at the annual meetings of the American Society of Clinical Oncology and the American Diabetes Association. At the ASCO meeting, we presented detailed data from the Phase 3 REVEL trial studying ramucirumab in second line non-small cell lung cancer. In this study, Cyramza demonstrated statistically significant improvements across multiple efficacy endpoints including overall survival, progression free survival and overall response rate. The improvement of overall survival and progression free survival on the Cyramza plus docetaxel arm was consistent across the majority of subgroups including nonsquamous and squamous histologies. We remain on track to meet our commitment for regulatory submission in the second half of 2014.
We also presented detailed data from the Phase 3 SQUIRE trial studying necitumumab in first-line squamous non-small cell lung cancer. In the Phase 3 SQUIRE trial, patients with stage IV metastatic squamous non-small cell lung cancer showed a statistically significant improvement in overall survival, progression free survival and disease control rate. As I mentioned earlier, we intend to submit this BLA by year-end.
Finally, following our initial disclosure at AACR in April, we presented additional data from the Phase 1 trial of our CDK 4/6 inhibitor, Abemaciclib. These data were from two different cohort expansions. One as a single agent in patients with advanced non-small cell lung cancer, and the other in combination with fulvestrant in patients with advanced breast cancer. Based on these data as well as the data presented at AACR, we will begin Phase 3 trials later this year in both advanced breast cancer and advanced lung cancer. We are pleased with the single agent activity we have seen with Abemaciclib as well as with the product safety profile and believe we could have a best-in-class molecule.
At the ADA meeting, we presented detailed data from three of the Phase 3 AWARD trials of dulaglutide. There was significant investor interest in the AWARD-6 trial comparing once-weekly dulaglutide 1.5 mg to once-daily liraglutide 1.8 mg. Results from this study show that dulaglutide 1.5 mg was noninferior to the highest approved dose of Victoza in the reduction of HbA1c from baseline. This is the first head-to-head Phase 3 trial of a GLP-1 to show noninferiority to liraglutide 1.8 mg on this important clinical measure.
Detailed data was also presented for AWARD-2 and AWARD-4 head-to-head trials comparing dulaglutide to insulin glargine with and without mealtime insulin. Both trials showed that once-weekly dulaglutide 1.5 mg provided significantly greater reductions in blood glucose for patients with Type II diabetes. Additionally, in both studies hypoglycemia rates were lower for dulaglutide 1.5 mg treated patients compared to insulin glargine. We are very pleased with the results of these three Phase 3 studies for dulaglutide, as well as with those of the Phase 3 studies presented at last year’s ADA. If approved, dulaglutide will be the only GLP-1 receptor agonist that is both once-weekly and ready-to-use. We believe it could provide patients and physicians an important new treatment option for Type II diabetes.
In the quarter, we also issued two topline press releases for Phase 3 trials, one for our basal insulin peglispro and the other for Cyramza in second line hepatocellular cancer. We announced positive topline results for three completed Phase 3 clinical trials in patients with Type II diabetes for basal insulin peglispro, which is being studied as a once-daily treatment for both Type I and Type II diabetes. The primary efficacy endpoint of noninferior reduction in HbA1c compared to insulin glargine was met in all three trials.
Having met the primary endpoints, superiority for HbA1c lowering was examined and in all three trials basal insulin peglispro showed a statistically superior reduction in HbA1c compared with insulin glargine. In addition, in all three clinical trials patients taking basal insulin peglispro experienced statistically significant lower rates of nocturnal hypoglycemia and had comparable to statistically significant less weight gain than those taking insulin glargine. We remain on track to issue a topline press release this quarter on our Phase 3 trial in patients with Type I diabetes and to make regulatory filings by the first quarter of next year.
For Cyramza, we announced that the Phase 3 REACH trial in patients with hepatocellular carcinoma or liver cancer did not meet its primary endpoint. Overall survival favored the Cyramza arm but was not statistically significant. Although the REACH study did not meet its primary endpoint, we are encouraged by the efficacy seen in specific subpopulations. We plan to discuss these results with regulatory authorities to inform future trials.
In business development news, we announced last week an immunotherapy collaboration with U.K. based Immunocore Limited to research and potentially develop novel T cell-based cancer therapies. This collaboration will result in a third quarter charge of $45 million or $0.03 per share of EPS after-tax that we have incorporated into our revised guidance for 2014.
Also, we close the acquisition of Lohmann Animal Health, a privately held German company that is a global leader in poultry vaccines. This acquisition establishes Elanco as a global poultry leader and solidifies Elanco’s vaccine presence and manufacturing capabilities. We also entered into an agreement contingent upon certain closing conditions to sell the feed additives portion of Lohmann’s business to a management led group.
Finally along with Sanofi, we announced an agreement to pursue regulatory approval of nonprescription Cialis. Under the terms of the agreement, Sanofi acquired the exclusive rights to market Cialis OTC following Sanofi’s receipt of all necessary regulatory approvals.
In other news, the English High Court determined that the vitamin dosage regimen patents for Alimta in the U.K., France, Italy and Spain would not be infringed by a generic competitor that has stated an intent to market certain alternative salt forms of pemetrexed in those countries upon expiry of the Alimta compound patents in late 2015. We strongly disagree with this ruling and have appealed the ruling to the Court of Appeal.
In the U.S., based on the U.S. Supreme Court ruling in the Akamai versus Limelight Networks, Teva and APP filed an unopposed motion asking the Court of Appeals to remand the Alimta case back to the District Court to consider the issue of infringement. No date has been set for a hearing with the District Court. Note that this does not affect the District Court’s decision that our patent is valid. We remain confident that this patent is both valid and enforceable against generic manufacturers.
A Brazilian labor court ruled against our local subsidiary in a case alleging some employees were exposed to hazardous materials in a manufacturing facility operated by the company between 1977 and 2003. We believe the decision is entirely without merit and we filed an appeal.
Finally, during the second quarter, we executed share repurchases totaling $145 million under our $5 billion share repurchase program.