Eli Lilly and Company (LLY) Q3 2015 Earnings Report, Transcript and Summary

John C. Lechleiter - Chairman, President & Chief Executive Officer Phil Johnson - Investor Relations, Eli Lilly & Co. Derica W. Rice - Chief Financial Officer & EVP-Global Services David A. Ricks - Senior Vice President and President, Lilly Bio-Medicines Enrique A. Conterno - Senior Vice President and President, Lilly Diabetes Susan Mahony - Senior Vice President and President, Lilly Oncology Jan M. Lundberg - Executive Vice President, Science and Technology

Mark J. Schoenebaum - Evercore ISI Christopher T. Schott - JPMorgan Securities LLC Timothy M. Anderson - Sanford C. Bernstein & Co. LLC Vamil K. Divan - Credit Suisse Securities (USA) LLC (Broker) Gregg Gilbert - Deutsche Bank Securities, Inc. Seamus Fernandez - Leerink Partners LLC Colin N. Bristow - Bank of America Merrill Lynch Steve M. Scala - Cowen & Co. LLC Tony Butler - Guggenheim Securities LLC David R. Risinger - Morgan Stanley & Co. LLC Andrew S. Baum - Citigroup Global Markets Ltd. Marc Goodman - UBS Securities LLC Jeffrey Holford - Jefferies LLC

Ladies and gentlemen, thank you for standing by. Welcome to the Q3 2015 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Instructions will be given at that time. As a reminder, this conference is being recorded. I'd now like to turn the conference over to John Lechleiter. Please go ahead. John C. Lechleiter - Chairman, President & Chief Executive Officer: Thank you. Good morning, everyone. Thanks for joining us for Eli Lilly and Company's third quarter 2015 earnings call. I'm John Lechleiter; I'm Lilly's Chairman, President, and CEO. Joining me on today's call are Derica Rice, our Chief Financial Officer; Dr. Jan Lundberg, President of Lilly Research Laboratories; Dr. Sue Mahony, President of Lilly Oncology; Enrique Conterno, President of Lilly Diabetes; Dave Ricks, President of Lilly Bio-Medicines; Chito Zulueta, President of Emerging Markets; Jeff Simmons, President of Elanco Animal Health; and Ilissa Rassner, Brad Robling, and Phil Johnson of the Lilly Investor Relations team. During this 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 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. So let me begin by providing an overview of Lilly's third quarter. Again this quarter, we posted strong non-GAAP financial performance. With our continued focus on expanding margins, we leveraged constant currency revenue growth of 5% into operating income growth of 27%. Year to date, we've leveraged 3% constant currency revenue growth into 16% operating income growth. Along with this strong financial performance, our focus on innovation continues to pay off. Just since our last call, in Diabetes, along with Boehringer Ingelheim, we presented results from the EMPA-REG OUTCOME study with Jardiance. This is the first time a diabetes medication showed a significant reduction in both cardiovascular risk and cardiovascular death in a dedicated outcome study. We anticipate that our colleagues at BI will submit these data to U.S. and European regulators before the end of this year. In Bio-Medicines, we announced results from two Phase 3 rheumatoid arthritis studies evaluating baricitinib head to head against two of the most widely used RA treatments. In one study, baricitinib showed superior efficacy to methotrexate in treatment-naïve patients. And in the second study it showed superior efficacy to adalimumab, the market-leading biologic in patients with inadequate response to conventional DMARDs. These are outstanding results. Our team is now squarely focused on global regulatory submissions. And in Oncology, the U.S. FDA granted breakthrough therapy designation to our CDK4 and CDK6 inhibitor, abemaciclib, for the treatment of patients with refractory hormone-receptor-positive advanced or metastatic breast cancer. This is our second oncology molecule to receive breakthrough therapy designation, following olaratumab for soft-tissue sarcoma. As you know, the FDA may grant this designation in certain circumstances where there is preliminary clinical evidence that a drug may demonstrate substantial improvement over available therapy on a clinically significant endpoint. These are all excellent examples of the progress we're making in delivering innovation that is valued by patients, physicians, and payers. Also, since our last call, we were reminded of just how vexing the pursuit of pharmaceutical innovation can be. Despite demonstrating HDL and LDL changes consistent with our Phase 2 study, our CETP inhibitor, evacetrapib, did not demonstrate a reduction in major adverse cardiovascular events in the Phase 3 ACCELERATE trial. Lilly and its academic collaborators decided to terminate development of evacetrapib based on this new information. This was an unexpected and a disappointing development for patients with high-risk vascular disease and for Lilly. Despite this setback, our pipeline is strong and our future growth prospects are bright. We continue to look forward to revenue growth and margin expansion throughout the balance of this decade, and we believe we've built a sustainable R&D engine for the long term. Now, let me highlight additional key events that have occurred since our second quarter earning call in late July. On the commercial front, in diabetes, we launched a number of products in major markets. We launched our weekly GLP-1 agonist Trulicity in Japan. Along with Boehringer Ingelheim, we launched our insulin glargine product in Japan, as well as the UK, Germany, and a number of other European markets. And, here in the U.S., we received approval for and launched Synjardy, a twice-daily combination pill containing the SGLT2 inhibitor empagliflozin and Metformin. Also in the U.S., we launched Humalog U-200 KwikPen, the first concentrated mealtime analog insulin in the U.S. market. On the regulatory front, our colleagues at Boehringer Ingelheim completed the FDA submission of Jentadueto XR, a once-daily combination pill containing linagliptin and Metformin. In Japan, we submitted ramucirumab for second-line non-small cell lung cancer and ixekizumab for both moderate-to-severe plaque psoriasis and for psoriatic arthritis. In the U.S., we submitted Humulin Regular U-500 in the KwikPen delivery device to the FDA. The product is already marketed in the U.S. in a vial and syringe format. As I mentioned earlier, the FDA granted breakthrough therapy designation to abemaciclib, based on data from our Phase 1b cohort expansions in breast cancer. On the clinical front, we had a number of noteworthy disclosures. As Enrique discussed on our investor call a few weeks ago, along with our colleagues at Boehringer Ingelheim, we at Lilly are thrilled that Jardiance is the only diabetes medication to show a significant reduction in both cardiovascular risk and cardiovascular death in a dedicated outcomes trial – in this case, in patients with type 2 diabetes at high risk of CV events. Roughly one in two deaths in people with type 2 diabetes is due to cardiovascular disease, despite the use of statins, blood pressure medicines, and antiplatelet therapy. Clearly a significant unmet need remains for further reducing cardiovascular risk in people with type 2 diabetes to help them live longer and healthier lives. Highlights from the EMPA-REG OUTCOME study included a 14% reduction in the primary outcome measure of the three-point MACE endpoint, comprised of cardiovascular death, non-fatal heart attack, or non-fatal stroke; a 35% reduction in hospitalization due to heart failure; a 38% reduction in death from cardiovascular causes; and a 32% reduction in death from all causes. This is great news for patients with type 2 diabetes at high risk for cardiovascular events. As I mentioned earlier, the positive clinical data readouts didn't stop there. Along with Incyte, we were extremely pleased that baricitinib demonstrated superior efficacy to methotrexate in treatment-naïve patients with RA and adalimumab in RA patients with inadequate response to conventional DMARDs. We'll present detailed data from these trials at the American College of Rheumatology meeting in San Francisco in November, and we will host an investor call on November 11 to review the results with you. Finally, in clinical news, we terminated the development of evacetrapib for the treatment of high-risk cardiovascular disease, as I stated in my opening comments. We expect to disclose detailed findings from this study at a medical conference next year. On the business development front, earlier this month, as planned, we took back North American rights to erbitux from Bristol-Myers Squibb. We announced the acquisition of worldwide rights to a Phase 3 intranasal glucagon from Locemia. This product could be the first needle-free rescue treatment for severe hypoglycemia. We expanded our collaboration with Innovent, based in Suzhou, China, to include the development and potential commercialization of up to three anti-PD-1 based bispecific antibodies. We entered into a preclinical research collaboration with ImaginAb centered on T-cell based immuno-oncology therapies. And we announced an expansion of our immuno-oncology collaboration with AstraZeneca to include a range of additional combinations across both companies' complementary portfolios. In other news, we entered into a settlement agreement with Sanofi to resolve insulin glargine patent litigation. Under this agreement, Sanofi granted Lilly a royalty-bearing license so that Lilly can manufacture and sell Basaglar in the KwikPen device globally. Also, Lilly and Boehringer Ingelheim will be able to launch Basaglar in the U.S. in December 2016. The Japan Patent Office issued a notice of closure in the trial regarding the validity of Lilly's vitamin regimen patent for Alimta. We expect a written decision upholding the validity of the patent in the coming weeks. This is the first of two decisions pending. If the patents are ultimately upheld through all challenges and appeals, they would provide intellectual property protection for Alimta in Japan until June 2021. The U.S. District Court for the Southern District of Indiana ruled that our Alimta vitamin regimen patent would be infringed by generic challengers' proposed products. The court had previously upheld the validity of this patent, which provides intellectual property protection for Alimta until May 2022. The generics have appealed these rulings, but a date for the appeal has not yet been set. We announced plans to expand our New York City research and development site. This investment will enhance our immuno-oncology capabilities, as well as facilitate academic collaborations. And, finally, in the third quarter, we repurchased $61 million of stock, leaving $3.2 billion remaining on our $5 billion plan. In addition, during the third quarter, we distributed over $500 million to shareholders via our dividend. We remain committed to providing a robust dividend and to returning excess cash to shareholders via share repurchase. And now I'll turn the call over to Phil for a discussion of our financial performance for the quarter. Phil? Phil Johnson - Investor Relations, Eli Lilly & Co.: Great, thank you, John. Before I discuss our Q3 results, it may be helpful to review key features of our presentation of GAAP results and non-GAAP measures. When interpreting our GAAP results and the growth rates versus 2014, keep in mind that 2014 does not include Novartis Animal Health, while 2015 includes the operating results of this business, as well as all the costs associated with the acquisition. For our non-GAAP measures, we now exclude amortization of intangibles. And, to provide you a better idea of the underlying trends in our business, we've adjusted our non-GAAP measures for 2014 to exclude the expense associated with amortization of intangibles and to include Novartis Animal Health as if we'd closed the transaction on January 1, 2014. This should place 2014 on the exact same basis upon which we are reporting our financials this year. Now let's look at our results for the quarter. Slide 9 provides a summary of our GAAP results. I'll focus my comments on our underlying non-GAAP measures to provide insights into the trends in our business. So please refer to today's earnings press release for a detailed description of the year-on-year changes in our third quarter reported or GAAP results. Moving to slide 10, you can see that Q3 revenue was just under $5 billion. The decrease of 4% compared to Q3 2014 reflects significant FX headwinds. Excluding FX, our Q3 revenue increased 5% on a non-GAAP basis. As we discussed on prior calls, this year we're still feeling a negative effect from the loss of U.S. exclusivity for Cymbalta and Evista. As we move through 2015, however, this effect is diminishing. This quarter, U.S. Cymbalta and Evista trimmed about 150 basis points off of our worldwide revenue growth rate. Gross margin as a percent of revenue increased 3 percentage points, going from 74.8% to 77.8%. This increase was driven by the favorable impact of foreign exchange rates on international inventories sold, which increased cost of sales in Q3 last year but decreased cost of sales in Q3 this year. Excluding this FX effect, our gross margin percent increased by 30 basis points, going from 74.9% in last year's quarter to 75.2% this quarter. As on prior calls, you'll find a supplementary slide providing our gross margin percent for the last 10 quarters with and without this FX effect. We continue to drive productivity improvements across our business. Total operating expense, defined as the sum of R&D and SG&A, declined by 7% or over $200 million compared to Q3 of 2014. Breaking this into its component parts, marketing, selling, and administrative expenses declined 5%, while R&D declined 10%. The reduction in marketing, selling, and administrative expenses was due to the favorable impact of foreign exchange rates and continued expense control, partially offset by expenses to support recent product launches. The reduction R&D expense was driven primarily by the 2014 charge associated with the termination of tabalumab development and, to a lesser extent, by the favorable impact of foreign exchange rates. Other income and expense was income of $87 million this quarter and included a gain on liquidation of our Receptos holdings that was partially offset by other investment losses and writedowns. Our tax rate was 24.9%, an increase of 1.6 percentage points compared to the same quarter last year. This increase is due to a catch-up for the first nine months of this year to reflect an increased percentage of forecasted earnings in higher-tax jurisdictions. Also, our tax rate in both periods did not include the benefit of certain U.S. tax provisions, including the R&D tax credit, as those provisions had lapsed. At the bottom line, net income and earnings per share both increased 22%. Slide 11 contains non-GAAP adjusted information for the first nine months of the year. I would point out that, year to date, our non-GAAP operating expenses – again, the sum of SG&A and R&D – is 54.7% of revenue. This is more than 140 basis points lower than the same period last year and reflects clear progress toward our goal of 50% or lower in 2018. Slide 12 provides a reconciliation between reported and non-GAAP EPS, and you'll find additional details on these adjustments on slide 22. Now let's take a look at the effect of price, rate, and volume on revenue. On slide 13, in the yellow box at the bottom of the page, you'll see the total revenue decline of 4% on a non-GAAP basis that I mentioned earlier. The significant strengthening of the U.S. dollar against many foreign currencies drove this decline, as you see the 8% negative effect from FX this quarter. On a performance basis, our worldwide revenue grew 5%, with volume driving 7 percentage points of growth, partially offset by a negative price effect of 2%. By geography, you'll notice that U.S. Pharma revenue increased 13%, driven by volume, partially offset by price. Late-lifecycle revenue for Evista and Cymbalta did influence individual components of U.S. growth, but not the overall increase. In fact, excluding Evista and Cymbalta, the rest of our U.S. revenue grew 17%, with 9% from price and 8% from volume, with new products like Trulicity and Cyramza making significant contributions. Moving to our international operations, we're now reporting Australia and New Zealand along with our emerging markets, so Australia, Canada and Europe, or ACE in the past, is now EuCan, which stand for Europe and Canada. The decline in EuCan revenue of 17% was almost entirely driven by the negative effect of FX, while on a constant currency or performance basis, EuCan revenue decreased 3%. This decrease was driven by a substantial reduction in the European Cymbalta sales, resulting from a loss of data package exclusivity. Excluding Cymbalta, EuCan sales increased 3% in constant currency terms. In Japan, Pharma revenue decreased 4% in total, driven by adverse currency movements, while on a constant currency or performance basis, Japan revenue increased 14%. This performance growth was attributable to many products, chief among them Cymbalta and Cyramza. Turning to emerging markets, we saw revenue decline of 18%, driven primarily by negative FX effect of 14%. On a performance basis, emerging market sales declined 4%. This 4% performance decline was driven almost entirely by the negative effect of the Brazil Humulin tender that we had last year but not this year. Also, this quarter our Pharma revenue in China declined 2%, with 1% driven by FX and the other 1% driven by lower volume. On a non-GAAP basis, which adjusts 2014 as if we'd completed the Novartis Animal Health acquisition on January 1 of last year, Elanco Animal Health revenue declined 9%. Excluding the negative effect of FX, Elanco revenue decreased 2%. This performance decrease was primarily driven by OUS companion animal products, and to a lesser extent by U.S. companion animal products, partially offset by growth in U.S. food animal products. Moving to slide 15, you'll see the effect of changes in foreign exchange rates on our Q3 2015 results. This quarter FX was a significant top line headwind, reducing revenue in U.S. dollars by eight percentage points. In terms of cost of goods sold, however, FX provided a substantial benefit, as non-GAAP cost of goods sold decreased 15% including FX but increased 5% excluding FX. With both revenue and cost of sales increasing 5% in performance terms, we saw similar growth in gross margin. Our continued expense discipline is evident in our operating expense results, as even when backing out the favorable effect of FX on our expenses, OpEx still declined 3%. This allowed us to leverage mid-single-digit growth in revenue and gross margin into 27% performance growth in operating income and 25% performance growth in net income and EPS. These are outstanding results. Moving to our pipeline update on slide 16, you'll see the pipeline as of October 16. Changes since our last earnings call are highlighted, with green arrows showing progression, red arrows showing attrition, and stars showing additions. In terms of advancement, you'll see that we began Phase 3 testing of olaratumab in soft-tissue sarcoma, as well as of our tau imaging agent for Alzheimer's disease. And through our recent agreement with Locemia Solutions, we added the intranasal glucagon molecule. You'll see we began Phase 2 testing for an ultra-rapid-acting insulin in collaboration with Adocia, and we began Phase 1 testing of two molecules, one for cancer and the other for diabetes. Since our last update, we've also terminated development of a number of molecules, including evacetrapib in Phase 3, two molecules in Phase 2, as well as five in Phase 1. The early-phase terminations you've seen in recent quarters reflect a concerted effort to raise the bar for taking molecules forward and to focus our efforts on the highest priority opportunities. Now let me turn the call over to Derica. Derica W. Rice - Chief Financial Officer & EVP-Global Services: Thanks, Phil. As on prior calls, I'll recap the progress we've made on the key events we projected for 2015 and then review our 2015 financial guidance. Turning to slide 17, we're pleased with the positive progress we've made on the key events we laid out for the year. This progress is represented by the large number of green checkmarks that you see. We've highlighted in yellow the key events that have occurred since our last earnings call. They include initiation of Phase 3 trials for olaratumab in soft-tissue sarcoma, ramucirumab in second-line liver cancer, and along with Pfizer for tanezumab in both osteoarthritis pain and chronic lower back pain. As mentioned earlier, we issued a top line press release and presented detailed data at EASD for the Jardiance EMPA-REG OUTCOME trial. We also issued top line press releases for two positive Phase 3 studies of baricitinib in rheumatoid arthritis, RA-BEGIN in September and RA-BEAM earlier this month. And we terminated the Phase 3 ACCELERATE trial with evacetrapib. You'll also see that we've updated the regulatory submissions category to reflect Japanese submission of ixekizumab for both psoriasis and psoriatic arthritis. Separately, you'll now see on ClinTrials.gov (sic) [ClinicalTrials.gov] that we are running a new psoriasis trial comparing ixekizumab head to head with Stelara. In the other section, you'll see green checkmarks for the positive Alimta ruling from the U.S. District Court on the issue of infringement and for the similar ruling received in Japan. Key events remaining this year include: regulatory submission of baricitinib for RA; initiation of a rolling submission for olaratumab for soft-tissue sarcoma, with the completion of the submission expected during the first half of next year; FDA action on necitumumab for first-line squamous non-small-cell lung cancer; and legal rulings on Alimta litigation in Europe. The progress we've made in the past few years and again this year in executing our innovation-based strategy solidifies our near to medium-term growth prospects, and it gives us confidence that our strategy is the right one for Lilly to create value for our various stakeholders, including our shareholders. Turning to our 2015 financial guidance, let me start with the punchline. We raised and narrowed our non-GAAP EPS guidance to reflect solid underlying performance for the first nine months of the year as well as higher other income. Looking by line item, you'll see that our revenue and gross margin percent guidance is unchanged. We've reduced our guidance for both marketing, selling, and administrative expense and R&D and development expense. This is driven by our continued focus on expense management. I would note that this lower R&D range includes an anticipated Q4 charge of up to $90 million related to stopping the evacetrapib clinical trials. We've increased the expected range for other income, largely due to the gain on the sale of our Receptos stock holdings. To reflect an increased percentage of earnings in higher-tax jurisdictions, we've increased our non-GAAP tax rate to 21.5% and our GAAP tax rate to 16.5%. Please note that both tax rates assume the R&D tax credit and other international tax provisions will be extended before year-end, retroactive for the full year. At the bottom line, you'll see we've raised and narrowed our non-GAAP EPS range and now forecast full-year non-GAAP EPS to be in the range of $3.40 to $3.45 per share. Our new GAAP EPS range of $2.40 to $2.45 per share reflect this same upward adjustment. Finally, we've lowered our estimate for full-year capital expenditures to $1.1 billion. In summary, we again posted solid underlying business performance in the third quarter and for the first nine months of the year. Excluding the negative effect of FX, we drove mid-single-digit revenue growth, with strong contributions coming from recently launched products. Our continued focus on productivity and cost controls drove strong leverage at the bottom line. And the current pace of margin expansion puts us on track to meet our midterm margin expansion goals. While we did experience a setback with evacetrapib, news from our pipeline has on balance been exceedingly positive. The string of positive results we've had over the last couple of years represents tangible results from our innovation-based strategy, and we still have an exciting period ahead of us. We expect FDA action on two molecules presently under regulatory review, necitumumab before the end of this year and ixekizumab in the first half of next year. And over the next 18 months, we could submit six additional new molecular entities for regulatory review, baricitinib, olaratumab, abemaciclib, intranasal glucagon, our CGRP monoclonal antibody, and solanezumab. The success of our pipeline positions us to drive revenue growth and expand margins throughout the balance of this decade. So as it has been our stated intent, we have returned to revenue growth on a performance basis. We are reducing OpEx as a percent of revenue, helping to expand our operating margins. We are advancing our pipeline with positive results, and we have built a sustainable R&D engine that can produce additional and exciting new medicines to help people have longer, healthier lives. This concludes our prepared remarks. Now I'll turn the call over to Phil to moderate the Q&A session. Phil Johnson - Investor Relations, Eli Lilly & Co.: Thanks, Derica. Linda, if you could, please provide the instructions for the Q&A session and then go to the first caller on the line, please.

We'll begin with the line of Mark Schoenebaum with Evercore ISI. Please go ahead.

Hey, guys, can you hear me? Phil Johnson - Investor Relations, Eli Lilly & Co.: We sure can, Mark.

Thanks so much for letting me having the first question. I really appreciate it. John, I have two questions for you, please, if I may, and I hope you're well. Last quarter you said in the 2Q call that you thought SMID-cap biotech stocks in general were in a bit of a valuation bubble. You have proven to be a better stock analyst than me and my competitors. Now that we're 25% lower than your comments, I'd just love to hear kind of what you think. And of course from a Lilly perspective, are you asking your BD folks to kind of speed up the pace of their calls? Or do you want to let this settle out for a while, or do you want to see it go lower? Number two, I know you're very involved in Washington and what goes on there with the bio and the pharma lobbying groups and industry. I'd love to hear your thoughts on drug pricing but more specifically – obviously, given the Hillary Clinton tweet, the Marco Rubio comments – but more specifically, I'd love to know, when do you think the industry is just going to begin defending itself to the public more aggressively, which is going to cost some money? You know that we're only 10% of overall healthcare spending, and the other 90%, and these other costs, et cetera. When is the industry going to begin to spend the money to try to change the image and teach Americans that it's probably worth it? And I'll leave my questions at that. Thanks, Phil, for calling on me. Phil Johnson - Investor Relations, Eli Lilly & Co.: You're welcome, Mark. John? John C. Lechleiter - Chairman, President & Chief Executive Officer: Okay, Mark. Thanks a lot. I did make the comment about the bubble, I guess, at the last call. Although I think the hit that the industry has taken may have come from sort of another direction, with the noise around pricing. I think there's no question that valuations are lower. Does that change our fundamental posture with respect to business development? It doesn't, I think we've said all along that we're really not interested in sort of large-scale M&A, but we're going to continue to look at opportunities, particularly earlier in development, even at the preclinical stage, to acquire assets or acquire companies as the case may be. We're very excited about the opportunity we have with Locemia, this intranasal glucagon that we announced just a few days ago. I don't know how good of a – I don't think I'd want to change jobs with you right now, though, Mark. I think you do what you do well, and I'll continue to try to do what I do -

I'd take that trade. John C. Lechleiter - Chairman, President & Chief Executive Officer: Okay, good. Now, on drug pricing, I think if you go back through successive presidential campaigns, with some bit of variability, drug pricing sort of tends to rear its head, because I think it's something that politicians have found resonates with voters. Having said that, I think the facts tell a different story. Someone showed me some information the other day – in the second quarter of this year, the net effective price increase for the market basket of medicines in this country rose 0.7%. Well, I mean, that reflects – not necessarily these things that get called out in the media, these individual huge drug price increases. It reflects the fact that many of our medicines are going generic still. I'm talking about the industry here, Lilly's sort of been through its own situation with that. It reflects the deep discount that we're mandated by the government to provide but increasingly must provide to commercial insurers and payers in order to get onto formularies and to be able to compete for the business. I think with respect to telling the story, I think you can expect to see more coming from the industry. I think we've got to be careful and thoughtful here. I don't think there's a way you can spend enough money to sort of all the sudden change people's minds, because so much of the criticism comes in the form of earned media. No one's out there spending money, per se; they're just picking up quotes and amplifying those. We've got a great story to tell. We've got medicines – and if you look at the hepatitis space, if you look at cancer, if you look at diabetes. I mean, huge advances in recent years. Obviously lots of risks, our evacetrapib trial calls that out. At the same time, I've never been as optimistic as I am about the chances we have as an industry to really make a difference for patients. We've got to keep telling the story, reminding people that the medicines as a percentage of total healthcare spend have remained remarkably constant for a long period of time, which suggests that our medicines are helping to hold the line or even reduce other costs in the system that none of us want to incur: hospital stays, being off of work, disability, et cetera. So we're not tone-deaf, Mark, in terms of the criticism that's being leveled at us. At the same time, I think that we've got more work to do here, and I think you can expect to see more. Phil Johnson - Investor Relations, Eli Lilly & Co.: Great. Thank you, John. Linda, if we could, go to the next caller, please.

Yes, next we'll go to the line of Chris Scott with JPMorgan. Please go ahead.

Great, thanks very much for the questions. First one is on expense management. You guys are obviously doing a great job on that front, but just a qualitative question as I look out to 2016. You've had a lot of incremental product flows when we think about next year and to 2017, between Jardiance's expanded label, the IL-17, baricitinib, et cetera. Should we think about 2016 as an investment year for the company where we could see SG&A growth kind of resume here, or do you still have enough flexibility with some of your initiatives to absorb some of these launches in the existing infrastructure? The second question was on baricitinib. Just wanted to get some of your perspective on how you see the superiority data versus Humira playing out in the commercial RA market. I guess is this an area that you think you could take share quickly, or is this going to be a much more gradual story, just given how entrenched some of these TNFs are with the long-term safety, et cetera? Thanks very much. Phil Johnson - Investor Relations, Eli Lilly & Co.: Great, Chris. Thank you for the questions. Derica, we'll go to you for the first question on the expenses and particularly some of the pushes and pulls as we head into 2016, and then, Dave, for your comments on baricitinib. Derica W. Rice - Chief Financial Officer & EVP-Global Services: Good morning, Chris. It's too early to give specific guidance on 2016 as it relates to our expense management. We'll provide that on our January call the first week of 2016. But what I can say is that we expect to be consistent with what we stated all along, which is that we believe we can expand margins throughout the balance of this decade, and that's also including revenue growth. And clearly to expand margins, that means we either – we're growing our top line faster than we're growing our expense base. And what ultimately happens to our expense base, we will share the specifics around that in that first week in 2016. Phil Johnson - Investor Relations, Eli Lilly & Co.: Great. Thanks, Derica, Dave?

Thanks for the question, Chris, on bari. We're very excited now that we have the full set of data in hand. Recall we have four separate Phase 3 programs, which really span the whole spectrum of rheumatoid arthritis, from refractory patients to biologics. Recall that was the first study we read out, and our study has, I think, a unique feature in it's a very real-world assessment. Many patients had failed on two or three or more biologics before entering that study, and still baricitinib showed very strong, robust efficacy. We then read out a study in conventional DMARD refractory patients. Again, baricitinib really helped patients who had been refractory to methotrexate and other conventional DMARDs. We then demonstrated superiority to really the established standard of care for disease modification, which is methotrexate, in the RA-BEGIN study, and most recently a superiority to adalimumab in DMARD-refractory patients, sort of this first-line biologic space. So I think we've gotten what we wanted when we started the program. And, to your question on safety, so far, through clinical trial observations, we're very reassured by the safety profile we see. So we're now onto submission. In terms of what to expect in the market, I think the RA market has some features where one would say this will not be sort of an overweight phenomena of share gain. You mentioned one, which is a natural caution on safety in any new drug where you're suppressing the immune system. We're very confident in the data we've produced on that dimension through our clinical trials, but understandably physicians like to see that play out over time, and I think that's been sort of the normal pattern in this market. As more reassuring safety data from a real-world setting is produced, doctors become more comfortable. It's also a very competitive space. We understand that, and we're prepared to compete in that. On the other hand, baricitinib I think offers a new choice, which is when I'm failing on inexpensive generic conventional DMARDs, rather than step two, a TNF, I have another alternative now, and that alternative appears to be superior to the standard of care in that setting. And there are a number of patients in that situation have not made that step two, anti-TNFs, for all kinds of reasons, and we'll be competing aggressively in that space. And so we like our hand. We obviously will have baricitinib for a while to come. We're stepping into a new market for Lilly; we want to do it right. And my view is I think we'll see good uptake. It won't be some overnight phenomena, but on the other hand, we do expect to make incremental gains as we enter the market. Phil Johnson - Investor Relations, Eli Lilly & Co.: Great. Thank you, Dave. Linda, if we can, go to the next caller, please.

Next we'll go to the line of Tim Anderson with Bernstein. Please go ahead. Timothy M. Anderson - Sanford C. Bernstein & Co. LLC: Thank you. I have three questions. On EMPA-REG OUTCOME, is it possible that those results will actually trigger price competition as J&J tries to hold on to its market-leading formulary positioning with Invokana? And Lilly, like most other sellers of SGLT2s, also sells a DPP-4. What's your messaging to physicians on how they should think about those two different classes of drugs? On Alimta, U.S. performance was down year on year. You mentioned competitive pressures. I'm assuming that is the PD-1s. So is that the trajectory we should think about going forward? And then lastly on evacetrapib, knowing what you do about the data at this point, do you think your drug failed because of the way you ran your particular clinical trial? Or do you think it failed because CETP inhibition is just not a viable mechanism? I realize full results have not yet been presented. Phil Johnson - Investor Relations, Eli Lilly & Co.: Tim, thank you for the questions. So, Enrique, if we can go to you for the first couple of questions on EMPA-REG OUTCOME and messaging around DPP-4 Tradjenta. Sue, to you, then, for the Alimta U.S. dynamics that we're seeing. And then, Dave, on evacetrapib. Jan, also feel free to chime in if you would like, as well. Enrique?

Sure. Tim, thank you for your question. It's difficult, really, to speculate when it comes to price competition. If anything, the EMPA-REG OUTCOME results create differentiation in the marketplace. So, from that perspective, we feel very confident in the value proposition that Jardiance offers today, which is I think very significant. I would point out that the access that we already have with Jardiance for 2016 is indeed very strong. We will have over 85% commercial access and over 55% Part D access. Could those numbers improve a bit with some of these results? It is likely, but as you know that takes time, and there's a process when it comes to formularies. At this point in time, there's no promotion of these data. We are clearly seeing an uptick when it comes to new-to-brand prescriptions. Just to frame, we were, before the top line, when we look at EMPA, including both Jardiance and glyxambi, our new-to-brand share was 15%. That creeped up to 17% by the time at EASD. And now we're at 21%. Probably most relevant is the share shift that we've seen post-EASD with endocrinologies going from 21% to 31% new-to-brand share despite the fact that there's no promotion. As John shared in his prepared remarks, we are planning to have the submission before the end of the year. Now, in terms of our positioning, in terms of promotion, that's something that we do not discuss prior to basically launching our promotion campaign and our messages in this particular case for EMPA. Phil Johnson - Investor Relations, Eli Lilly & Co.: Okay, and any thoughts at all on Tradjenta moving forward now that we have SGLT2 data and how we'll be competing with that drug?

Nothing really changes when it comes to Tradjenta. We have, I think, a unique product that is uniquely differentiated in the DPP-4 class. Tradjenta, I think it's important to note, is the fastest grower in that class. So growth is very, very strong. We are planning no changes at this stage. Phil Johnson - Investor Relations, Eli Lilly & Co.: Sue?

Sure. Tim, with regard to Alimta, we saw a couple of things this quarter. Firstly, we saw a buying pattern where we had a buy-in this time last year that we didn't see this year. And, secondly, we have seen some softening on Alimta in later lines of therapy, in second line and beyond, which we had anticipated. I mean, we just launched Cyramza in the second-line setting, and clearly the I-O agents are also in second line. So we are seeing some softening there and in areas that we're not promoting. Where we are promoting, i.e., the first-line setting and continuation maintenance, we continue to see good usage and continue to believe that we will continue to see good usage in those areas. As you know, we are also doing combination studies with I-O agents. We anticipate getting some data next year on that. So I wouldn't read too much into this quarter's trend. Phil Johnson - Investor Relations, Eli Lilly & Co.: Dave?

Yeah, as relates to evacetrapib, Tim, obviously we're disappointed in the outcome, but I guess your question is did we run the right experiment. And our answer is yes. We sought to test the hypothesis, whether robust CETP inhibition, which dramatically raised HDL and reduced LDL, would lead to a reduction in major cardiovascular events. We ran that experiment, I think, exceedingly well in a population of interest, which was high-risk vascular disease. And after three years of observation, the answer is robust CETP inhibition does not change major cardiovascular events with evacetrapib. We really can't say whether that would apply to other CETP inhibitors, but I think we're pretty confident that the experiment we ran was a good one. And we have a definitive answer, thus the discontinuation of development. Phil Johnson - Investor Relations, Eli Lilly & Co.: One thing – this is Phil – real quick. Because we had a number of questions, as you would imagine, after the announcement that we were stopping the development of evacetrapib. Just to clarify the kinds of robust increases we saw in HDL and decreases in LDL. If you look at the Phase 2 study, you'll notice that we essentially had two main doses, a 100-milligram dose and a 500-milligram dose. It was very clear that the 500-milligram dose produced both greater increases in HDL and greater decreases in LDL than the 100-milligram dose. The 130-milligram dose we took into Phase 3 had been reformulated to be more bioavailable and give effects that would be more potent than the prior formulation. In effect, what we saw from the initial data we've seen in our Phase 3 study would have been as we had expected and talked about in the past, additional HDL raising of roughly 120% plus, 130% kind of numbers and greater than a 30% reduction on top of statins on LDLs. So very robust changes that for whatever reasons and unfortunately did not translate into a reduction in MACE events in this particular trial. So more to come on that likely next year, as Dave mentioned. So, Linda, if we can, go to the next caller, please.

Next we'll go to the line of Vamil Divan with Credit Suisse. Please go ahead. Vamil K. Divan - Credit Suisse Securities (USA) LLC (Broker): Great. Thanks so much for taking the questions. I just had two questions if I could. So one just around the pricing discussion from before, just found it interesting on slide 13 when you break down the pushes and pulls on the revenues. I think this was the first quarter in a few that we've seen the impact on price in the U.S. be negative. And so I was wondering if you maybe just could provide a little bit more color, if I'm correct, on what exactly drove that result relative to the last several quarters. And then second one is just we've received a few questions around – you've got obviously a lot of news, positive and negative, for the pipeline. And you've kind of generally endorsed sort of the margin expansion story you've talked about before. You've given pretty specific comments in the past around the ranges you expect for SG&A and R&D, sort of in that 2018-2019 timeframe in terms of percentage of sales. Can you just talk, I guess – do you still feel comfortable with those numbers you gave before? And maybe more broadly, just how much are you factoring in from drugs that are still in the pipeline in terms of delivering actual revenues in that 2018 – 2019 timeframe as you think about hitting the margin targets that you've outlined before? Thanks. Phil Johnson - Investor Relations, Eli Lilly & Co.: Great. Thank you, Vamil, for the questions. On your first question, this is the first quarter in a while that we had a negative price effect for our U.S. Pharma business. If you do go back to some prior years, I think there were some similar effects as we've gone through loss of exclusivity for products, particularly when we have engaged in helping to supply the market with generic forms of our product. And that's what happened essentially this quarter, in particular with Evista, where we had higher volumes than in last year's quarter for shipments of generic Evista, or raloxifene, and that influenced the price calculation. Again, this is something that is particular to late lifecycle, as John mentioned at the very beginning. This is one of the benefits essentially that the industry provides with our innovation, is that eventually you do lose patent protection, and patient and payers benefit from significantly reduced prices on those innovations. Derica, on the forward-looking ranges for SG&A and R&D? Derica W. Rice - Chief Financial Officer & EVP-Global Services: Sure. What we've said is we will get our operating expenses, and that's defined as the sum of R&D and SG&A combined, to a level of 50% of revenue or less in 2018. And we feel that given results we've seen here in the quarter and really thus far through the first nine months of this year, we're very much on track to achieve that goal. And we've also stated that we believe we can achieve that goal regardless of the pipeline output scenario that we're in. So we've never known exactly which molecules would succeed and which ones would fail, but whatever the mix were, we were confident that we could still achieve that margin expansion goal. And we believe that with the payout that we've seen thus far over the last couple years, we're even more confident that we will achieve that and also that we will be able to expand the margins throughout the remainder of this decade. Phil Johnson - Investor Relations, Eli Lilly & Co.: Great. Thanks, Derica. Linda, if we can, go to the next caller, please.

Next. we'll go to the line of Gregg Gilbert with Deutsche Bank. Please go ahead.

Thanks. Enrique, going back to diabetes, I'm not asking you to show your future strategic cards here. But what is Lilly doing to help shape the diabetes treatment guidelines post the EMPA results? Perhaps if you could, share what you think a realistic, responsible goal would be for Lilly as a company in terms of how to frame the importance of that outcomes benefit for treating physicians. And then my second question is on the Alzheimer's front. Is Lilly exploring compounds that treat the symptoms of the disease, or are you focused only on disease modification as a goal? A policy question as you approach R&D in that area beyond the later-stage assets. Thanks. Phil Johnson - Investor Relations, Eli Lilly & Co.: Great, Gregg. Thank you for the questions. So, Enrique, on the first question, and, Dave, if you'd like to take the second one.

Sure. Phil Johnson - Investor Relations, Eli Lilly & Co.: Jan, obviously feel free to chime in as well if you'd like. Enrique?

We have the great fortune that we count within our ranks a number of people that have either participated in developing and writing some of these guidelines in the past both in Europe and in the U.S., or people that have actually called for some of those committees. We have to understand that those committees act in an independent manner. For us, I think our role is to ensure that these bodies, whether it's the ADA or others, basically have full access to all of our data. And we believe that data speaks by itself. I think it's very compelling. And when it comes to the overall benefit, we do expect that the data is such that it would trigger some of these reviews. I'm not going to speak later on the outcome of that. Phil Johnson - Investor Relations, Eli Lilly & Co.: Thanks, Enrique, Dave?

We're going to – I'll just give a quick commercial. On December 8 I'll have a chance to talk a lot to talk about our Alzheimer's strategy, Gregg, so you're welcome to join us then. But in brief, we believe Lilly is very well positioned to capitalize on the emerging science in Alzheimer's. That is primarily focused right now on disease-modifying agents but not exclusively. And as you know, we have disease-modifying agents at every stage of development. But we also have important preclinical efforts on symptomatic agents because people, even with the best-case scenario on disease modification, will live with this disease for a long time. They will suffer from the symptoms of Alzheimer's, and we believe there is space there. We have some expertise there, and we'll exploit it. Our main focus is disease modification, but we're interested in agents that could also help patients just live more comfortably or more safely with the disease.

Thank you.

I can add that we have a compound in Phase 1, which it said Parkinson's as the heading, but that's also a potential symptomatic treatment for Alzheimer's disease. And in the preclinical space, we also have some efforts that actually build on Lilly's very long experience in the field of psychiatry. So I think we are well positioned, realizing though that it is an uphill battle to understand exactly what mechanist could work then for novel symptomatic treatments in Alzheimer's, but we are also very much involved in new ideas then to learn how the brain is functioning in psychiatry. Phil Johnson - Investor Relations, Eli Lilly & Co.: Great. Thank you, Jan. Linda, if we can, go to the next caller, please.

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

Thanks very much for taking the question, so just a couple of quick questions, first off for Enrique. Enrique, can you talk to us a little bit about the importance of Basaglar and the decision to settle on this? Was the settlement specifically applied only to the device, or does it apply more broadly such that other competitors seeking to enter the market would have to go through the same legal process that Lilly would? And then in terms of – again, more of a guidelines follow-up question. As we think about maybe just the guidelines and timing of guidelines around EMPA-REG, can you just update us on which guidelines are the most important? As we've talked to payers and surveyed payers, the feedback that they have provided is that guidelines could be what really changes their willingness to place Jardiance in a preferred position onto formularies. And then just as a final question, the performance of the insulin business particularly looks really challenged internationally. Can you talk in a little bit more detail about that trend and how you see that going forward? Thanks a lot. Phil Johnson - Investor Relations, Eli Lilly & Co.: Great, thanks, Seamus. Enrique, it's all yours.

Very good, let me start with the last question on insulin overall. There is a trend that has not been discussed much. But one of the impacts that we see broadly when we look at the macro diabetes market is that insulin growth has basically slowed down. We see that, of course, for mealtime insulins. We believe that both ACOT2 growth and GLP-1 growth is partly the cause of that. Now having said that, when we look at our own performance, we grew Humalog 6% in the U.S. and also 6% outside of the U.S., different regions with different growth, emerging markets of course much higher than that. When we look at our human insulin, Humulin, we were basically flat. We were at minus 1%. The U.S. did have positive growth, driven by the Humulin U-500. But we did have a decline in emerging markets as a result of no longer participating in the Brazil tender. So all in all, not big changes when it comes to our overall performance, but we do see a slowdown when it comes to the overall insulin market. You asked about Basaglar. Clearly, this is a very important product for us. I'm pleased to report that so far our launches I think are going well. Uptake is very good, maybe slightly ahead of our expectations, whether it's Japan or Slovakia or the Czech Republic, which are the first three markets where we launched the product. When we look at our performance with Basaglar, we look at the entire basal market. We don't only look at Lantus. And in Japan, when we look at the entire basal analog market, we are now at 5.5% two months post-launch. So very pleased in particular with that performance in very important markets. Now clearly, the settlement that we have with Sanofi gives us certainty, which we value very highly. What the settlement calls for is for us to – we won't be able to sell product until December 15, 2016. That means basically placing our product with a third party from a commercial perspective. But in the meantime, we can indeed contract, and we are of course submitting in order to be able to get final approval for this. You asked specifically about the settlement. And yes, the settlement allows us to basically market and commercialize Basaglar in the KwikPen on a global basis. Just to remind you, the KwikPen is the product that we utilize for Humalog as well, and there is a royalty-bearing license specific to the U.S. when it comes to Basaglar sales in this particular device. At this point and time, we've settled, so that's water under the bridge, and we are now – have a certainty when it comes to the launch date, and we're preparing for that. You asked about the guidelines and how important this would be and which bodies could issue guidelines. Of course, the American Diabetes Association is a key organization and is one that has issued these type of guidelines. AACE, A-A-C-E, which is comprised of endocrinologists, also issues guidelines. I'm not going to comment on the most important guidelines other than to say that we expect that a number of different bodies will be conducting some of these reviews. There's no question that a change in the guidelines would have a huge impact on the overall performance of Jardiance. Phil Johnson - Investor Relations, Eli Lilly & Co.: Great. Thank you, Enrique. Linda, if we can, go to the next caller, please.

Next we'll go to the line of Colin Bristow with Bank of America. Please go ahead.

Thanks for taking the questions, and nice work on the quarter. So, in light of the breakthrough designation received for abemaciclib, could you just talk about the key points of differentiation in the clinical profile of this assets versus palbociclib? And any anticipated timing for the data readouts would helpful. And another question on the Basaglar: Could you just comment on the pricing relative to Lantus in the launch territories? And, acknowledging that it is early, are you seeing any switching from Lantus patients, or is this purely new patient acquisition? And then just lastly on your PCSK9, can you talk about potential points of differentiation versus the competition and when we would expect any updates on Phase 3 progression? Thanks. Phil Johnson - Investor Relations, Eli Lilly & Co.: Great, Colin. Thank you for the questions. So we'll go to Sue for the breakthrough designation question on abemaciclib differentiation versus the other marketed drug in the class and also timing for data readouts. Enrique with what we're seeing in terms of relative pricing to Lantus. And then, Dave and Jan, if you'll provide the answer on the PCSK9, that would be great. Sue?

Yeah, sure. Clearly we're very excited to have our second breakthrough therapy designation now for abemaciclib. This designation was based on the Phase 1b cohort expansion that we presented at San Antonio Breast last year. And this showed single-agent activity, a robust response rate, acceptable safety profile, durability, so we have a Phase 2 study that's ongoing. We hope to replicate that data in that study, and we should hear next year and see data on that and hope to present that data at a scientific meeting next year. We also have, as you're aware, two Phase 3 studies in breast cancer ongoing. Again, we hope to have data readout on those in 2017, although we do have some interims. And we have a lung cancer study specifically in KRAS. With regards to our CDK4 and CDK6 inhibitor, we do we believe we have a potential to have a best-in-class inhibitor. As I said, we have single-agent activity. We are also able to continuously dose this agent, which we believe is important given that the whole point of it is to inhibit the cell's cycle, so you'd want to continuously do that. So we believe that that could be an important differentiator for us. So we look forward to seeing the data and to seeing, as I say, the single-agent data next year and the Phase 3 data readouts after that. Phil Johnson - Investor Relations, Eli Lilly & Co.: Thank you, Sue. Enrique?

So on Abasaglar or Basaglar, in the three countries where we've launched – and I'll briefly just highlight what our share is. When we look at the entire market, in Japan, as I mentioned, we are at 5.5%. In the Czech Republic, at 3%, and in Slovakia it's a small market but I bring it up because we are at 11%. We've also launched in Germany, the UK, Sweden, Poland, so we are really in full launch mode. I think it's fair to say that the dynamics when it comes to pricing, they vary from country to country. In some cases, there is a very formulaic path in terms of what's going to be the pricing that we will receive as a result of launching a biosimiliar. And that determines the pricing. Some cases we have discretion in terms of where we price. It is too early to basically say that – where are these patients coming from. It is likely that in Slovakia, some of these patients are switches, because the reimbursement level in Slovakia was lowered when we launched. And, in this particular case, patients that are on Lantus, my understanding is that they have to the pay the out-of-pocket on some of the difference relative to the Lantus price. We have to see this story evolve, but I think it's fair to say that so far we are pleased with our launch. Phil Johnson - Investor Relations, Eli Lilly & Co.: Great, thank you, Enrique. And, Dave, on the PCSK9?

Yeah, I think we've talked about this on prior calls, so I'll be brief. We have our Phase 2 program complete. We believe there are key elements of differentiation for the molecule, but as we've evaluated our options as a company, we've said we're looking at our strategic options for further development of the product. We haven't completed that review, and so there's no real update on progression or other alternatives at this point. Phil Johnson - Investor Relations, Eli Lilly & Co.: Okay, great. Thank you, Dave.

Yeah, and the addition I can make then is this antibody has a longer durability of the LDL-lowering effect than compared to competitors. Phil Johnson - Investor Relations, Eli Lilly & Co.: Okay, thank you, Jan. Linda, if we can, go to the next caller, please.

Next we'll go to the line of Steve Scala with Cowen. Please go ahead. Steve M. Scala - Cowen & Co. LLC: Thank you. Three questions. When in 2016 are the interim looks for abemaciclib's Phase 3 trials? Maybe you can narrow it down to a half, first half/second half. Secondly, what is going on with peglispro and potential further studies? It seems as though we are on a path toward Lilly dropping the drug, but maybe you can tell us why that is not the case. And then, thirdly, on evacetrapib's ACCELERATE trial, what is the explanation for, in July, the study being deemed not futile, and in October the study stated to have no chance of success? Were the analyses done using different criteria, or did something bad happen in those three months? Thank you. Phil Johnson - Investor Relations, Eli Lilly & Co.: Thanks for the questions, Steve. So we'll start off with you, Sue, for the abemaciclib interim timing question, to you, Enrique, on the peglispro question, and then over to Dave on the evacetrapib question from Steve. So, Sue?

Yeah, Steve, obviously these are all event-driven, so things can change. But as we look at the Phase 2 data, we'd anticipate that we'd get the interim data the first half of the year. And then for the Phase 3, probably the second half of the year. Phil Johnson - Investor Relations, Eli Lilly & Co.: Thank you, Sue. Enrique?

Sure, so just to remind everyone, we had, of course, unprecedented efficacy when it comes to basal insulin peglispro, but we had some risks that we felt needed to be discharged with additional clinical trials prior to us being able to make a submission. What we have shared is that we're engaged in discussion with regulatory authorities, as well as our advisers. Those discussions are ongoing. We've had some of those discussions with both the FDA and EMEA and are still having some of the discussions with our advisers. So it is something that I cannot make a comment on right now. Phil Johnson - Investor Relations, Eli Lilly & Co.: Thanks, Enrique. Dave?

Yeah, as it relates to evacetrapib and the ACCELERATE study and how we're monitoring that and the interim futility, as we said before, the study called for a single interim futility analysis. That was the instructions we gave the independent data monitoring committee. They conducted that analysis in July, and per their charter instructed us to continue the study as planned. We don't know what their analysis or conclusions were in July, other than what they instructed us to do. A few weeks prior to October, first week in October, they informed us they were planning to meet again, and then shortly thereafter they communicated a new recommendation, which was to stop the study for lack of drug effect. We then looked at their analysis, and we agreed with that conclusion. If you're wondering if there was some big surprise between those dates, the data doesn't seem to indicate that. The independent data monitoring committee's job is to monitor the study on behalf of the patients for safety and making sure we're not subjecting people to study burden when it's unnecessary. It was their judgment to continue during those two periods, and we respect their judgment. And they need to keep the company blinded to their analysis, which they did very well in July. So that's really all we know, and as we look at the data now, we agree with their recommendation. So I think the positive thing is we did call for the interim look, and we got to that answer, albeit it a few months after we originally specified it. Phil Johnson - Investor Relations, Eli Lilly & Co.: Great. Thank you, Dave. Linda, if we can, go to the next caller, please?

Next we'll go to the line of Tony Butler with Guggenheim Partners. Please go ahead.

Yes, thanks very much, two brief questions, one again to Sue. It's on ramucirumab, and the question really is around, much like Alimta, what has been the primary focus of sales today? Where are you getting traction? Does it continue to be in gastric? What's occurring in colorectal cancer? And the second question is, silently, Lilly has put together a number of assets outside of TGF-beta in the immuno-oncology space, be it bispecifics, et cetera. I'd be interested if you, perhaps, Jan, could frame the overall strategy for what you think you're going to be doing in this space? Thanks very much. Phil Johnson - Investor Relations, Eli Lilly & Co.: Great, thank you, Tony, for the questions. Sue, we'll start off with you for the first question for sure, if you want to comment on the second as well. And then we'll go over to Jan for additional commentary.

Sure. So, Tony, with regards to the Cyramza launch, as you know, we've now launched in gastric lung and colorectal in the U.S. and in gastric in Europe and in Japan. In the U.S., we're seeing a use actually in all areas, with gastric use in about 40% of patients actually are getting treated now with Cyramza in second-line and beyond. Opportunity we believe is to continue to grow that in the second line, but also we're getting third-line usage, and we want to move that up to the second line. We're seeing about 40% now of the patients that are treated in the U.S. with Cyramza being in lung cancer, in both squamous and in non-squamous. Clearly lung cancer is getting much more competitive in the second-line setting. We're continuing to see use and believe and hear that there is a good place for Cyramza in lung cancer going forward. And we are seeing some usage in colorectal cancer, although that isn't our focus. Our focus is on lung and gastric. We are seeing some uptake in the U.S., though, in colorectal cancer. In Europe, we have launched in what we call the wave one countries, the ones that you get access to, and again in gastric cancer we're getting good feedback and good uptake there. We continue to work through a succession of launches in gastric cancer in Europe. And, in Japan, we launched the end of June and feel very good about the uptake in our first quarter in this market. It is a big opportunity and an unmet need in Japan; there are two to three times the incidence of gastric cancer there versus the U.S. And the feedback there so far is very good. Clearly, we have a succession of other hopeful approvals and launches in both lung and colorectal around the world to look forward to too.

Thank you, Sue.

With regards to I-O, Jan, do you want to comment on...

It's a very exciting area. And I think the situation today is that it can still be improved. I think we have seen the beginning here with the response rates up to 20% or somewhat higher, but many patients don't really respond very well still. But what we are doing in this space is to combine our expertise in cell signaling and microenvironment, together with other companies' PD-1 axis agent. And there are numerous clinical trials ongoing, which actually you don't see on our pipeline chart, but I know Sue and others have been communicated from the oncology business unit. So I think it's very important to see also then other novel agents. How can they interact then with the checkpoint axis? In relation to checkpoints, we're also very interested in our doing then bispecific antibodies, since there are several other checkpoints that haven't been tested yet, and having then the PD-1 as one anchor. And you have seen the recent communication around that. We're also – want to change the microenvironment with the oral agents, and TGF-beta is one of them, which is very interesting. Both potentially as a monotherapy, but also then in combination with PD-1s. We also want to test other microenvironment oral agents, which we have in the preclinical space. And, finally, it's not only important to activate these cells in the tumor, but you need to direct the T cells to the tumor, because if you don't have them there, checkpoint inhibitors are unlikely to respond. So we have new activities as we also have communicated with key partners such as Immunocore to actively direct T cells then to tumor-specific antigens, which I think represents also a new avenue in immuno-oncology treatments. Phil Johnson - Investor Relations, Eli Lilly & Co.: Great. Thank you, Jan. Linda, if we can, go to the next caller, please.

Next we'll go to the line of David Risinger with Morgan Stanley. Please go ahead. David R. Risinger - Morgan Stanley & Co. LLC: Thanks very much. So I have a number of questions. I guess first is on sola, please. So with respect to the DSMB looks at sola, do they assess futility, or is it impossible for the study to be halted early on futility? The second question is with respect to the U.S. price slide, slide 13, I was just hoping that you could explain the few points in a little more detail. First how it's calculated, and then, second, since the negative impact of generics started at the beginning of the year, it wasn't quite clear why the year-to-date pricing is up 3% yet the third quarter pricing is down 4% for the U.S. business. I just didn't understand what the inflection was in the third quarter, when the negative impact from generics started to be felt quarters ago. And then third, with respect to the BACE Phase 3 decision, it seems like you'll be rolling that into Phase 3, but if you could just discuss the variables and timing of that decision, that would be helpful. Thank you. Phil Johnson - Investor Relations, Eli Lilly & Co.: Great, Dave. Thank you for the questions. Dave Ricks, actually since you've got evacetrapib and BACE and also the product that had the dynamic with the shipping to authorized generics, if you want to take the lead on answering all three of them, then we can complement, that would be great.

Okay, so let me start with the sola question. Phil Johnson - Investor Relations, Eli Lilly & Co.: Okay.

Right, that was the first one? And make sure I hit all these, Phil, as we go through it. Phil Johnson - Investor Relations, Eli Lilly & Co.: Yes.

Or David. So on sola, we have a more standard Data Safety Monitoring Board, like we do with many large studies. Their mission is really one of monitoring safety. We have, I think, communicated on prior calls, we have not chosen to go for an option to have an interim look specified by the company. And we would not instruct them to conduct such a review. I will say that Data Safety Monitoring Boards, as we set them up, they are independent. Their mission is to look at study data on behalf of the patients. And it's not unprecedented that they may call us and say, "Well, we think you should stop the study." But we have not asked them to do that, and we're under no obligation to follow their recommendation. Based on our observations from EXPEDITION-1 and EXPEDITION-2, and you would note that it took till about 40 weeks to see a drug effect, and based on the enrollment curve we have for this, we don't see a lot of value in looking at an interim look, because we enrolled the study very rapidly, and most of the benefit will come in the final months if the study behaves like EXPEDITION-1 and EXPEDITION-2. So unfortunately we will be waiting until late next year, the latest part of next year, before we have the answer. And I would expect the study to run until that time. On U.S. pricing, you were correct to point out our year-to-date is 3%. I think that's more indicative of the underlying trend we see, which is list price gains, net of gross-to-net reductions for all the various mandated and commercial reasons. The one-time event in Q3, which Phil tried to answer earlier, was a shipment to our authorized generics partner. It's a large shipment. The way that deal is set up is we book revenue under the terms of that deal for the bulk product that they then distribute, creating another option for patients, a low-cost option for generic raloxifene. There's clearly demand for that in the market, and we're happy to supply Lilly-made raloxifene with our authorized generic partner. The way that deal is set you up, those shipments happen periodically. It just happened one occurred in Q3, and it was substantive enough to shift down the Q3 reported price below our ongoing trend. But I think the year-to-date numbers are more indicative of our trend. I think your next question was on the BACE inhibitor and what would trigger that into Phase 3. We've previously communicated that as well with our partner AstraZeneca. We designed this as a Phase 2/3 program. We're actively enrolling into the Phase 2 components. The primary objective of the first interim analysis, which we expect to happen in Q1 of 2016, will be a look at safety. BACE inhibitors, while very promising in terms of genetic validation and their pharmacokinetics and dynamics, many have gone down on off-target safety. And so this is a first look at sustained dosing in a reasonably large cohort of people with Alzheimer's. And that will then trigger expansion of that study and perhaps triggering another study and movement into the Phase 3 component of Lilly's pipeline and advancing to patients. Was there another question? David R. Risinger - Morgan Stanley & Co. LLC: Thank you.

Okay, great. Okay. John C. Lechleiter - Chairman, President & Chief Executive Officer: Well done. Phil Johnson - Investor Relations, Eli Lilly & Co.: Thanks, Dave. Linda, if we can, go to the next caller, please.

Next we'll go to the line of Andrew Baum with Citi. Please go ahead.

I have two questions. First, (1:20:50) Phil Johnson - Investor Relations, Eli Lilly & Co.: Hey, Andrew, we're having a hard time hearing you. I'm not sure if you can do anything on your end to improve...

Sorry about that. Is it any better? Phil Johnson - Investor Relations, Eli Lilly & Co.: Yes, it is.

Terrific. Number one, what was the baseline for the LDL within ACCELERATE? Apologies if you already disclosed it. Second, I noted that you recently lost your fairly recently appointed head of immuno-oncology. In terms of replacements and how you're thinking about that, I would be interested. And then finally, do you view our CSF1R monoclonal as competitive with others? In particular, does it block dimerization, and how relevant is that in terms of potential efficacy? Phil Johnson - Investor Relations, Eli Lilly & Co.: Andrew, thank you for the questions. At this point in time we have not disclosed – actually maybe we have, Dave. In the paper that was recently published, did we have the baseline?

The benign paper, I do not believe we did. I think we have commented that the study designed for ACCELERATE to have people come in on a variety of statins that they may have already been on, on the maximum tolerated dose. I'll just qualitatively say that patients who entered the study had LDLs in line with guidelines, and they were really already on best standard-of-care statin. We further reduced LDL, as Phil mentioned, in the mid-30% on top of that. That's quite surprising to us and I'm sure the field, lack of MACE effect. We'll be disclosing more data about ACCELERATE, everything we've learned, and probably more data disclosures after that, sometime in 2016 in a major cardiovascular meeting.

Great, thanks, Dave. And then, Sue, on the question on I-O staffing and then the CSF1R molecule?

Yes, you'll have to remind me on the CSF1R question. With regards to I-O staffing, we actually have a really, really good team of people in New York and in New Jersey who are focused on I-O. Michael Kalos heads our research group there. He came from UPenn. We've also recently brought in some I-O experience in the medical and the development area. And we have in our I-O hub that we announced in New York and New Jersey recently moved one of our very experienced drug developers from Lilly. So we feel very good about the expertise we've got there, and we're going to continue to build that internal expertise as well as through the partnerships. I think we announced over the last year nine different partnerships related to I-O. So our view is that we will use the external expertise and the internal expertise to continue to drive our I-O experience. Phil Johnson - Investor Relations, Eli Lilly & Co.: And then, Andrew, on your question for CSF1R, were you asking whether we're competitive with other agents and if we downregulate something that I did not catch it when you said it.

So my question was whether your monoclonal prevents dimerization of the two receptors, and to what extent is that an important competitive element versus other CSF1Rs in development?

Jan, I don't know if you can comment on that. I can't comment on that. From a timing perspective, we have completed our Phase 1 dose study and now have a dose of CSF1R. We've just announced actually a collaboration with AstraZeneca to do a combination of their PDL1 with our CSF1R. So we think from a timing and from a development perspective, we're as competitive if not more competitive than other companies. The specifics around the dimerization, we're going to have get back to you on, okay?

That's okay. Thank you. Phil Johnson - Investor Relations, Eli Lilly & Co.: Thank you, Andrew. I think we have time for at least one more question, Linda, if you can go to the next caller, please.

Sure. Next we'll go to the line of Marc Goodman with UBS. Please go ahead.

Good morning. I was wondering if you could give us an update on the CGRP program. And I was curious your thoughts about oral therapy given that there was a trade there and a company actually acquired one and is considering moving forward with that. And then if you could, just give us a little bit more detail on the diabetes product that moved in the pipeline there, the URI. Thanks. Phil Johnson - Investor Relations, Eli Lilly & Co.: Thank you for the questions, Marc. So, Dave, if you can, comment on the CGPR update, and then, Dave and/or Jan, on the oral approaches for modifying CGRP as well, and then to Enrique on the diabetes compound.

Sure, yes. We're excited about our CGRP antibody for two different conditions we're studying or plan to study. First for cluster headache, we announced earlier in the year, we've proceeded into Phase 3, and those studies are enrolling as we speak for both chronic and episodic cluster. And then on migraine, we finished our Phase 2b study in the first half of the year, and actually read out the results in June. We saw robust reduction in headache days, et cetera, and we will be proceeding into Phase 3 imminently. We're excited about this program. We think we have a very competitive molecule in a largely underserved space. In terms of the oral products, there has been a long history of researching and attempting to create an oral CGRP inhibitor. That's proved to be difficult, I think, for many of our competitors. We are in the list of people who also have our own program in this area. We don't have anything to say about that today. We observed the trade that happened and of course wish them all the luck in the world. But right now all the data, in terms of what looks like druggable CGRP inhibition, are antibodies. Those are the late-stage projects, and of course we have one of those. Phil Johnson - Investor Relations, Eli Lilly & Co.: Good. Thanks, Dave. Enrique?

You are right that it's listed on the pipeline is the BioChaperone that we licensed from Adocia. So far, I think the program is progressing extremely well. We're very pleased with the results. And as we continue to get results, we'll be sharing them. Phil Johnson - Investor Relations, Eli Lilly & Co.: Great. Thank you, Enrique. Linda, let's try to squeeze in one more question, if we can, before John closes the call for us.

Sure, and there was only one more question, so perfect. It's from the line of Jeff Holford with Jefferies. Please go ahead.

Hi, thanks very much for squeezing me in. I know we're ahead of guidance in January. But previously, you have talked about this gross margin line and how there can be some reversal of the benefit we've had this year if we see FX going forward. So I wonder if, Derica, if you could just give us a little bit of a hint there. If we saw FX rates, the major rates, stay flat going forward into next year, just how we might think about that gross margin into next year, just so we don't get any big surprises early next year. Thank you. Derica W. Rice - Chief Financial Officer & EVP-Global Services: Okay. If you notice, on each of our quarterly calls, we provide the absolute gross margin, but then we also provide a slide in the packet where we illustrate what our gross margin would be without the effect of FX. And if you're trying to get a sense of what the underlying run rate is, our gross margins are really running in that mid-70% range. And so once all of the FX noise is cleared out, which we expect to exhaust that once we move into 2016, you should expect that we're going to be somewhere around that natural run rate of mid-70%.

That's great, thanks very much. Phil Johnson - Investor Relations, Eli Lilly & Co.: Thanks, Derica. And I also like the fact the IR team doesn't have any homework assignments out of the call. So great, we got through the queue this time. John, if you'd like to, close the call for us, please. John C. Lechleiter - Chairman, President & Chief Executive Officer: Okay, thanks Phil. We appreciate everyone's participation in today's call and your continuing interest in our company. We hope you'll take part on your call on November 11 to discuss the baricitinib data that will be presented at ACR, as well as our investor event in Boston on Tuesday, December 8, where we'll discuss in detail our Animal Health business and provide a comprehensive overview of our efforts in Alzheimer's disease. We hope these updates allow you to more fully appreciate the myriad of opportunities before us and why we're bullish on our future. Finally, if you have questions we didn't discuss during today's call, please contact our IR team. They will be standing by. Thank you and have a great day.

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