Ladies and gentlemen, thank you for standing by, and welcome to Lilly’s Q3 2020 Earnings Call. At this time, all participants are in a listen-only mode [Operator Instructions]. And as a reminder, your conference is being recorded. I’d now like to turn the conference over to your host, Mr. Kevin Hern. Please go ahead.

Good morning. Thank you for joining us for Eli Lilly and Company’s Q3 2020 earnings call. I’m Kevin Hern, Vice President of Investor Relations. Joining me on today’s call are Dave Ricks, Lilly’s Chairman and CEO; Josh Smiley, Chief Financial Officer; Dr. Dan Skovronsky, Chief Scientific Officer; Anne White, President of Lilly Oncology; Patrik Jonsson, President of Lilly USA; Mike Mason, President of Lilly Diabetes; and Ilya Yuffa, President of Lilly Bio-Medicines. We're also joined by Sara Smith and Mike Czapar of the Investor Relations team. During this conference call we anticipate making projections and forward-looking statements based on our current expectations. Our actual results could differ materially due to a number of factors, including those noted on Slide 3. Additional information concerning factors that could cause actual results to differ materially is contained in Lilly's latest form 10-K and subsequent forms 10-Q and 8-Ks. The information we provide about our products and pipeline is for the benefit of the investment community. It was not intended to be promotional and is not sufficient for prescribing decisions. As we transition to our prepared remarks, I’ll reminder that our commentary will focus on non-GAAP financial measures, which exclude the financial contribution from Elanco during 2019 and present earnings per share as though the full disposition via the exchange offer was complete on January 1, 2019. Now, I’ll turn the call over to Dave for some opening comments.

Thanks, Kevin. Q3 was another important quarter for Lilly and the pharmaceutical industry's progress in developing new medicines to treat COVID-19. I'm very proud of Lilly's work and we'll go into detail of the promising advancements made this quarter. However, I'd like to start by summarizing our overall business performance. Clearly, this quarter's financial results came in below sell side analyst projections. While we don't provide quarterly guidance, I'll make a few high level comments on several factors that did impact our Q3 results. And then Josh will go into more detail later. First, as we've discussed in the past, the impact of price on revenue can be volatile in the U.S., as we make estimates for rebates and discounts, obligations during the coverage gap of Medicare Part D patient assistance programs and other liabilities. During Q3, the magnitude of adjustments was meaningful, predominantly related to our assumptions regarding our obligation during the coverage gap in Medicare Part D for Trulicity. While the impact was notable in Q3, this source of volatility normalizes when analyzing our results over the first nine months, as well as for the full year. In addition, while we are encouraged new prescriptions are trending toward pre-COVID levels, the recovery varies by class. We view this important -- this impact is transient, remain confident in the underlying business and continue to manage our operations to deliver success over the long-term. From an operating expense standpoint, we made significant investments in R&D to develop COVID-19 treatments. While we spoken before about our efforts to develop COVID-19 treatments, we've not quantified that investment level. In Q3, we were fortunate to see positive clinical data from multiple trials. And this activity had an impact of about $0.12 on Q3 earnings per share. Finally, after taking a pause on active…

Thanks, Dave and good morning, everyone. Moving to Slide 7 and 8, you will see our non-GAAP financial performance in Q3 and during the first nine months of 2020. As Dave mentioned, revenue increased 5% this quarter compared to Q3 2019, as key growth products drove volume growth. Gross margin as a percent of revenue in Q3 was 79.1%, a decline of 50 basis points versus Q3 2019, driven primarily by the unfavorable effect of foreign exchange rates on international inventory sold and lower realized prices, partially offset by favorable manufacturing efficiencies and product mix. Moving down the P&L. Selling, general and administrative expenses increased 11% this quarter compared to Q3 2019, as we invested meaningfully in direct to consumer marketing to augment our virtual tactics, increasing promotion to physicians and consumers in connection with increases in healthcare utilization around the world. As I'll discuss in our guidance in a few minutes, we see the absolute level of third quarter SG&A expenses as indicative of our fourth quarter expenditures as well, which keeps us on track for our full year ranges and modest full year growth. Research and development expenses increased by 6% in the quarter, driven primarily by our efforts to develop COVID-19 neutralizing antibodies and baricitinib for hospitalized COVID-19 patients, partially offset by lower development expenses for late stage assets. In total, operating income decreased 4% compared to Q3 2019 as increased investments, including COVID-19 related R&D expenses, exceeded revenue growth during the quarter. We expect the increased marketing activity and customer activation to drive additional revenue growth going forward. During the first nine months of 2020, operating income increased by 7% as revenue growth outpaced operating expense growth. Operating income as a percent of revenue was 26.2% during the third quarter and 28.1% for the first nine…

Thanks, Josh. Since our last call, we've made meaningful progress developing potential treatments for COVID-19, advancing key assets in our pipeline and presenting practice changing clinical trial data at major medical meetings. I’ll begin with updates to our COVID-19 viral neutralizing antibody program. Then I'll provide an update on the full pipeline. And I'll finish by highlighting key events since the last quarter. Moving to Slide 15, Lilly is testing single antibody therapy, as well as combinations of antibodies in several trials across two different patient populations; first, is the treatment of recently diagnosed ambulatory patients; and second, in the prophylactic or preventative setting amongst nursing home residents and staff; a third, more severely ill population, i. e. hospitalized patients, has been studied in the ACTIV-3 trial only. This clinical trial is being run by the NIH and is the only study evaluating the efficacy of bamlanivimab, also known as LY-CoV555 in hospitalized COVID-19 patients. Based on an updated data set from the trial reviewed yesterday by the independent Data and Safety Monitoring Board, no additional COVID-19 patients in this hospitalized setting will receive bamlanivimab. The board’s recommendation was based on trial data suggesting that the addition of bamlanivimab to remdesivir and other treatments used in the hospitalized setting is unlikely to further help hospitalized COVID-19 patients recover from this advanced stage of the disease. In this updated data set, differences in safety outcomes between the bamlanivimab and placebo groups were not significant. Importantly, all other studies of bamlanivimab remain ongoing, including ACTIV-2, the NIH sponsored study in recently diagnosed mild to moderate COVID-19 patients. BLAZE-1, Lylly’s ongoing Phase 2 trial in people recently diagnosed with COVID-19 in the ambulatory setting, which is studying bamlanivimab as monotherapy and in combination with etesevimab, also known as LY-CoV016. And BLAZE-2, Lylly’s Phase…

Thanks, Dan. 2020 has been a difficult yet remarkable year. Despite challenges and the resulting choppiness of our quarterly results, we've delivered volume-driven growth of 6% through the first three quarters of this year. Excluding investments in COVID-19 therapies, we've expanded our operating margin by 160 basis points compared to the first three quarters of 2019. We've made meaningful progress this year on our innovation-based strategy, launching three new medicines and a number of NILEX, delivering important data readouts for key pipeline molecules and developing and submitting EUAs for potential treatment for virus unknown to the world at this time last year. And over the next few months, we have several highly anticipated pipeline readouts on deck. We continue to look for opportunities to augment the future growth of our company through business development and then return excess capital to shareholders. While the COVID-19 pandemic will continue to challenge us, the growth products in our commercial portfolio, limited patent expiry in the next five years and margin expansion opportunities before us, as well as upcoming data readouts in the pipeline, I like our prospects. And I thank my Lilly teammates for persevering and performing amidst the year of challenges to continue to deliver meaningful innovation for the patients we serve. This concludes our prepared remarks. And now I'll turn the call over to Kevin to moderate the Q&A.

Thanks, Dave. We’d like to take questions from as many callers as possible. So we ask that you limit your questions to two per caller. Lois, please provide the instructions for the Q&A session and then we're ready for the first caller.

Thank you [Operator Instructions]. And our first question is from Louise Chen from Cantor.

So my first question for you is, why didn't you lower or tighten your 2020 guidance and leave the antibody sales as upside? Are you having a high degree of conviction behind this Emergency Use Authorization, or are you seeing some positive trends shape up for the fourth quarter? And then my follow-up question is, what are your thoughts on the upcoming FDA AdCom meeting to review BIBS aducanumab? Do you think this will close the door on Alzheimer's drug development or herald a new beginning? Thank you.

Thanks, Louise. We'll go to Josh for the first question on guidance and then Dan to the question on the FDA Adcom.

Yes, I think as we look at sales guidance and the implied Q4 absolute numbers we see the trends. Now, we're at the end of October. I think we feel good about the lower end of the range for sure, based on just commercial performance of our products around the world. We have submitted an EUA. Dan talked about the data behind that. So I think it's reasonable to include a potential upside associated with some sales of that antibody to governments around the world in Q4. Of course, it is uncertain. That is why we've kept the range.

Thanks Louise for the question on the AdCom. Of course, like everyone else, we'll be watching it with a great interest. But I don't think I can handicap it one way or the other. The way I see it, the important observation here is around the evidence that lowering plaques can lead to cognitive benefits in Alzheimer's disease. I think we've seen it across a couple of data presentations now. And that's what gives us confidence in our own donanemab, our N3pG antibody that's currently in Phase 2. Just as a reminder, this is a pretty large Phase 2. We've designed it with special care, enrolling a very homogenous group of patients so that it could be powered to show us an efficacy signal, if present. And we look forward to seeing that data early next year.

The next caller is Tim Anderson from Wolfe Research. Please go ahead.

I have a question on tirzepatide, important event your first readout of Phase 3. Can you characterize your level of confidence that the Phase 3 results will wow investors kind of like the Phase II results did? It's notable that analysts already carry $5 billion number for this, which is a high number. And I'm wondering if you can talk about both efficacy and tolerability and safety relative to Phase 2 in terms of what you expect. I know that's asking you to predict how these readouts go, but it's what we have to do as investors. So it'd be great to get your best guess on that. And related to that question, how much data can we realistically expect that you'll provide in the top line press release?

We've never been more excited about our tirzepatide program. In our Phase 2 Type 2 diabetes studies, 43% of people on tirzepatide had reached a final A1c of 5.7%, which is normal A1c versus only 2% for the market leader, Trulicity. 34% of people on tirzepatide lost more than 15% of their body weight versus 2% for Trulicity. And tirzepatide will be delivered in the same patient-friendly device of Trulicity. Tirzepatide has the opportunity to become a foundational treatment for someone living with Type 2 diabetes that not only need A1c control but could benefit from significant weight loss, which brings additional metabolic health benefits. Further, we're very excited about what tirzepatide can do in obesity and NASH. As you take a look at the results from SURPASS 1, later this year we'll get the results. We'll issue a press release that will likely be top line results. We won't have full data, be able to do a full analysis that will come later at medical meetings in 2021.

Thank you, and that will come from Umer Raffat from Evercore ISI. Please go ahead.

I have one for Dan and one for Dave, if I may. Perhaps, maybe starting with you, Dave. On the Alzheimer's A4 trial, you've previously expressed openness to possibly taking an interim analysis. I know you have two years plus a follow-up by now already, maybe three years of follow-up by next year. Is that something you're still open to? Just wanted to hear your thoughts. And then, Dan, there's a little bit of confusion on tirzepatide, perhaps in part because both the clin trials, as well as the Lilly slide suggest the trial had a primary completion in October. But when I map out when the last patient entered, which was first week of February and add in the 40 weeks, which is a primary end point, it doesn't look like the trials met the primary end point yet in all the patients. And it will probably be in November and then some time to announce this. So can you confirm if I'm off track there? Thank you very much.

Of course, A4 is an ongoing trial in patients who are presymptomatic. They don't even have the symptoms Alzheimer's disease but they have amyloid plaques as detected by imaging. And we're testing solanezumab and now a higher dose of solanezumab can have a benefit in those patients. We haven't commented on whether or not there could be opportunities for an interim look here. And right now, we're just focused on the final analysis in that trial. With respect to the timing of the tirzepatide trial and the details on clinicaltrials.gov, I can just reconfirm what we said earlier on the call, which is that we expect to have that data and top line in coming months. It's obviously a major event for us. And you can assume that when we get that data, we're going to turn it around quite quickly.

The next question is from the line of Greg Gilbert from Truist. Please go ahead.

I'm going to start with another one on Alzheimer's. Dan, I'm not sure to what degree you can comment on this, but I'm curious how interrelated your studies are and the agency's view of aducanumab. Maybe asked another way. Do you think the agency can act on their application without seeing your data, which is coming pretty soon? It seems to me that what you're bringing to the table is pretty important in the field. And then secondly, I know it's a little early. I was hoping you could talk to your growing confidence in the IL-2 approach since you signed that collaboration a few years ago. It looks like there's some additional data coming at ACR as well. Thanks.

I think on Alzheimer's disease, your question is how will the FDA think about sort of a class effect here for multiple plaque lowering antibodies show the same result or if they show different results. I don't know. I mean I can't speculate on agency actions. But I can say that it wouldn't surprise me if regulators around the world did take sort of the totality of evidence approach in Alzheimer's disease, which could be across multiple molecules in different trials, to give confidence about a particular mechanism, in this case, of course, plaque lowering. Having said that, though, each molecule still have to pass a certain bar of evidence for benefit versus risk in the intended use population. I do think, though, that if ADI is deemed to have a positive effect and our drug ultimately has a positive effect, the convergence of those two events could bode well for both drugs. But there's a lot that has to happen before we get there, Greg. With respect to IL-2, yes, as this molecule progresses in clinical trials, we're growing more confident in the hypothesis that underlies this effort. This is a low-dose pegylated IL-2 that's meant to stimulate T regulatory cells without stimulating effector T cells. And we've now presented data from Phase 1 that should we have exactly that effect in a dose-dependent way. We can boost Tregs. And we hope that that will have a modulatory effect on autoimmune disease. Based on our confidence in the biomarker here and the mechanism of action, we've committed to starting a number of Phase 2 trials here in parallel to understand how these changes in regulatory T cells could translate to clinical benefits for patients in diseases like lupus or IVD or dermatologic disease. And so those trials are starting and we look forward to getting data from them.

The next question is from Chris Schott from JPMorgan. Please go ahead.

Just my question is on Trulicity. It seems like there's two issues kind of impacting the quarter. The first was the timing of the doughnut hole impact and the second was this channel mix issue, if I was hearing you correctly. So I guess on channel mix, is the net of the unfavorable price, I guess, balanced against the higher volumes a net neutral versus your original expectations? Or is volume only partially offsetting this kind of mix issue that you're dealing with, I guess, on that product specifically? And then my second question was on margin evolution going forward. Should we be thinking about the 31% operating margin ex the COVID investments as your baseline to grow off of as we think about 2021 and beyond? Or should we still think about some kind of lingering COVID investments that could impact margins as we move through next year? Thanks so much.

Thanks, Chris. We'll go to Mike Mason for the question on Trulicity and then Josh for the question on margin evolution.

Overall, we're very confident about the growth potential of the GLP class and Trulicity. The GLP class is performing strong with TRx growth of 23% for the quarter during the COVID pandemic. Trulicity continues to hold market share leadership in the face of semaglutide with a 45% share of market. Overall, Trulicity grew volume 26% in the U.S. at a time when patient office visits for Type 2 diabetes remains 20% lower than last year due to the COVID pandemic. When you take a look at segment mix, what we're seeing is that Trulicity performed well in commercial and Part D, holding market share leadership and growing gross sales year-to-date at 29% in commercial and 44% in Part D. Trulicity segment mix was really driven by stronger than expected performance, both share and volume and growing lower priced segments like Medicaid. Even at the lower prices, Medicaid growth brings in profitable business for Lilly and helps people living with diabetes. I'll highlight one decision that we made. During the early stages of the COVID pandemic, we were concerned about people on commercial insurance losing their jobs moving to Medicaid and having to stop take Trulicity because we had lower access in Medicaid. We didn't think this dynamic would be best for people living with diabetes during the pandemic. Thus, we prioritize improving our access in Medicaid to help people living with diabetes. For example, we were upgraded on California Medicaid early in Q2. And we've seen Trulicity volume in California Medicaid nearly double this year, which is really great for everyone. I remain very excited and confident in Trulicity.

On margin, yes, so we've tried to separate out the COVID investments this year, which we've mentioned will -- the expense will be in the range of $400 million for the year. As you know, we've been focused on 31% operating margin as a goal for 2020. And given the guidance that we presented, not including anything from COVID, we're confident we'll achieve that 31%. I think that's the right baseline to think about going forward on an overall basis. Now we will have COVID investments that move into 2021 as we continue the trials that we've already put up and running. Again, though, we are expecting, given the submission of the EUA and the data that we have that there will be, at some point, sales associated with those investments. I think if we look at just isolating the expense and the sales, we'll have to come back on that. We don't have prices or volumes or anything around the world. So I think the COVID piece in 2021, we will have some expense. But realistically, I think the way to think about our business is 31% operating margin, excluding the extraordinary COVID impact and margin expansion then in 2021 and really through 2025, as we've talked about. So I think COVID should help us, I think, from an overall economic perspective in that period, if the product or products are successful. But really I think the focus on long term margin expansion sort of cuts through anything that we see in the near term on COVID. And we're committed to those margin expansion plans that we've talked about pre-pandemic.

The next caller is from Steve Scala from Cowen. Please go ahead.

First, Dan, in the past, when you have referred to very low dropout rates in SURPASS 1, were you referring to analysis on an intent-to-treat basis? I fear Lilly is preparing us for solid data on an efficacy as demand basis but less compelling on an intent to treat basis? And then the second question is, it was said earlier in the call that Lilly has never been more excited about tirzepatide. I thought that was an interesting choice of words given the importance of the event and the lack of clarity on the status of the trial at this point. It implies that you're more excited than you were in Q2 or Q1 or any time between. So can you tell us if any member of management has any knowledge whatsoever of the results of SURPASS 1? Thank you.

What we said with respect to people dropping out of our clinical trials was that we hadn't seen an effect from COVID-19. We were quite worried about that in the early days of the pandemic, when the tirzepatide trials have become fully enrolled and were some of the most important and largest trials that we've ever conducted, whether this new pandemic would cause people to stop participating in clinical trials and we didn't see a bump up in dropout rates. I think, though, what you're really interested in is people discontinuation from therapy, which could be different than dropout rates. And we wouldn't know that until we get the data from the trial. With respect to the two different analyses that we comment on the efficacy as demand versus the real intent to treat analysis. You're pointing out, I think that in Phase 2, there was a pretty big difference between these two analyses with the efficacy estimate showing better results than the pure ITT because a number of patients at the highest dose, at the 50-milligram dose, had dropped out due to adverse events. Like I said, we don't know what's happening in SURPASS 1 yet. But when those data come, it will be important to look at those two analyses. Our hope and the way we've designed this trial with a slower dose titration is to avoid discontinuations due to adverse events, which would show that a smaller gap between the efficacy as demand and ITT that we saw in Phase 2.

Yes. I can assure you that no one and any one at Lilly have seen the results as for SURPASS 1 yet. I think my confidence in tirzepatide from what we knew we've seen is, obviously, there's been a lot of attention on the dose titration scheme that we used in our Phase 2 and the dose titration study as well as Phase 3. We've used a more gradual titration approach in our Phase 3 trials. And as we've seen the readout of AWARD-11, as well as some of the novel step programs who used similar gradual titration, we saw that those schemes did work and that we’re able to produce GI profiles that were acceptable. So that's the new data that we've seen, and we're very confident in tirzepatide.

The next question is from Geoff Meacham from Bank of America Merrill Lynch. Please go ahead.

Just had a few. Josh, on Trulicity, if I'm hearing you correctly, for 2021, you guys have gone from mid-single to high single-digit price declines, but for the rest of the broader diabetes portfolio and really, overall, is it still mid-single as an assumption? And if you have formulary wins for Trulicity in Medicare or Medicaid but at a lower price, what's your capacity to raise price down the road? And then second question is, just a real quick one to ask if you're seeing any sort of halo effect in the marketplace for metastatic breast share for monarchE currently, or do you think that's going to happen looking to 2021? Thank you.

Yes, on Trulicity, I think as we think about 2021, we are looking at two separate pieces. I think the first is just the underlying unit price where we feel things haven't changed. We really see underlying unit price holding segments constant as being in that low to mid-single-digit impact. I think what we've seen now over two years is we're underestimating how fast segments like Medicaid can grow, and that's what Mike talked about. So I think given the fact that we continue to see good growth in Medicaid, the share performance and utilization is still lower than what we see in commercial and our strong performance in that segment, as well as, as we've talked in prior calls, we expect some Medicaid expansion. We're seeing a little bit of that now. We expect that to persist into 2021. That moves us from that mid single digit Trulicity price to high single digits. So it really is the fact that we do continue to expect faster segment growth in areas like Medicaid. All that being said, I think we'll continue to look at pricing as we have in the past. We price for the system we have today, which is modest list price increases and giving back a little bit more than that in rebates. That's what we've seen over the last few years. I don't anticipate that approach changing unless we have something that changes on the legislative side, if you get as an industry more toward a net price environment as opposed to high-growth rebates and net. But for 2021, we're sort of planning that those things, at least for the beginning of the year, won't change.

So Verzenio has had notable positive momentum right now in the currently approved metastatic breast cancer setting. And you can see that it's steadily gaining market share. We have monthly TRx of approaching 14% now, NBRx of approaching 23%. And then you saw some of the sales being posted, particularly worldwide growth of 49%. And we're now market leader in NBRx in Japan at over 50%. So definitely, momentum. And what we continue to do is really grow the number of physicians who tried Verzenio, and they continue to adopt with really a positive experience and they incorporate it more broadly into their practice. This I think is primarily capitalized on the positive overall survival data from MONARCH 2 in combination with fulvestrant. But we do believe that the positive results from monarchE are really providing them another strong example that Verzenio is differentiated from other CDK4/6 inhibitors. And even prior to those results, there was a steadily growing value of evidence that Verzenio is differentiated with the higher CDK4 selectivity, differentiated continuous dosing of monotherapy indication and then obviously, this OS data, not just in the overall population but in the primary endocrine resistance. So we do think we're seeing a shift in people's perception that this is a best-in-class opportunity, both in the metastatic setting and then potentially in the future as we bring it forward for a new treatment option for patients in the early breast cancer setting. So look forward to more work there.

The next question is from Seamus Fernandez from Guggenheim.

Thanks very much for the question. So one question for Dave and then a question for Josh. So Dave, can you talk about key post election policy priorities for the industry? And what specifically Lilly hopes to achieve with the challenges to 340b? And then a question for Josh is if implemented as written, what would be the biggest impact on Lilly's corporate tax rate under the Biden tax plan? And is there a concern that this would have a significant relative impact on U.S. corporations like Lilly versus OUS corporations? Thanks.

Of course, the landscape post election is not defined, so we'll need to wait for that to land before we get into too many speculations about the future environment. But I think we can say that as an industry, as we sit around the table and certainly here at Lilly, there's two basic problems in the US drug market that need to be untangled. One is the patient out of pocket cost problem, where we're really the only country on the planet that indexes patient out of pocket cost to list prices that that still happens in a highly prevalent way and actually, the rate of growth in high-deductible plans, including those on exchanges and ACA, is growing. So this problem is getting bigger, not smaller. Of course, we think the answer there is to have cost sharing at least be based on some discounted number much closer to actual price and perhaps all the discounts being passed through. There's other solutions, regulatory ones, other ideas we have, capping deductibles, reducing the amount a co-pay can be for any given transaction through regulation or other avenues. States have done that. And I think we do see good impact on affordability and persistence when that's done. So that's the highest priority for the industry. The second priority and you touched on 340b, is just reducing the amount of distortions in the system, which create artificial winners and losers and shifts money around health care based on sales, which is inappropriate way to fund things in our mind. We'd like to see that disentangled and that kind of services, as it relates to dispensing or formulary management, are based on something to do with the value of those services versus something to do with the drugs that are being dispensed. 340b is one example of that where high-priced drugs move through covered entities at huge margin increases. And those monies go to other purposes not related to drugs. Patients pay more and lose in that equation, and we certainly lose in that equation. So as it relates to 340b actions and other channel actions, we're interested in kind of decomplexifying that and making the system work a little bit better for not just patients but for sustainability of the pharmaceutical industry. So anyway, we'll focus on those things as we have been and we'll have to see what the tactics look like based on electoral outcomes here just a week away.

I think, first, the tax system that we have in the US now does help us compete on a global basis for innovation. I think that's the biggest positive that we've seen. It is a complex system. But having a rate, an underlying rate that's more competitive with our European competitors allows us to attract innovation, keep it in the US. And you've seen that in some of the acquisitions we've done, including companies like Loxo, we’re more competitive when we're competing against OUS companies that have a low corporate tax rate in their countries. So we like that. I think as we look, though, to potential changes, I think the first thing I would say is there's -- having been through the last round here, there's a huge difference between what a high level plan is and how it gets implemented. And the details in that implementation are what actually drives the big point movements. I don't know that we could have sitting in 2017 predicted that we have a 15% rate, for example, as our long term rate here. So there's a lot of work to be done if there is any kind of future tax reform coming. Obviously, the underlying US rate looks like it'll go up. But I think we have a couple of advantages. No matter what happens we invest heavily in R&D among the most heavily of any of our big pharma peers. So we would hope and work to ensure that innovation is rewarded in any tax system going forward. And we have a pretty balanced manufacturing network. We make about half of our plants are in the US and half are outside the US. So I think we we're probably poised to take advantage of any changes that happen in the tax structure going forward. But there's no doubt that having a competitive sort of base rate for the US relative to our OUS peers is something that's, I think, really important for our industry.

The next caller is Terence Flynn with Goldman Sachs. Please go ahead.

Just regarding LOXO-305, can you share any perspective on the registration path for the drug in CLL and if a head to head trial versus IMBRUVICA is still on the table? Thank you.

Yes. I think at this moment, it's premature to talk about registrational paths. But I can say that we look forward to releasing more data later this year. And I think as we release that data, that's an opportunity to update on our current thinking on the development plan.

The next question comes from David Risinger from Morgan Stanley. Please go ahead.

I just wanted to clarify. So with respect to Trulicity, I believe you said that the volume growth was 26% in the quarter. Obviously, the reported U.S. sales growth was 5%, which suggests a 21 percentage point difference. So either way, if that's right, if you could just confirm it, if not, if you could just give us the correct figures. But then could you, for the difference, explain the components? So obviously, last year in the third quarter, the company had missed Trulicity sales expectations due to higher than expected rebates. So the company had a very easy comparison versus the third quarter of '19 for Trulicity. Yet, obviously, the sales disappointed this quarter. So if you could explain that 20% plus percentage point difference in terms of how much was due to rebates versus mix shift, et cetera, and then also help us understand why the mix shift was a surprise given the Medicaid wins that you articulated. And then -- well, actually, I'll just leave it at that. So if you could address those, that would be great.

As we take a look at pricing performance for Trulicity in Q3, when we take a look at the net impact of rebates to maintain access and list price that was 2% of modest headwind in Q3 of this year. Segment mix was 6% and then the remaining of that was due to onetime events due to coverage GAAP estimates for rebates and discounts. So that's the breakdown of performance for Trulicity in Q3. You may not have been on earlier. As we take a look at Medicaid performance, we're performing quite well in the higher-priced segments of commercial and Part D. We grew gross sales in commercial by 29% year-to-date and Part D by 44%. When we take a look at segment mix, it's really driven by higher than expected, Medicaid really have kind of a triple whammy going there, where as you say COVID is driving more people into Medicaid. We're also seeing that Medicaid in general, is growing for Trulicity because Trulicity's share is lower. And then we did make the conscious decision to win access in Medicaid, because we felt that we're going to see people going from commercial to Medicaid. And we had a lower access in Medicaid than we did in commercial. So we thought it was the right thing to do for patients in order to increase Medicaid, so someone didn't have to go off Trulicity if they lost their job during the pandemic. So that's the breakdown. We're very confident in Trulicity, both pricing and volume going forward.

And next question will come from Vamil Divan from Mizuho. Please go ahead.

So just two, please, one on tanezumab. I know you mentioned the AdCom. I believe that's a change from the [core one], the FDA is saying that they were not going to do an AdCom. I don't know if you have any insights you can share just on what may have changed to led to leave them to do the advisory committee meeting? And then second on maybe just going back to the Alzheimer's discussion from before. Obviously, a lot of focus on tanezumab early next year. I know you also have an N3pG in Phase 1 development. I'm just curious if you can maybe talk about sort of how that one is different from the one you have in Phase 2 to give us a sense of what you're trying to change their potential. Thanks.

Well, thank you very much for the question. We were just updated by the FDA that the PDUFA date is no longer valid and that they are most likely planning to have an Advisory Board in the month of March. And actually, we don't believe this is necessarily negative, taking into account that we have a lot of data on tanezumab. And we have 39 clinical trials and more than 18,000 patients treated. So we actually think even an outboard could be beneficial.

Vamil, thanks for the question on donanemab and the follow-on N3pG molecule, which you noted is in Phase 1. One of the things that we saw with donanemab was that we had a great PD effect. We could clear plaques quite deeply and quickly but we also had antidrug antibodies. The antibodies weren't at a level that they affected the PK of the drug because we're giving pretty high doses of the drug. Still, it's not optimal to have ADA against your drug. So we created a next gen N3pG that we hypothesize would have the same plaque clearing PD effect but not have antidrug antibodies. So that's the next one that you see there in Phase 1. If danetumab turns out to be a success, it could be useful to have a follow-on molecule that doesn't have ADA. I also point out that in addition to donanemab and that followed into N3pG molecule, the other Alzheimer's molecule we're really quite excited about is zagotenemab, which is our aggregate Taltz specific antibody and that will be reading out later next year.

Thanks, Dan. Vamil, thanks for your questions. And now we'll go back to Dave for the close.

Great. Thanks, Kevin. Well, we appreciate everyone's participation in today's earnings call and your ongoing interest in Eli Lilly & Company. Please follow up with the IR team if you have questions that were not addressed today. And I hope everyone stays well during this difficult time. Take care, and we'll be in touch.

Thank you. And ladies and gentlemen, that does conclude our conference call today. Thank you for your participation and for using AT&T conferencing services. You may now disconnect.