Eli Lilly and Company (LLY) Q1 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Eli Lilly Q1 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I will now turn the conference over to your host, Vice President of Investor Relations, Mr. Phil Johnson. Please go ahead, sir.

Good morning. Thanks for taking the time to join us for Eli Lilly & Co.'s First Quarter 2012 Earnings Conference Call. I'm Phil Johnson, Vice President of Investor Relations. Joining me are our Chairman and CEO, John Lechleiter; our Chief Financial Officer, Derica Rice; our President of Lilly Research Laboratories, Dr. Jan Lundberg; and Ilissa Rassner and Travis Coy for Investor Relations. During this conference call, we anticipate making projections and forward-looking statements based on our current expectations. Our actual results could differ materially due to a number of factors, including those listed on Slide 3 and those outlined in our latest forms 10-K and 10-Q filed with the Securities and Exchange Commission. The information we provide about our products and pipeline is for the benefit of the investment community. It is not intended to be promotional and is not sufficient for prescribing decisions. We are very pleased with our performance in the first quarter of 2012. In the face of significant reductions in revenue and earnings due to the Zyprexa patent expiration, Lilly employees around the world have remained focused on execution. They delivered results that solidly position us to meet our 2012 financial guidance, and it placed us on track to meet or exceed our midterm financial minimum goals. Let's begin with a quick review of events that have taken place since our previous earnings call. From a commercial perspective, we're pleased that Jentadueto, the linagliptin plus metformin fixed-dose combination for treatment of adults with type 2 diabetes, is now available in U.S. pharmacies. On the regulatory front, Japan's Ministry of Health, Labour and Welfare approved Zyprexa for treatment of depression in bipolar disorder and Cymbalta for treatment of diabetic peripheral neuropathic pain. Amylin's Byetta received European Commission approval as an adjunctive therapy to basal insulin, with or…

Thanks, Phil. As you can see on Slide 9, the revenue decline of 4% for the quarter was driven by a negative volume impact of 7%, partially offset by a favorable 4% price impact. Foreign exchange had a negligible impact on worldwide revenue. By geography, you'll notice that U.S. volume decreased 16%. This was entirely due to Zyprexa sales erosion. In fact, excluding olanzapine from both 2011 and 2012, volume in the rest of our U.S. business was up 2%. Also of note is U.S. price, which increased 12% this quarter, following an 18% decrease in Q4 of 2011. Both periods were affected by our authorized generic olanzapine agreement with Prasco. In this quarter, we recognized our share of Prasco's authorized generic olanzapine revenues, with no corresponding units sold by Lilly. This serves to increase our reported U.S. price by nearly 3.5 percentage points. In addition, we had favorable adjustments to prior period rebates and accruals that contributed roughly 3 percentage points to U.S. price. For Europe, the decrease in revenue was also due to the Zyprexa patent expiration. Excluding Zyprexa from both 2011 and 2012, the rest of our European revenue was essentially flat, with volume growth up 6% that was offset by a price decline of 3% and an FX effect of minus 3%. Japan growth of 5% reflects a negative effect of the biannual price decreases. This includes lower prices on our sales in March as well as lower customer buying ahead of the price decreases. Also, in Q1 2011, we saw precautionary buying as a result of the earthquake that increased sales by about $30 million to $35 million. Excluding the $30 million to $35 million of sales from the Q1 2011 base period, Japan sales were up 12% to 13% this quarter. As for Emerging Markets, which is embedded in Rest of World, we began to experience the impact of generic competition that we discussed as part of our 2012 guidance. In terms of products, the largest impact is coming from Zyprexa. While in terms of countries, the bulk of the impact is coming from Brazil and Mexico. As a reminder, we anticipate...

[Technical Difficulty]

Apologies. We experienced a power failure actually in the studio, so what I’ll do and not knowing exactly where we cut out. This is Travis, by the way. I'll start from the beginning of the paragraph. As for Emerging Markets, which is embedded in Rest of World, we began to experience the impact of generic competition that we discussed as part of our 2012 guidance. In terms of products, the largest impact is coming from Zyprexa. While in terms of countries, the bulk of the impact is coming from Brazil and Mexico. As a reminder, we anticipate that generic competition will reduce our 2012 Emerging Markets sales by roughly $250 million, which equates to 10% of our 2011 Emerging Markets sales. This quarter, the generic impact reduced sales by about 13 percentage points. Within Emerging Markets, China continued to register strong growth, up 41%, or when excluding FX, 34%. The Elanco Animal Health delivered another quarter of robust performance, with volume increasing 31%. Driving the strong quarter were continued growth of worldwide Trifexis sales, the inclusion of the Janssen Animal Health sales and a combination of strong demand and customer buying patterns. We expect Elanco to deliver double-digit income growth during the YZ years and beyond. Finally, the 26% increase in collaboration and other revenue is due to royalties from telaprevir, as well as gross margin sharing with Boehringer Ingelheim for Tradjenta. Neither of which were present in the Q1 2011 base period. Slide 10 shows the year-on-year growth of select line items of our non-GAAP income statement, with and without the effect of changes in foreign exchange rates. I'll focus on the second column since the numbers in the first column are the same as those on Slide 6. As discussed earlier, FX had a negligible impact on worldwide…

Thanks, Travis. I'll start with Slide 13. Now while I'll focus my comments on events expected to occur later this year, we will now use this slide to report our progress on achieving key events we've highlighted to you for the year. Now hopefully this provides you with greater transparency on how we're doing. In the remainder of 2012, we anticipate a couple of FDA decisions. We'll continue to advance our pipeline, and we'll generate and share clinical data that will help investors better gauge our growth potential post-2014. We anticipate FDA decisions on Alimta as continuation maintenance therapy for patients with nonsquamous non-small cell lung cancer, and Erbitux for first-line metastatic colorectal cancer. We anticipate beginning Phase III trials for evacetrapib, our CETP inhibitor. In addition, we could begin Phase III trials yet this year for our oral JAK1/JAK2 inhibitor for rheumatoid arthritis in partnership with Incyte. We also expect to complete a number of important Phase III trials in 2012 including: The EXPEDITION studies with solanezumab for Alzheimer's disease; the TRILOGY study with Effient in ACS-medically-managed patients; and the PARAMOUNT and POINTBREAK studies with Alimta in nonsquamous non-small cell lung cancer. The overall survival data from PARAMOUNT will be disclosed at ASCO in June. In addition, we'll complete a number of the Phase III trials for dulaglutide and in collaboration with Boehringer Ingelheim for empagliflozin. So we recently generated key data from 2 important Phase II studies, and we plan to disclose these data at upcoming medical meetings. The first is a dulaglutide Phase II hemodynamic study. Our plan is to disclose data from the study at ASH, the American Society of Hypertension, in May. The second is the Phase IIb trial of the JAK1/JAK2 inhibitor being studied for use in rheumatoid arthritis, in partnership with Incyte. Our…

[Technical Difficulty] [Operator Instructions] Okay. We apologize for the technical difficulties. Hopefully this will resolve those. And we'll go ahead. Kaylie, if you could start with the first caller and move into the Q&A session.

[Operator Instructions] Our first question will come from the line of Jami Rubin at Goldman Sachs.

I have a question related to gross margins. The gross margin this quarter came in well ahead of what we were expecting. And just and going back when the company initially gave guidance for the year, back in early January, The Street was I think at around $3.60, and you guided to $3.10 to $3.20 in large part because of generic Zyprexa, which of course, wasn't new. Now you're raising that guidance again by $0.10, and the gross margin came in well ahead of what I think people were looking for. So maybe, Derica, if you could just talk to some of the variables that have driven your guidance. And help us to think about the evolution of gross margins. I mean, at least that's what we missed this quarter. But you're not changing your gross margin guidance. So would you expect Q2 and Q3 because of the onslaught of generic competition to be meaningfully below your average guidance of 77%? Maybe if you could just add color there. And then just on another note, with animal health, which performed very well, if you could talk about the variables that are driving that. And also, if you could remind us what the Janssen acquisition provided for this quarter.

Okay, Jami, this is Derica. In regards to gross margin, just a few things to keep in mind. One, as we move throughout the year with each quarter of 2012, we will have further declining Zyprexa revenues. So in 2012, we expect Q1 to have the greatest share of our Zyprexa revenue, and then with each subsequent quarter, it will decline. With that decline, it has an increasingly negative effect on our gross margin. So that's going to be bringing our gross margins down as we move through the period. Secondly, you also saw that in the first quarter, we had a slightly favorable impact just from exchange rates. So as the euro has been weakening against the dollar and we've talked about this on past calls, you see that, that has a favorable impact on our cost of goods sold of inventories during the period, which obviously has a favorable impact on gross margin. I don't if that's sustainable. And then the third piece is just when you look at the price effect element of it, we did see in the first quarter, as Travis said, there were some growth to net adjustment. So as we were looking at our AMP calculations, and based upon new insights, we were able to -- we made some adjustments to our growth to net reserves on the book, which turned out to be -- come out – it’s favorable in terms of price. Now that's what's highlighting and driving our gross margins as we look through the remainder of the year. In regard to your second question around animal health and what are some of the key things that's driving our guidance in our increase, what we saw in the first quarter was very strong revenue growth relative to our expectation. Animal health alone grew 33%, of which volume growth of that was 31%. Within that volume growth, it was primarily driven by both our companion animal business, as well as our food animal business. In the companion animal segment, we continue to experience an outstanding launch with Trifexis -- This is our flea and heartworm product -- as well as we continue to actually have good sales of Comfortis. And then likewise, we've seen good performance on the food animal side as well. In regard to the Janssen acquisition, as well as ChemGen, which we completed earlier this year, that attributed about 1/3 of that total growth. And so if you look at the 33%, 2/3 of that was organically driven.

Jami, this is Phil. One thing I might add in terms of the gross margin percent, as you're aware for a while now, we've been providing a backup slide. This will be Slide 18 in this quarter's deck. That strips out from each of the quarter's results this FX effect on international inventory sold. These are the 2 lines of numbers at the bottom of that chart. What that will show is actually in Q1 of last year, we had nearly 1 percentage point reduction in the gross margin percent due to FX. So our true underlying base with 80.7%. When you look at this quarter, we're actually seeing a 2.4 percentage point reduction in the gross margin percent. So very substantial. It seems to be in line with what people had been expecting. And I'm wondering actually if people -- they were looking at the base to figure their decline off of and they had been looking at the base that included that negative effect from FX last year that wouldn't necessarily have been the appropriate base to take it down from. As Derica mentioned, we do expect to see further deterioration through the year, particularly given the Zyprexa erosion that we anticipate largely here in the U.S. We've now entered, I think as of today or yesterday, the period where multiple generics can now come to market. And that will bring a different dynamic than we saw in the first quarter.

The last thing I'll leave you with, Jami, is that we were able to drive outside of the Zyprexa patent erosion, and the remaining elements of Gemzar, good volume growth across the other elements of our business. So in addition to animal health, we saw good growth in China, 41%, as well as key brands like Cymbalta, 23%. And even in insulins, which grew -- Humalog grew 12%. So that was always part of our strategy in terms of those 3 strategic levers, making sure that we were driving growth in those areas where we weren't experiencing patent expiration.

We'll go to the line of Marc Goodman at UBS.

A couple of questions. First, can you just tell us what were the key products impacted by that gross to net adjustment? Second, Alimta o U.S. looks like it flattened out. And I was wondering if you could just give us a little bit of insight what was going on there. And then third, I get this question so I figured out I'll ask you. If solanezumab ends up being positive data later this year, what do you do differently as a company with respect to R&D, SG&A? And if it fails, what do you do differently as a company with respect to spending?

Okay. Marc, this is Phil. I'll take your first 2, and then maybe Derica want to a crack or John, at the last one. So the products on the gross to net adjustment, it really was across the board. This was -- it's a phenomenon, Marc, that we've seen each and every quarter. Sometimes it's as a slight benefit; sometimes it's a slight headwind. This quarter, it was a little larger benefit than we've had in some prior periods, due to the size of the adjustment. And would have contributed about 3 percentage points of growth; that shows up in the price column to our U.S. sales. A slowdown in Alimta o U.S., the primary driver compared to prior quarters really is FX. If you go back sort of mid-last year, and you had FX contributing double digits. I think in Q2, for example, it peaked maybe at 11% contribution to overall growth, whereas it actually reduced sales by 1 percentage point this quarter. We also have seen the volume growth in percentage terms begin to decrease somewhat as we have a larger base that we're comparing against. The last thing I'd highlight is we did have price reductions that go in effect for the public April 1. They'll actually go in effect for us and sales to wholesalers as of March 1 in Japan, the partner biannual price adjustment process. And Alimta had a substantial price reduction on the order of magnitude of 25%. So we saw one month of that in the quarter.

Marc, in regards to your question around solanezumab and how does that affect Lilly in terms of its potential outcomes, it does -- in terms of our overall strategy, it doesn't affect us significantly at all. We've stated all along that solanezumab was not the homerun bet for Lilly. And it's one of the 12 molecules that we have in Phase III development. So therefore, if we're unsuccessful with solanezumab, we continue with our action plans as stated. We will continue to progress the remaining 11 molecules that we have in critical development in Phase III as well as the other 21 in Phase II. And we'll continue to try to invest to drive the growth in our key growth opportunities. Obviously, if it's successful, given the low probability that of technical success, it represents upside for the firm. But R&D innovation is still going to be the cornerstone of our strategy. So it doesn't lessen our focus still on those remaining 11 molecules in Phase III.

That will come from the line of Chris Schott at JPMorgan. Christopher Schott - JP Morgan Chase & Co, Research Division: First question, was just with regards to your JAK potentially moving into Phase III later this year. Can you just elaborate a little bit about how you see that product differentiating from Pfizer's product? And just maybe more broadly, the evolution of the RA market. How do you see the oral drugs playing here? Do you actually think maybe it's a positive that you could be the second JAK in the market over time, given how slow this market seems to evolve over time? The second question I had is maybe just following up on the expense structure here. Beyond solanezumab, you obviously highlighted a number of important pipeline data releases this year, more coming in '13. Does there come a point where you do a broader strategic review of the overall spend level relative to new product opportunities? I guess, basically should we expect at some point you take a broader look at the pipeline once all this data comes in? Or is this really an evolutionary process -- as individual data points come in, you evaluate and kind of go from there?

We'll have Jan handle JAK1/JAK2, and then we'll move over to Derica for your second question. Jan?

Yes, the overall JAK class is an interesting new opportunity then for oral agents in autoimmune disease. And the interesting piece coming up here will be, how differentiated will these different JAK molecules be? They do have differences in their selectivity versus various members of the JAK family, at least then in pharmacology, in-vitro. And I think it needs to be determined what type of clinical significance do these differences have. We know that our and the Incyte molecule is more JAK1/JAK2 selective, while the Pfizer molecule is more a pan-JAK molecule. We also know that our molecule is likely to be once daily, where as the Pfizer molecule is twice daily. We need to see now in our bigger extended trials what happens in relation to efficacy and also in particular, safety, if there are any differences versus the Pfizer agents. And as stated here, we will communicate our 3-month data as well as 6-month data this year. So you will see more data from our agent. And we're also eager to see what the outcome, which is certainly happening then for the Pfizer molecule, will give us in relation to additional information in this important class.

Derica?

Clearly, we have plans in place in terms of how we saw navigating our way through this period of patent expiry. And that was all centered around driving growth where we could, which we create the capacity to fund R&D in our pipeline as well as sustain our dividend. Now as those cards begin to be turned over and as we see data unveil from our pipeline, our plans are not static. As so, obviously, we will adjust along the way. Now our expectations are that we believe we should be able to yield enough positive outcome for our pipeline that will support our long-term strategy. If the result ends up being different than that and we saw through what the implications to that are, and obviously, we'll go and begin to pull some of those levers. But at this stage, we put forward you guys in our call text as well as in the slides, we tried to lay out in as transparent manner as we can what are the key events that we're monitoring both internally, and hopefully you're tracking externally. And we're trying to highlight there in those key events, as those cards are unfold or turned over, what's the outcome? So each one of those checks, we're very encouraged here both with the approval of Amyvid this quarter, as well as what we believe to be exciting data that we unveiled on is IL-17, our ixekizumab, for the treatment of psoriasis in moderate to a severe patient. And as we continue to see data like that, that gives us even more encouragement about the future prospects of Lilly.

We'll go to the line of David Risinger of Morgan Stanley.

I have a couple of questions on the pipeline for Jan. The first is [indiscernible] is discussing recently, very recently, pre-specifying additional analyses for bapineuzumab for Phase III, such as mild patients and maybe trying to pool the data on mild patients from the 2 different trials that they're running in the U.S. and file for approval on that. I'm just curious about whether Lilly is pre-specifying additional groups for the analysis of solanezumab or whether essentially all the weight is on the primary endpoints in the studies. And then my second question is with respect to the ImClone pipeline assets, Jan, if you could please update us on the timing of the key readouts. I'd appreciate it.

Okay, great. Jan?

Right. If you look at the solanezumab's primary endpoints, it's really about cognition and also activities of daily living. And we want to see positive responses here from both trials on both of these parameters. In relation to types of patients, we have both mild and moderate, and we have apoE types as well. So it will be an opportunity here to discuss with regulators then what are the outcomes based on the data that we get? The ImClone pipeline, as we know, is focused very much on the ramucirumab in Phase III, which has 5 different trials then ongoing in different countertypes which we'll start to readout next year and in the coming years. And we also have necitumumab for squamous, non-small cell lung cancer indication, which also we'll complete their studies most likely next year. But its event-driven so that will be dependent on that. And before these 2 agents, there are a number of other anti-bodies then which are tested in different tumors. And here I think it's still early to say when these will progress further then into late stage development. We need to generate more data in our signal searching.

Sure. David, this is Travis. A couple of things. For ramucirumab, I believe the current expectation is reflected on clinicaltrials.gov is that both the first of the 2 gastric cancer trials, as well as the hepatocellular trial, would produce results next year, with other indications to follow subsequently. Necitumumab, the other Phase III asset from, ImClone, likely we're in the early '14, I believe, for the data readout on the squamous non-small cell lung cancer trial. Then also keep in mind that we're awaiting word from the FDA on the first-line metastatic colorectal cancer indication for Erbitux as well.

We'll go to the line of Tim Anderson at Sanford Bernstein. Tim Anderson - Sanford C. Bernstein & Co., LLC., Research Division: On your proprietary basal insulin, if I remember right, you said you need to see differentiation to really take that through full development. And I'm wondering if you can call out where you hope to see differentiation based on early work that you've done. It is something like dosing flexibility or flatter PK/PD profile, or what exactly? And then on solanezumab, just if I can get an update on timing. You said in the past, it would not make the late July meetings. I think it used to be called ICAD [ph]. What would be the next logical medical meeting after that because it doesn't look like there's much in the second half of the year? ANA is in October, but that's not typically an Alzheimer's meeting. And it kind of begs the question of, is your goal still to present results for the first time at a medical meeting versus top lining them in the press release?

Great. Jan?

Okay. If we look at our novel basal insulin, we are looking there to differentiate with some clinically meaningful outcome for our diabetes patients. And this could be, for instance, less hypoglycemia versus Lantus. It could be differences in body weight changes versus Lantus and potentially could be even a better glycemic control. We know from our earlier studies that this agent has a very flat profile with very small interindividual variation. So we are very hopeful about the types of differentiation that we can see from this agent, and we will report at the ADA in June our data from both type 1 and type 2 studies comparing with Lantus. The timing for solanezumab communication, et cetera, is as follows. The first EXPEDITION trial has completed. Last patient visit now in April; the second one, we'll do it in June. We will have a quarter 4 communication of the data in detail and plan also to have a high level communication before that on the top line data.

Tim, this is Ilissa. Just to give an update of the DMC did meet again earlier this month, and they recommended continuing the double-blind and open-label studies without modification.

Okay. The last thing I'd add, in terms of ADA and the information on our novel basal insulin analog, we will have I think 10 different abstracts and presentations at ADA this year, spanning preclinical Phase I and the 2 Phase II trials. And we are anticipating we'll have more details for you in the next week or 2 on having an investor event at ADA, to discuss not only the data for the novel basal insulin analog, but also the data we've presented earlier in May on our hemodynamic study for dulaglutide. So look for the notice on that. We look forward to having you participate in the call or some of you live with us at ADA.

We'll go to the line of Mark Schoenebaum at ISI Group.

I want to ask about something that I think is -- personally I think is Lilly's most important commercial business, which is the insulin business. I haven't heard any questions on this from the analysts. So and a little last year, has looked like you guys have done a good job of stabilizing the share losses to Novo. So I'm kind of wondering, Derica, I'm not sure who to direct the question to, but if you could kind of give us an update and reflect back on 2011 what you did to stabilize that share. And how as analysts and investors, we should be thinking about share in the U.S. and in Europe for the insulin franchise versus Novo? And then the corollary to that is if you could update us on what's going on in Emerging Markets. I know in the Emerging Markets, in the insulin business right now, you trail Novo quite a bit. But in a sense, if that's all room for upside. So maybe you could give us an update on share and how that market overall is growing. And then the second question I had was I think this is the last conference call we're going to have with you guys before the Supreme Court has its way with the health care law. And I was just wondering in general over the short term and over the long term if the mandate is struck down and if the overall law is struck down, what kind of impact do you see to Lilly's short-term business and also the long term? I'd appreciate any comments you have around that.

Great. Let's go ahead and have Derica take the insulin, and we'll have Travis, who wants to help. Who followed that business with the team over the last quarter. And then, John, if you'd comment on the Supreme Court ruling. Derica?

In the U.S. if you look at our insulin business, and specifically Humalog, we've had a number of interventions I think that’s improved our performance there, [indiscernible] the president of that unit was here. He’d probably say, one was we obviously have gone back and upped our game in terms of our medical reps and the quality information they're bringing. With that, it's accentuated through: one, the launch of the 3 ml vial in the hospital setting, and that's allowed us to gain much greater traction there. Third, we've been able to really leverage the launch of Tradjenta on our insulin business. So therefore, we're bringing more comprehensive meaningful solutions to the customer and the physician, in this case. And then last but not least, obviously we've also had some impact in contracting. Now what you'll see is that year-to-year that's going to ebb and flow. So last year in 2011, we benefited from some of the contracting work that we have done. And if you look at our Q1 results and you're tracking the shares in Humalog in the U.S., you'll see in the first quarter we've lost some share and this was essentially due to us losing the CBS [ph] contract to Novo. But still the underlying performance has gone quite steady, and we see improvements and including in our key markets outside of U.S. where we continue to gain share as well.

And Mark, this is Travis. The only thing I'll add to Derica's comment around the Caremark formulary is that there were really 2 parts of that, that impacted our business. One, being the Medicare Part D part, and then the other part being the commercial part. With respect to erosion of share based on loss of that formulary, we do expect that with that as largely behind us, on both of those parts, it is worth noting that the custom plans, which are part of the commercial part, we did not see share of market erosion. So I just wanted to leave that point with you as well.

In terms of Emerging Markets in diabetes, diabetes is an area of great importance for us in Emerging Markets, and our goal is to regain market leadership in diabetes. This quarter, we saw strong growth in Humalog. In terms of how we perform against Novo, we have approximately a 15% share, and this is something we're going to grow over time, but it will take time. One thing that's of key importance is ACCEPT. We've made significant progress on this front. And it has now put us on equal footing with Novo.

In terms of growth, just to put some numbers around that, if you look at the last sort of trailing 12 months, the latest data we have is of January. But mealtime insulin market in China is growing around 17% and changing. Our growth market was over 60%, 6-0%. John?

Well, everybody else has commented on diabetes, so I'd better get my 2 cents' worth in. I think you're right, Mark. This is -- we view diabetes as being, figuratively and literally, the heart of our business. And insulin and continued competitiveness in insulin is the key for our success in this therapeutic area. I think looking ahead, what are the levers that we have and what are the things that we think will amount to critical success factors. Certainly, the BI partnership, which is global in reach, gives us not only additional coverage and presence in key markets, but also access to new molecules. We're focused on increasing the competitiveness of our manufacturing process and the competitiveness of the delivery devices that more and more are key determinants of patient choice in terms of people starting on insulin therapy. And of course, innovation. We have a pipeline today in concert with BI that includes the DPP-4, Tradjenta, currently the fastest-growing class, empagliflozin now completing Phase III. We have dulaglutide, our GLP, and of course, 2 insulins. So I think all of this [indiscernible] well for us being able to offer a broad range of products to the diabetologist, to the physician, to really focus on what the patient needs and not just on what we have to offer. With respect to the Supreme Court, obviously, if the law is upheld, we keep on keeping on. Last year, to put this in perspective, we paid about $586 million out of our treasury as a result of the Affordable Care Act. That was partly the fee, partly the increase, the rebate on products sold into Medicaid, and then the additional money needed to help Medicare patients bridge the donut hole. If the law is overturned, obviously, we would not have that sort of short. We would presumably regain what we essentially paid out in 2011 at least going forward. On the other hand, until something comes along that can replace the ACA, I don't think any of us believe there's a "status quo." It will be unclear how we address the very real needs of 50 million people in this country who are uninsured and who, therefore, presumably have less access or no access to products like the ones that Lilly offers.

We'll go to the line of John Boris at Citi.

First couple are just pipeline related for Jan on solanezumab. Can you give any commentary on the dropouts or dropout rate out of the clinical trials that are currently ongoing? Second question on the pipeline has to do with the BI deal. There certainly is the prospects for attractive combination products. Are you and BI exploring a combination of Tradjenta with impactful flows? And going forward it would seem that the hemoglobin A1C [ph] lowering effect to that combo could potentially be pretty compelling? And then last question, for John, just on the political scene. If we can possibly just get an update there, in particular, on how PDUFA is being shaped. And also do you see potentially there being any risk to higher discounts or rebates on dual eligibles and any additional givebacks on Medicare Part D?

John, we'll have Jan start off and maybe Ilissa chime in. And then, we'll in move over to John for the last part of your question.

Yes, if you look at the dropout rates for the sola trial, it's a different pattern than what we saw for semagacestat. For semagacestat, there were many more issues with patients dropping out because of side effects. For solanezumab, there is a small dropout, but that has mainly been due to practical reasons with infusion centers, et cetera. So I think we are quite encouraged by this and also by the follow-on trial where 95% of the patients had continued actually with solanezumab infusions. So I think that tells about the safety profile of these agents. I agree that to have both the DPP-4 and the SGL T-2 in the pipeline is great. And we have opportunities which we are pursuing there off combos between these 2 agents.

John, this is John Leichleiter. I think on PDUFA, we're pleased at this stage with the way in which the PDUFA 5 [ph] has been received on Capitol Hill. Certainly, we've engaged in a lot of dialogue with legislators there. And we believe that we're making good progress towards the passage of that, including the reauthorization of the pediatric extension or pediatric exclusivity provision. With respect to some of the issues that we've wrestled with certainly in the last year in the context of the deficit reduction and other things, the higher rebates, for the duals or other changes to Medicare Part D, I expect these are going to continue to be discussed. I don't expect in light of this being an election year that there's going to be action, one way or the other, but obviously waiting. So the country is wrestling this long-term deficit and the consequences of that to the ground. And I expect we're going to have to continue to stay very attentive to this issue and tuned into this. And to continue to make the case that Medicare Part D is not only working for seniors, it's wildly exceeding anyone's expectation in terms of its effectiveness and its cost.

We are nearing the top of the hour, which is our allotted time for the call. Because of technical difficulties, we will continue for a few more minutes.

That will come from the line of Greg Gilbert at Bank of America.

A couple for Jan. First, anything to update as on the timing and design of the evacetrapib studies. Secondly, on your GLP-1, given that you have results in-house, can you comment on your confidence in the safety profile of your drug versus the class? Or in any way that you feel comfortable disclosing the bigger picture confidence there? And I guess lastly, for John, I can't let you off the hook on Washington matters here. Which way is the wind blowing on taxation and repatriation? And when might we see some action on those fronts if ever?

Great. Jan?

Yes. Let's start with the evacetrapib. As you know, we communicated a very promising data then in the fall. And we have -- during extensive planning then for the Phase III trial, including then interaction with regulators, which we are close to completing. We have also been preparing the CMC material for the trial. We feel very good about the options we have to start this trial before the end of this year as we have communicated. In relation to safety of dulaglutide, Enrica [ph] presented some data last year about this agent. And as we said, we have completed the large hemodynamic study, which was originally a potential Achilles' heel for this agent. And we will now present this data very soon at the American Society of Hypertension meeting, which I think will clarify the situation for this agent. But we are very confident.

Greg, with respect to your last question, I'm going to turn it over to our tax expert, Mr. Rice.

Obviously, there are discussions and debates that continues. I think given this being an election year, no one anticipates that there's going to be any resolution on the tax front. And likewise, same thing is true in terms of repatriation. I think everyone is gearing towards that. Obviously, there are multiple proposals out there, depending upon what member of Congress you're talking to or the Senate. So this is just a space we're going to have to continue to watch. We continue to engage. From our position, our focus is on, obviously, if we can go to a territorial tax system, we believe that, that will be best for all. And if we can get repatriation relief that would be outstanding. But that's not our #1 priority.

We'll go to the line of Seamus Fernandez at Leerink.

So just a quick question on the Alimta patent situation. Can you update us on progress, both in Europe and the U.S., with regard to the patent that could potentially extend the life of Alimta to 2021, 2022? And how that might bake into your long-term expectations for the business? And then second question is really on the evolution of the potential insulin portfolio. Can you just give us again not just the thoughts on how the COGS could improve from the development or successful development of both the novel basal insulin and the biosimilar? But how do you envision the market evolving with both of those products potentially available?

Ilissa, I think, tackle the Alimta patent question and then I think Derica might want to chime in as well. Ilissa?

The patent for Alimta that you're referring to covers the administration of folic acid and vitamin B12, prior to treatment of patients with Alimta. In terms of an update, there was a Markman hearing that occurred yesterday. And that case was to determine the meaning of 2 disputed claim terms, vitamin B12 and patient. That hearing happened yesterday. The judge did state that a decision is expected within 45 days. Other than that, the case is still in early stages of fact discovery and a trial date has not been set. Obviously, we're not able to speculate on what the outcome will be, but we're prepared to continue our vigorous defense of this patent. And as you mentioned, it would extend Alimta exclusivity through May 2022 in the U.S. and 2020 in Europe.

And then the first instance overseas in Europe, Seamus, we had prevailed. That's now in the process of appeal. I don't know that any hearings are scheduled to occur again in that particular proceeding until potentially into next year. Derica, do you want to comment at all on sort of how this might play into our planning going forward, if it's upheld or if it's not upheld?

Seamus, if this is upheld, then this will be upside for us. And clearly, we will reap the benefits of the continuing revenue stream, and obviously, cash flow from that. In regard to your next question in terms of the evolution of our insulin portfolio, we actually are very excited about the breadth of portfolio that we have in the diabetes space, going from our presence now in oral to our presence in GLP to now with the 2 basal insulins that we have and the development of the basal space as well as the mealtime. So we believe on a competitive front, we'd be the only big pharma company that will play in all of the diabetes segments. As it relates to the particular -- the insulin portfolio, in particular and in focusing more on the basals, we believe just looking at the basal space clearly Lantus glargine has become the standard of care there, and we believe it will have a continuing presence there. So we looked at the market dissection. We believe Lantus will retain at least about 1/3 of the basal market. We believe that biosimilars, including our glargine-like product, will occupy about that second, third. And then we believe there's space for a new innovation in that basal space, and this is where we look to play with our novel basal insulin in that last third.

Thanks, Derica. As always, we definitely appreciate your interest in Lilly and your participation in today's call. In particular today, we appreciate your patience as we worked through technical difficulties. If you do have additional questions, the IR team will be available throughout the day. Hope you have a great day. We'll talk to you soon.

Thank you. Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.