Ladies and gentlemen, thank you for standing by and welcome to the Eli Lilly First Quarter 2014 Earning Call. For the conference all participants are in a listen-only mode. There will be an opportunity for your questions and instructions will be given at that time. (Operator Instructions). And as a reminder, today’s call is being recorded. I will turn the conference now over to your host, Mr. John Lechleiter, Chairman, President, and CEO. Please go ahead sir.

Good morning everyone. Thank you for joining us for the second time this week, today to discuss Eli Lilly & Company's first quarter 2014 earnings. I’m John Lechleiter, Chairman, President, and CEO. This quarter and going forward we're taking a slightly different approach to our quarterly calls, we are bringing more of our senior leaders into the room to participate and to answer your questions and we hope that this enhances the quality of the information we are able to provide you during these sessions. So joining me today are on the call are Derica Rice our Chief Financial Officer; Dr. Jan Lundberg, President of Lilly Research Laboratories; Sue Mahony President of Lilly Oncology; Enrique Conterno, President of Lilly Diabetes; Dave Ricks, President of Lilly Bio-Medicines; Jeff Simmons, President of Elanco Animal Health and Phil Johnson and Ilissa Rassner of Lilly Investor Relations team. During this conference call as usual we anticipate making projections and forward looking statements based on our current expectations. Our actual results could differ materially due to a number of factors, including those listed on slide three and those outlined in our latest forms 10-K and 10-Q filed with the SEC. The information we provide about our products and pipeline is for the benefit of the investment community. It is not intended to be promotional and is not sufficient for prescribing decisions. Before covering our first quarter 2014 results, I’d like to share some high level observations. Lilly continues to make good progress in executing the strategy we laid out nearly five years ago to navigate through this period of unprecedented loss of the revenue and income precipitated by patent explorations for several of our largest products. We have continued to invest in R&D and have successfully replenished our late stage pipeline. The first fruits of…

Great. Thanks John. First, I'll review our GAAP results and then discuss a few non-GAAP measures to provide some additional insight into the underlying trends in our business. On slide 7, you can see that revenue in Q1, 2014 was $4.7 billion, $0.16 below Q1, 2013. This decline reflects a full quarter effect of the Cymbalta U.S. patent expiration as well as the initial effect of the Evista U.S. patent expiration. Excluding Cymbalta and Evista in the U.S the rest of our worldwide revenue grew 1%. It is also worth noting that wholesaler purchasing patterns substantially dampen the U.S. revenue growth in the first quarter. Excluding this effect of rest of our worldwide revenue would have grown 4%. Gross margin as a percent of revenue decreased 5.4 percentage points driven largely by the loss of Cymbalta’s U.S. exclusivity and to a lesser extent of a loss of Evista U.S. exclusivity as well as by the impact of foreign exchange rates on international inventories sold. This quarter foreign exchange rates on international inventories sold had a negative effect on gross margin. However in Q1, 2013 foreign exchange rates on international inventories sold provided a benefit to our gross margin. Excluding this FX effect from both 2013 and 2014, gross margin as a percent of revenue declined from 79.1% in Q1 2013 to 75.8% in Q1, 2014. As in past quarters, we've included a supplementary slide providing our gross margin percent for the last 10 quarters, with and without this FX effect. Non-GAAP measures are shown on slide 8. Total operating expense defined as the sum of R&D and SG&A decreased more than $400 million or 14% versus Q1 of 2013. Marketing, selling and administrative expenses were down 10%, our R&D was down 18%. The reduction in marketing, selling and administrative expenses…

Thanks Phil. Slide 11, shows the effective changes in foreign exchange rates on our 2014 results. Now, at a high level, FX had a modest negative effect on our underlying foreign currency dominated revenue and costs. However, this quarter the effect FX on our cost of goods sold also had a negative effect on our results. In the first rows of numbers you will see the FX negatively affected worldwide revenue growth by two percentage points as Phil mentioned earlier. In the second row, you can see that FX caused cost of sales to increase by 7 percentage points. Driven by the strengthening of the euro, in Q1 this effect this year, the effect of FX on international inventories sold led to a substantial additional cost being booked to cost of goods sold, while last year it led to a modest reduction in cost of goods sold. As a result, excluding FX, cost of goods sold actually decreased 1%. So as you can see in the last two rows, why our operating income and earnings per share declined substantially due to the patent expiration of Cymbalta in the U.S., foreign exchange further reduced operating income and EPS growth by double-digit. Slide 12, shows our pipeline as of April 21. Changes since our last earnings call are highlighted with green arrows showing progression and red arrows showing attrition. Now as John mentioned earlier, we received approval of ramucirumab for the treatment of advanced gastric cancer as a single agent after prior chemotherapy. In addition, we began Phase II testing of a biologic for anemia and we began Phase I testing on a small molecule for cardiovascular disease. And we terminated the development of four assets, two in Phase II and two in Phase I. As John also indicated with a number…

Thanks Derica. Before we take your questions, let me briefly sum up. We describe this moment as a pivotal point for Lilly and it’s literally that. Even as we feel the maximum impact of our patent expirations, FDA approval of Cyramza along with the CHMP’s positive opinion on empagliflozin are significant milestones as we move beyond this period to a path of renewed growth. Our recent announcements to acquire Lohmann Animal Health and Novartis Animal Health position us for continued growth in the attractive animal health business. For the past five years, we have been candid with you about our challenges and our plans for overcoming them and we’ve delivered what we said we would. We said our first priority was to continue to advance our pipeline. And over the course of 2014, we will continue to generate and disseminate data on a number of Phase 3 molecules. We expect to make a number of regulatory submissions of potential new medicines and we expect to launch multiple products, starting later this quarter with Cyramza. We said we would offset some of our revenue loss by driving revenue growth across a broad range of products, geographies and businesses. Three of our so called growth engines performed very well in this quarter. Japan grew 16%, China grew 21% and Elanco Animal Health grew 6% despite the negative impact on companion animal health of a colder than normal winter. We said we would increase productivity and reduce operating expenses significantly and operating expenses in the quarter were down 14% versus the first quarter of last year. Overall, our first quarter financial results put us on track to meet our 2014 guidance. Our solid financial performance will enable us to continue to invest in our pipeline including our new product launches to pay the dividend at least at its current level to recapitalize our physical asset base to reinvest in our business through opportunistic business development and to return excess cash to shareholders through our share repurchase program. We remain confident in our strategy and in our ability to execute it. And now I’ll turn the call over to Phil for the Q&A session. Thank you.

Thank you John. If I could ask John the operator who is helping us with the call today to provide the instructions to the callers for the Q&A session and then we’ll get started with the first caller.

Certainly. (Operator Instructions). And the first go line of Chris Schott with JPMorgan. Please go ahead.

Great. Thanks very much for the questions and appreciate you guys putting the whole management team on the call here. My first question was for John, we’ve seen a trend of increased focus and specialization occurring across the pharma group here, I guess more recently we’ve seen companies actually taking actions to look at our strategic alternatives for non-core or sub-scale businesses, obviously you’ve been require some aspects of these decisions, but more broadly, you [celebrate] your thoughts on these trends and would Lilly look to further narrow its focus and potentially divest assets. My second question was on the CDK4/6 program, if you elaborate a little bit more on the Phase III program here, I guess would you be looking at adjuvant in addition to the advanced breast cancer market? Second and can you just elaborate what’s the earliest duty of this product to market? I am just trying to understand how quickly you can enroll a study is there interims just realistically when we think about this program being at position that you could file? Thanks very much.

Chris thank you for the questions. We’ll have John to take your first one obviously and then Sue, if you want to comment on the second piece I can help if necessary. John?

Chris thanks for your question, I think that judging from events of the last week, if they combine to make a trend, I think you are, as I think I said in the Wall Street Journal earlier this week, you are seeing companies build on their strength, add to existing areas of strength and get rid of assets that where they believe they might be a subscale. Animal health realistically is one of a few opportunities we have to diversify in a meaningful way in a business that we believe still has very strong synergies back to our pharma business, I mean when we look at research, we share common footprint for research, we share a good number of manufacturing capabilities and assets and a global infrastructure that I think enables Elanco to be successful and we’ll continue to enable Elanco to be successful. I can’t comment specifically about whether, we would look to shed other assets. I think from -- we're pretty -- we don’t have that many sort of extra assets or businesses and OTC business for example or our vaccines business or what have you. But I think it's pretty clear that we're going to continue to focus a lot on diabetes and oncology and animal health. I think our bio-medicines portfolio gives us some options. We are going to know by the end of the year, will we be able to establish an autoimmune portfolio with 3 Phase III data readouts. We have a big bet still when you look at Alzheimer's with sola in EXPEDITION III trial ongoing now and enrolling. And then as we have said last call, we've completed [enrollment] evacetrapib which I think could be a very significant product in the cardiovascular space. So, I think we're guided more by where can we build on a solid footprint and on in the area where we have greater opportunity with the assets we have. And the idea of divesting assets would sort of only follow from that go forward kind of thinking, if that makes sense.

Great, thank you John. And Sue on the CDK4/6 inhibitor.

Yes, let me try and address the question on CDK4/6 inhibitor bemaciclib. We presented the breast cancer cohort data AACRBT and we have announced that we will be starting Phase III studies this year. In fact, if you look at ct.gov we have on that the Phase III study with (inaudible) in metastatic breast cancer. In addition, to that we have a Phase II single-agent study. We are excited by our single-agent activity that we saw in our breast cancer cohort. So we are initiating a confirmatory Phase II study there. With regards to other life cycle planning and timing of approvals of which I can't speculate on those at this point time, I would just say that we are going to continue to progress this molecule as we do as a safety, as we are excited by the single-agent activity and dosing and safety profile that we've seen so far. We also will be presenting our long cohort at ASCO this year and look forward to sharing more data on that.

Thank you, Sue. John, if we have the next caller please.

We and that’s Tim Anderson with Sanford Bernstein. Please go ahead.

Thank you. If I could just maybe finish out with a question on the CDK and that lung data coming up. Can you just directionally give us some idea of your level of excitement with that drug in the lung indication and assuming that the data shows some degree of positivity just that kind of the development plan forward? And then my other question is on your animal health business from Novartis, can you give us an idea of what you think that dilution will be to 2015 earnings on an adjusted non-GAAP basis. And you are talking remedying the manufacturing problems that division has had, so operating margin that Novartis disclose, I think was basically breakeven so it’s not profitable. It seems to me that the minute you kind of transport this products into some other manufacturing facility, you have an immediate margins bump up, am I thinking about that correctly and what would be the timeframe for that?

Great. Tim thank you for your questions. So we will Sue answer the CDK 4/6, Derica if you would ahead and take the question on the impact for 2015 non-GAAP earnings. And then Jeff if you like to talk about the goals we have for getting profits backup overtime that would be great? Sue?

Sure. With the (inaudible) data we presented last year at ASCO the Phase 1 study and we have done a number of cohort expansion since then. As I said, we presented the breast cancer expansion data at AAC, we will be presenting the lung cancer expansion data ASCO, until we present that clearly, I can't comment on that data, against just to say that we are continuing to look at opportunities to progress this molecule and we will be updating you as we get new data.

Thank you, Sue. Derica?

Sure. Tim this is Derica. I can’t comment or I am not able to comment as to what the dilutive effect would be in 2015 at this stage, obviously it’s going to be predicated on when we actually close the transaction and right now we are still projected to close by no later than the end of Q1. What we have said is that if we assume a January 1, 2015 close we would expect that this deal would be accretive on a cash basis by 2016 and should begin to return to historical levels of margins that you have seen on Lilly’s animal health business no later than 2018 our three years post closing.

Yes, yes. So, I will follow up on that. First of all I want to emphasize that the manufacturing problems were as you know in Lincoln, Nebraska they were human health related, this is a big part of our diligence. The transfers have already started to take place on the animal health side. We are very confident as we look at the second half of 2013 in Novartis Animal Health, the trajectory that they are on. They came in to these problems in a top-tier growth 6% to 8% is in animal health business. And we believe when we combine what we have seen in their history and their trajectory in the late part of last year and the transfers that are in place that we can get to exactly where Derica mentioned, two to three years out we can get back to that mid 20s EBIT percentage and we have definitely spent a lot of time and the diligence looking at this transfer and transition in this business. So this was a big part of our assessment of the value. I am limited on more details than that at this stage.

Thank you. John if we could have our next caller please.

And we will go to Mark Schoenebaum with ISI Group. Please go ahead.

Hey Mark we can’t hear you?

I am sorry guys, sorry about that, can you hear me now?

Yes we can.

Okay. So I would just like to come back to the CD 4K if possible, couple of questions. Congratulations on the data; looked really good. I am just wondering in the Phase III program, you’re using IB (inaudible) I am just wondering why the choice to combine the PET drug as opposed to letrozole which was obviously Pfizer’s choice. And also wondering on the differentiated neutropenia profile that you’ve seen for your drug, if you have any explanation, so that Pfizer has made some comments in the public domain that your compound made buy into different targets than theirs et cetera. I am just wondering if you might be willing to offer a mechanistic rational? And then finally on use of capital, given the Animal Health acquisition recently, earlier this week, should we as investors and analysts view you at least over the next year or so as reasonably be balance sheet constraint such that we should not have expectations that you could do a deal of similar size on the human health side? Thank you.

Great. Mark, thanks for your questions. We’ll go ahead and have Sue take the CDK 4/6 questions obviously and then Derica on the business development going forward. Sue?

Sure. The Phase III study that we have currently on clinicaltrials.gov, as you said is bemaciclib in combination (inaudible) in metastatic breast cancer and that includes both first and second line patients, we also I said have the single agent Phase II. We’re going to continue to look at other areas with regards to (inaudible) is one of the obvious combinations of that. With regards to the mechanism of action, we know that bemaciclib is selected to CDK 4 and 6. We can’t comment on why we’re seeing this different levels in neutropenia other than we are seeing a different safety profile. And we as I said, we are able to do continuous dosing with this agent, we have single agent activity with this agent and we have a different safety profile with lower levels of neutropenia other than to say that we have, we selected CDK 4 and 6 I can’t comment on whether there is a specific mechanism of action here.

Derica?

Mark, this is Derica. As we stated on our animal health investor call earlier this week, the March animal health transaction does not change or materially affect our ongoing capital allocation strategy, we still believe we have the capacity to sustain our dividend at least at this current level, and we're still in a position going forward to consider future dividend increases, this does not affect our outlook in terms of our ability to complete our share repurchase program, we're still committed to the 5 billion. And as it relates to business development, we still have the capacity to pursue the types of deals that you’ve seen from Lilly historically. We’ve never been adding the space of mega mergers, but if you look at our history, the largest deal we’ve done is ImClone, now the second largest deal is to be the Novartis Animal Health and after that was ICOS for about 2.5 billion. So within that space we absolutely have the capacity to pursue those types of opportunities.

Mark one thing I might add on the CDK 4/6 neutropenia, it certainly could be that Pfizer condition the market to believe that this mechanism would be causing neutropenia full stop and so those were linked. There was data we presented at AACR to show that those patients that received 30% or greater reduction in tumor size, a significant proportion of those did not have neutropenia. So I think we may need to rethink a little bit what is actually causing the anti-tumor response and what maybe causing neutropenia. John, if we have next callers please.

And that’s Steve Scala with Cowen. Please go ahead.

Thank you. Regarding the 2015 outlook, assuming a January 1, 2015 close of Novartis animal health, does Lilly view consensus of 317 as reasonable at this early stage. And if you are not willing to comment, should we conclude you are not comfortable? The second question is on your novel basal insulin. Based on the data that you now have in-house, are you fully confident that you have a differentiated molecule versus Lantus? And then the third question on dulaglutide, you achieved non-inferiority to Victoza in Award-6. But as the numerical trend was worse on some end point, how will you overcome that obstacle in the marketplace? Thank you.

Steve, thank you for the questions. Derica, if you will take the first one of 2015 guidance relative to street’s expectations that they have currently and then Enrique for the two diabetes question.

Hi, Steve, I like the phrasing of your initial question. But let me try to clarify, I’m not able to comment on specific 2015 guidance at this time. And it has nothing to do with our level of comfort or discomfort, it just means that we're not in a position to provide guidance and we typically haven't at the stage of the game. What we have said is that we do expect that in 2015 that we expect to return the growth and margin expansion and obviously that was prior to the impact or the contemplation of the acquisition of Novartis Animal Health.

Great. Enrique?

Steve, we have I think very consistently said that when it comes to our innovative basal insulin, we would only see us launching that if we truly can differentiate against Lantus. Now all of our trials are basically against Lantus, we have a number of measures that we are looking at, we have talked about glycemic control, we have talked about nocturnal hypoglycemia, a better weight profile and also lower use of the meal time insulin dose with a product as some indications that we basically saw in Phase II. Clearly, we also saw some signals when it comes to side effects. At this point in time, I'm just going to ask for all of us to wait, we believe that we should be in a position to issue a top line press release this quarter. On dulaglutide, I really cannot comment more than what we basically have said, as part of the press release, we are pleased with the results of Award-6, we will have to wait for the detailed disclosure of the data. At this stage we believe we have a very competitive product and we are very bullish on it.

Thanks Enrique. John, if we could have the next caller please.

And we will go to John Boris with SunTrust Robinson Humphrey. Please go ahead.

Thanks for taking the questions. First question, John you had mentioned about the improved customer focus; can we maybe hear from your business leaders about that customer focus, especially since this changed pretty significantly over the last decade to the payers and the push back impairs on pricing, but in particular oncology and diabetes, how well prepared you are to secure formulary access for your assets, if you are going forward? And then quick question on the CDK 4/6, have you applied for breakthrough designation on the compound, if you haven’t, what is the hold up for applying (inaudible). Thanks?

Great. John, thank you for the questions, we will go ahead and hit the commercial folks for our pharma business. So, we’ll start with Dave Ricks and then will return to Enrique and then since Sue can comment on oncology part of your first question and then also CDK 4/6, we’ll finish with Sue. Dave?

Thanks for the question. As John Lechleiter mentioned in his comments, we have taken the opportunity over the last four years as we restructured our company to really improve our capabilities to go to market, this includes significant investments in our payer capabilities, already Enrique in particular commented on that as we prepare for the diabetes launches. But we feel good about both U.S. and non U.S. investments we have made to represent not only the major payers but key accounts at all stages in the healthcare system. We have also substantially restructured our sales force not just to be stronger and leaner but I think go to market in a pretty different way. We’re not going to go into the details of that for competitive reasons here but I think we overall feel good about our ability to commercialize the future pipeline. I would also comment that Lilly continues to investment in our direct to consumer and direct to patient capabilities globally which of course includes the DTC in the U.S. but also other direct patients contact initiatives and patient support outside the U.S. So overall, I think we are in good shape competitively here. Enrique, do you want to add to that?

Sure. When it comes to diabetes, I think all of us know the payer environment is very complex, it’s challenging, both coming from the decision that payers are making as well as competition that we have. From our perspective, we believe and we continue to believe that choice continues to be extremely important. Now, we clearly see that sometimes this is not an option that we have and in those cases, we do compete for preferential access, in particular when it comes to portfolio which is what we are marketing now. As we make the decisions, we do look at both financial and strategic considerations in terms of how competitive we are going to be with the different accounts. I would mention that in the case of Tradjenta, the engagement with the payers is done through BI.

Sue?

Yes. And with regards to oncology, clearly from a sales force perspective, we have a very experienced sales force globally in oncology. With payers, again focus is very in ensuring that we are bringing value to those patients in continuing to bring medicines that offer value to patient pays and physicians. We also really clear that we need to ensure that we continue to get value for continuous innovation which is the foundation of oncology development. With regards to our CDK4/6 inhibitor we are focused here is to ensure that we get this medicine to patient as quickly as possible and we will continue to work with the FDA and other regulatory authorities to enable that.

Great. Thank you John. Next caller please.

And we’ll go to Jami Rubin with Goldman Sachs. Please go ahead.

Thank you. This is really a question for Sue. Just in the spirit of the industry specializing and getting more focused. In the area of oncology Lilly is conspicuously absent in immuno-oncology is that an issue without immune-oncology agents, can you still be competitive in this arena? And then secondly are you planning to develop studies combining your CDK inhibitor with immuno-oncology or rather ramu or the other TGF inhibitor, could you combine that, is that part of the game plan? But just really can you be competitive in oncology given sort of where the paradigm is changing? Thanks.

Thanks Jami. Sue?

Thank you Jami. It’s a great question. Clearly there is a lot of interest and excitement about immuno-oncology and I think it’s been very clear that we think new data some tumors, particularly melanoma in others. We don’t have a PD1 and PDL-1 inhibitor. We do have a number of molecules in our pipeline though that do work on the immune system. The TGF beta pathway is important in immune defects in a number of tumor types and we have both large molecule and small molecule inhibitors to TGF-beta. We also have other molecules in our pipeline in earlier phase including our CXCL-4 antibodies, F1 receptor antibody and our P38 small molecule inhibitor as well as research efforts focused on it. So no, we don’t believe that we're absent in immune-oncology at all, clearly we are excited at this point in time by the fact that over the last 18 months also we would have four positive Phase III studies, I’m sure an overall survival improvement in lung cancer, in gastric cancer. And so with very much focus on ensuring that we get those medicines to patients as soon as possible. And yes we do believe that combination both of target agents chemotherapy and immunotherapy is going to be the future in oncology and we're very much focused on that.

Great. Thank you, Sue. Jan, you want to comment as well?

Yes I can also add that we have seen I think the emergence of a new area where a lot needs to be done still and there are a number of additional targets at the preclinical space that is being explored, but that will come to the clinic in due course. So I think we are serious about this and we have also done some key recruitments recently and are strengthening this area, where we can actually then apply our core drugs hunting skills immediately then to novel targets.

Thank you Jan. John if we can have the next caller please.

And we’ll go to David Risinger with Morgan Stanley. Please go ahead.

Yes, thanks very much. I was hoping that you could just explain in some detail how you calculate the -- sorry, I had an incoming call, my apologies. If you could just explain your calculation of U.S. net price, so obviously Cymbalta had a significant negative impact on that calculation. But I just wanted to better understand how you run the calculation whether it’s the step down in U.S. net price in the first quarter or your full buck of business was solely driven by Cymbalta or whether the diabetes franchise is experiencing price declines? And how you go about calculating it, maybe you assume, I don't know the authorize generic price for Cymbalta or something and that drives that calculation down dramatically? And then separately, with respect to ASCO, just wondering, if you are what's your planning on in terms of investor events or specific investor discussions at that event? Thank you very much.

Great, thanks for the questions Dave. While Derica respond to your first question and then Sue on your question regarding ASCO. Derica?

Hi, Dave. In regards to our U.S. net price calculation, it is really comprised of three elements, one is obviously any going rebate that we provide relative to the prior period. Secondly, here in the near term it does include the impact of the authorized generic which would be at a lower net price. And the third would be any adjustments we made to our growth to net accruals as we reconcile to any receipts that we're receiving from the government. As it relates to the rebate, the first point I started, we did see in the quarter, obviously the impact of the ESI contract in the U.S. where we know in our diabetes business where we did see price deflation rather than price growth on a net basis. So, those are three elements that are driving the price effect that you are seeing in our Q1 results in the U.S.

Thanks Derica. Sue?

Yes. With regards to ASCO, we have a number of interesting presentations at ASCO. We have follow up to the RAINBOW, gastric cancer study being presented, we've also got the necitumumab squire first line squamous study being presented as an ORO. And the ramucirumab Cyramza, second line lung cancer study being presented as an oral as well as CDK 4/6 lung cancer cohort. So clearly we feel that we have got some interesting information and we are planning to have a conference call of some sort to be finalized with [you all there], so to stay tuned on that one.

Great. Thanks Sue. John, next caller please.

And we will go to Jeff Holford with Jefferies. Please go ahead.

Hi, thanks for taking my call. Just a bit further commentary from you on the insulin pricing environment in the U.S. (inaudible) obviously you’ve got a bit of a onetime impact here. Just give me your thoughts about just sort of going forward how you view insulin pricing environment particularly in the analog space. Secondly do you think there is any other specific areas within animal health that you would look to add or build on this in the future? And then just lastly on your CDK, and there’s been a lot of questions today, but do you think it is possible there could be any kind of different color got into profile regarding neutropenia on this products used more chronically in combination with (inaudible) therapy? Thank you.

Jeff, thank you for the questions. While Enrique take your insulin pricing question for the U.S. obviously Jeff Simmons for animal health question and back to Sue again for the topic of the data CDK 4/6 inhibitor. Enrique?

Yes. First when it comes to our overall insulin business, let me provide this a bit of broader context. When we look our overall insulin franchise, we had very good volume growth worldwide. Our volume growth was basically 8% to 9% when we look at our insulin franchise and this volume growth was solid across all regions based on our ability to be competitive when it comes to our presence in different geographies. When it come to the U.S. I think it’s important that we do recognize, there were two impacts here. There was a net pricing impact of the contract ESI and other contracts as well, as well as there was a very significant inventory effect when it comes to wholesalers. That inventory effect was in the high single-digits in the U.S. So that was an important impact for us when we look at our overall demand and all of you have access to the script data, it is very good that we have seen not very significant impact when it comes to our share performance and our overall volume performance. Going forward right, this is something that we monitor very carefully when it comes to pricing, but we have now over 50% of the market that has gone to preferential formula is when it comes to analogs. Question is how quickly will the rest of the market go there I think it’s fair to say that we are fighting to make sure that patients continue to have choice, but at the same time as I have shared we need to be competitive whenever a payers basically makes the decision that they are going to narrow the formulary. At this stage it is difficult to make more comments when it comes to looking at the future of insulin pricing, I would just say that we do monitor this very carefully and we have become increasingly more sophisticated to think about both financially and strategically what’s in our best interest.

Jeff?

Yes Jeff. I think to answer your question the first thing I would say is Novartis, deal we announced this week was our eighth acquisition since 2007. So I think we’ve got a good track record here in terms of integration. And our focus, no question, rest of this year and going forward is going to be on efficient and timely integration of both Lohmann, which we hope to close here in this quarter as John mentioned and Novartis. That will be our focus. So I think as you look at acquisitions, it will be back earlier in the pipeline, heavier focus on innovation, 60% of this growth we’ve out grown the industry 3x, and 60% of that growth has been innovation. So it will be acquisitions more at a product level earlier back in a pipeline.

Okay, thanks. Sue?

With regards to bemaciclib, clearly we see lower neutropenia in single agents, with single agent bemaciclib. We’ll have to see the Phase III data with combination for fulvestrant to see both the efficacy and safety there. We do have a Phase I safety study that we will in combination with fulvestrant at ASCO, so we have to see some more data there on the safety profile of bemaciclib with fulvestrant.

Great, thanks Sue. John, next caller please?

And that will be Marc Goodman with UBS. Please go ahead.

Yes, first on Alimta, can you give us a little more detail on the usage trends, both in the U.S. and ex-U.S.? And then Enrique, you were talking about diabetes and insulin, maybe you could just give us your sense of what you’re seeing out there with the orals DPP-4s, SGLT2s and also maybe comment on the GLP-1s as well, just trends you’re seeing in the market and growth rates and how much SGLT2s is moving ahead of DPPP-4s and how much is using a combination therapy? Thanks.

Marc, thanks for question. We’ll Sue obviously take the first one for Alimta and then Enrique the second. Sue?

Sure. So with the Alimta, if we look at our Q1 performance, Alimta sales grew 2% that was given by the U.S. with negative growth offset by strong performance in ACE and Japan. In the U.S. the decrease was nearly driven by buying patterns with to a lesser extent some selling price impact as we’re seeing higher share in [340B] account. OUS, in Japan we saw again buying patterns, which in the other way was more positive way with regards to stocking in prior to the tax consumption change and also in ACE we saw very strong volume growth driven really in the maintenance. So what we are seeing is we're continuing to see a first line market share growth and continuation maintenance growth. And our focus really with Alimta continues to drive back to ensure that when patient start on Alimta, they continue on Alimta and we get more continuation maintenance. Alimta continues to be the market leader in non-squamous, non-small cell lung cancer in the first line setting globally. We also, Alimta is the market leader in the maintenance setting. However, we still see the opportunity to grow the maintenance market, so that when patient start on Alimta, they continue on to progression and go in continuation maintenance and that’s clearly our focus now and going forward.

Enrique?

Very good. First, the market dynamic for the orals, I think we're seeing very good growth when it comes to new patient volumes. We’ll take in combination, both the DPP-4s of new patient starts, the DPP-4 class plus the SGLT2 class. This new patient growth that we're basically seeing is slightly above where we had expected it to be. So we're very pleased with that. I think the SGLT2 class is off to a very good start and it seems that is being adopted very well. When it comes to GLP-1s, I think it’s slightly different that we believe that the GLP-1 market could expand in a very significant way, but we have not seen that at this stage. We, I'll be frank we are counting on dulaglutide to be an enormous catalyst for that growth. I think, I'd share while we have basically looked at the dula, against liraglutide highest dose, our intent of doing that has been to basically ensure that we get the right price and reimbursement for our product. We are not seeking to just switch patients from dulaglutide. The big opportunity that we have in this particular case is to ensure that we can expand the GLP-1 plus in a very significant way. And once again, we see dulaglutide as a pretty important catalyst to that. You were also asking about the payer environment on both of those classes. Without going into a lot of detail, payers today view, when it comes to GLP-1s more differentiation between the products, then maybe when it comes to meal time insulin. I think that's also the case for basal insulins. So the formularies when it comes to GLP-1s and basal insulin don't tend to be as narrow, as they are in the case of meal time insulins. In the case of the orals, formularies today are narrow, that is clearly a risk going forward. But it is not like the case of the meal time insulin, where you may have just exclusively one product in the formulary. In most of the formularies, when it's comes to orals, there tends to be more than one product, maybe two products in that formulary, maybe not all, but maybe two.

Enrique, thank you. John, next caller please?

And that will be from the line of Vamil Divan with Credit Suisse. Please go ahead.

Yes, thanks for the taking the questions. So, on Ram, just thinking about that one, and seeing the success you’ve had in gastric and lung in the second line obviously data for colorectal and hepatocellular on all that soon. Just can you give us a sense of what other developments that we might see other opportunities from moving that product over now that you got the first approval here? And then just second one unrelated on the destocking seems like quite a bit of an impact here for you guys this quarter. Any special dynamics that you can highlight, and I think there is a talk about weather maybe playing a little bit of a role this quarter, and is there anything else that we should be thinking about and anyway to quantify some of your bigger products like Alimta, Cialis, Humalog exactly how much of an impact that? Thanks.

Vamil, thanks for the questions. Sue, do you want to take the ramucirumab question and then we will actually have Dave Ricks talk a little more in detail about the destocking that we saw in the first quarter based on stocking in Q4. Sue?

Yes. Let me talk about Cyramza because clearly we are extremely excited this week to announce that we have the first FDA approval for Cyramza and in fact it’s now the first FDA approved medicine for advanced gastric cancer following chemotherapy. And this is clearly a huge unmet need. And although it’s a very common, it’s a fifth most common cancer globally; it’s the third leading cause of death. It’s a rare disease in the U.S. We estimate about 22,000 patients will be diagnosed with cancer this year, with gastric cancer this year and a proportion of those is going second line treatment. So while I’m talking about ramucirumab, I want to make sure that I mentioned that. And also we are planning that we will have this product available over the next few weeks because we want to get it to patients. We also know that we got a number of questions of price, so I might as well believe it’s now all there. And we have as I said and it is a rare disease in the U.S., it is ramucirumab, Cyramza had been given orphan drug status. And we have priced CYRAMZA similar to other orphan drugs and (inaudible) biologics. So the price of an infusion based on the 60 kilogram patient is -- based on 70 kilogram patient, sorry, is $6,120. And given the median numbers of infusions that we use in REGARD trial which is the pivotal trial that led to disapproval this week its total price per patient will be $24,480. So that’s in the single agent second line gastric cancer. With regard to the combination gastric cancer trial, the RAINBOW study, we have submitted that to -- we plan to submit that as a supplemental NDA to the FDA very soon. Clearly, we also have completed the submission to Europe based on the REGARD study and are working to find the most efficient way of getting the RAINBOW study submitted to Europe and we plan to submit in Japan as well. You mentioned as well, we’ve got the two positive -- the other positive phase study, Phase III study in lung cancer which we will be presenting at ASCO and the HCC and colorectal studies should be leading out yet this year. So we are very excited. Yes, we do plan to do other studies of Cyramza as we plan our lifecycle plans. We are not able to give you specific details there other than to say that given the positive data that we have seen in both gastric and lung, we clearly are looking to ensure that we have full lifecycle plans for this molecule.

Thanks Sue, Dave?

Yes, in regard to inventories, there is two big effects on Q1, the first obviously the U.S., we have as Enrique mentioned a headwind in the high single-digits to even low double-digits across the marketed product portfolio. I just want to remind investors that we had a very robust Q4 on exactly the same products and stated at that time that there was a tailwind. Why this happens, I think is a cluster of just how the calendar works in terms of their buying patterns covering the holiday period in early January coupled with price speculation. Obviously if we look over a longer period of time this tend to smooth out in the U.S. We also in Q1 had a very strong performance in Japan. A portion of that is driven by Japanese stocking from Q2 into Q1 so you need to look through that as well. Again in long-term this tend to smooth out and I think in market performance for these key brands in diabetes as well as biomedicines I think are on track and consistent across the two quarters.

Great thank you Dave. And Bob well thanks for the questions. John next caller please.

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

Good morning and thanks for taking the questions. First to follow-up on the immuno-oncology question, just to clarify, are you looking for external collaborations for ramu in lung cancer with PD1 or PDL-1? And could you remind us if the ramu ACC and the other trial that’s ongoing is that going to be an external readout this year? Thank you. The colorectal cancer is the one I missed. Thank you guys.

Sure. Alex thanks for the question. Sue?

Sure. Alex we are continuing to look at multiple combinations obviously, Cyramza with its (inaudible) could be combined with a number of different agents. So we’re looking at multiple combinations including immuno-oncology combinations with many of our pipeline molecule, not just with Cyramza. With regards to the ACC and colorectal we should have the ACC readouts in the first half of this year, the mid this year and later this year, we should have the colorectal to readout. We are anticipating that we would do toplines on both of those and have external data disclosure on the HTC Phase III trial this year.

Thank you, Sue. John, if we can go to the next caller please.

And that’s Colin Bristow with Bank of America Merrill Lynch. Please go ahead.

Thanks for taking the questions. Regarding your business development on the pharma side, are you willing to highlight any mechanisms or therapeutic areas of particular interest to you right now? On evacetrapib, it seems like there is less optimism on this class from a kind of mechanistic commercial standpoints in (inaudible) on the outcome trial, what gives you continued comfort this is a viable mechanism? And could you just give some color on where you are seeing this fitting in an evolving landscape in CV risk reduction? And then finally with regards to ramucirumab, can you just confirm the Japanese filing is still anticipate before year-end? Thanks.

Great Colin, thanks for the questions. Let’s have Dave [turn out] with evacetrapib question. Sue if you want to reiterate our plans for ramucirumab in Japan? And then John, do you want to comment maybe on or Derica on the business development areas that we're looking at in pharma?

Great, thanks. On evacetrapib certainly Lilly remains very optimistic about this mechanism and thus the basis for original investment in evacetrapib remains which is that this drug has a very substantial impact on both LDL and HDL as well as other important cardiovascular markers. We believe that and that effect will demonstrate a significant reduction in major cardiovascular risk. We have a large Phase III program which is fully enrolled, we're waiting for events and we believe we are powered to demonstrate that reduction in major cardiovascular risk based on all those factors and actually on LDL alone. So, we're optimistic about evacetrapib, I think some of the noise in the classes die down posted dalcetrapib readout reminding investors that dalcetrapib molecule was quite different from evacetrapib in both its biomarker effects, but also structure, had much more modest effect in only on HDL. And of course you’ve a competitor at Merck in anacetrapib and they have had some interesting data come out of their own which I think has dampen enthusiasm for that program, but we remained both committed and excited about evacetrapib is potentially very large products in our future.

Thanks Dave. Sue, on Japan for ramu.

Sure. With regard Cyramza, yes we are on track to submit in Japan this year.

John?

With respect to business development we have lots of business development activities, little bit like the duck floats on the water and the feet are paddling away. We're looking at business development opportunities across all categories that we compete in. You know a lot about Elanco and some of things we've done there, obviously in areas of strength, like oncology and diabetes, we're looking at opportunities that might compliment or strengthen our current portfolio products or which could be used in combination with those products. And in Bio-Medicines, which covers a whole broad range of therapeutic areas, I think a couple of good example recently tanezumab, the collaboration with Pfizer on the anti-CGRP or anti-NGF antibody for pain and then our acquisition of Arteaus in January with the anti-CGRP antibody for migraine. I think we bias towards areas where we have internal therapeutic expertise, where we understand development pathways and where we have key customer relationships. You can expect that we'll continue to remain vigilant and opportunistic when other opportunities come along.

Great. John, Next caller please.

We will go Damien Conover with Morningstar. Please go ahead.

Great. Thanks for squeezing me in here. Just a question on the strategic level, it looks like we are seeing more movement from Phase 1 right into Phase 3, I am thinking little bit about this CDK 4/6 but we are also seeing that with a lot of your competitors, AstraZeneca making some announcements earlier today. Just want to get your thoughts on the risk reward of this dynamic and then also any commentary you have on, how much of this decision is internally based versus get it by regulatory authorities? Thanks.

Sure, Damien. Thanks for the question. I think we will have Jan response.

Yes. We have seen this for some time in the oncology area where some Phase 1 data then are used and then you go directly into Phase 3. And clearly the single has to be strong if you want to do this and you should also have a clear cut understanding of what is the patient population that you are targeting and preferably have some biomarker in the way to guide that. There is clearly a risk in doing this, because in reality you would like to have more Phase 2 data to ensure them the highest probable Phase 3 success rate. And in our strategy, we are talking about robust Phase 2 data as a good guarantee from improving Phase 3 success rates where you actually know the dose, the dosing regimen the patients who are selecting and the marker and the endpoints and so on. In relation to the Alzheimer area we and others have limited Phase 2 data then before you go into Phase 3, which is unfortunate but in reality you need so many patients and so long studies, you might as well do the Phase III trial right away. What you can do there though however is again to select the patients better by only selecting patients for instance then for anti-amyloid therapy that really has amyloid in their brain as detected for instance done by Amyvid scanning. So we actually again try to target those population in Phase III.

Great, thank you. I understand the queue is filling up again a bit, so we will continue since we have some time before the bottom of the hour. John, if we could go to the next call please?

And that will be Seamus Fernandez with Leerink Swann. Please go ahead.

Thanks for the questions and for the extra time. Just in terms of the met MetMAb and some of the decisions that Lilly makes from competitor data, can you just tell us a little bit of what keeps you involved in the c-Met mechanism whether it’d be, you have two inhibitors in Phase II study. So what do you need to see in Phase II to warrant a move forward into Phase III, given the sort of subset analyses that were a bit questionable from a competitor moving forward and then the ultimate failure of that Phase III, what is it that kind of has you take a harder look at that? And then can you give us a little bit more color on the oncology side from a scientific perspective, where how we should be thinking about the CSF-1R antibody and your enthusiasm around that approach in oncology? And then lastly Derica, I know you have been asked this question a number of times, but can you just give us again, you said that $2.9 billion of adjusted net income but $4 billion of operating cash flow, what proportion of that is historical amortization and depreciation, is it sort of a 100% of that or is it about $700 million, just to help us think about the comparable valuations given that most of your competitors actually exclude that from their P&L? Thanks.

Great, thanks Seamus. We’ll have Sue take your first question with regard to the MetMAb. We may actually to get back to you on the CSS-1R question and then Derica had to step out for a moment, so I’ll go ahead and take your question on the amortization and depreciation. Sue?

Yes, thanks Seamus. With regards to our MET program, we remain still excited with our MET program. Our MET antibody is different to the genetic antibody, it’s a bivalent antibody and it’s locked both ligand-dependent and ligand-independent cMET signaling which we believe could be important. We have two Phase II trials ongoing in lung cancer with this antibody. And we’re specifically targeting EGFR mutant population since there is -- the science shows that there is evidence for the relevance of EGFR and MET cross talk. So we believe that with the antibody that we got that’s bivalent as I say, targeting both the ligand and independent ligand MET expression plus our focus on EGFR mutant population that we’ve got an interesting molecule antibody development path and clearly we’ve got a Phase II program that we want to see the outcome of that Phase II program to decide whether we’d move forward with the Phase III. So we remain optimistic.

Great. Thank you Sue. Derica is now back with us, to now supporting the question in last minute, let me go ahead and I’ll take the answer and you can add if you need to Derica. So, Seamus on your question of the amount of depreciation amortization on an annual basis, that’s about $1.3 billion with a good chunk of that being amortization of intangibles. As I mentioned for this quarter that was about a $132 million that we had of amortization of intangibles but as you pointed out, many of our competitors now exclude from their non-GAAP or core earnings. We do not knew that and don’t have any short term plans to change, we certainly have notice that trend over time for more and more of our peers to exclude this, we continue to have discussion internally, but we will go ahead make sure that you guys know where to get to our 10-Q and 10-K language to find these numbers, so that you can make it appropriate adjustment for apples-to-apples comparison. John, next caller please?

And we’ll go to Mark Schoenebaum with ISI Group. Please go ahead.

Hey thanks a lot for taking my follow-up question. I appreciate it, I just wanted to get quick update on your PCSK9 antibody program to a little bit since I think we’ve got an update on that. And the specific question is there has been some speculation out there, I was wondering if you could clarify, if you be willing to clarify or it or not but your antibody might be able to be dosed less frequently than all the other competitors out there, something like once quarterly? Thanks very much.

Thanks for the question Mark. Dave, if you want to answer, fell free to chime in Dave.

Yes. Mark, as I reminder we’re in the middle of Phase II study, we expect that data in the second half. The purpose of that study is really to better elucidate the dosing schedule for the medicine. But I think it’s safe to say we believe that PCSK9s can make a significant difference in cardiovascular risk and that Lilly PCSK9 may have the benefit of an extended dosing schedule; how long what we would actually decide to do, if we proceed it with the medicine is to be determined.

Great, thanks Dave. John, next caller please.

And that will be Tim Anderson with Sanford Bernstein. Please go ahead.

Thank you. One of the bare arguments on Lilly relates Alimta and what the future of that product is given changing landscape with the PD1s. So, I know companies maintain 5 and 10 year long range plans, directionally what can you say about how you view Alimta’s trajectory, given what seems to be a change here? Is this something that you think is going to continue to grow or is there going to be some share losses, as you PD-1s start to take some lung business?

Tim, thank you for the question. Sue, that’s right up your alley.

Yes, Tim that's a great question and clearly the patent decision that we've got this year makes us feel much more comfortable with regard to the future of Alimta. We're going to have to wait and see what happens with regards to the PD-1s and immuno-oncology. We need to see the data mature, we need to see which patients would be most eligible for those agents. Our focus as I said previously is really to continue to drive the first line and the maintenance, so the continuation maintenance indications for Alimta. And even though we are market leader, we've only got less than 40% share market in the first line setting and only approximately 20% of patients go on to receive maintenance of the first line setting. So we do continue to see that there are opportunities, there are a lot of different agents being investigated in lung cancer which is great, because they needed huge. We made a lot of improvement over the years but there is an awful lot of improvement that needs to happen. So, I think clearly we’re watching and we’re involved in bringing new medicines to patients. We see that the lung cancer market is continuing to be an area of interest as we're bringing new medicines and because of the size and because of the unmet need. So I still see opportunity clearly for Alimta to grow. I’m glad that we won the patent and we are continuing to drive what we believe the opportunity is with three Phase 3 trials that show an overall survival advantage with Alimta and showing that you start with Alimta and stay with Alimta in the front line setting data, we can continue to help patients and we’ll continue to [develop] this brand.

Great, thank you. We might have time for one last quick question. John, do we have any callers on the line still?

Actually, no further questions in queue.

Okay, fantastic. Then I will turn it over to John Lechleiter to close out the call.

Okay, just very briefly I want to thank everybody for joining us. And we appreciate your interest in Eli Lilly and Company. We appreciate your feedback on this format, we have been for the past couple of calls extending the time to allow you to ask more questions and we intend to keep doing that, and to also involve our leadership team which is represented here today and these calls going forward. So if you have any feedback on this approach, please get back to Phil. We’ll see many of you at ASCO and at ADA. We will be back here again in July with report from our second quarter. Thanks again.

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