CA - Eli Lilly and Company (LLY) JPMorgan 42nd Annual Healthcare Conference

2024-01-09 21:35:22 ET

Eli Lilly and Company (LLY)

JPMorgan 42nd Annual Healthcare Conference

January 9, 2024 16:15 ET

CorporateParticipants

Dave Ricks - Chairman and Chief Executive Officer

ConferenceCall Participants

Chris Schott - JPMorgan

Presentation

Chris Schott

Good afternoon, everybody. I'm Chris Schott at JPMorgan, and it's my pleasure to be hosting a fireside chat this afternoon with Eli Lilly. Lilly has obviously had a tremendous few years here and really looking forward to our discussion with Dave Ricks, company's Chairman and CEO.

So Dave, Happy New Year. Thanks for joining us. I know you're going to make some opening remarks, and then we'll jump into Q&A from there.

Dave Ricks

Super. Thanks, Chris. Good to be back. Okay. Great. Thank you all for being here, and thanks for that introduction, Chris. I thought I'd give a little bit of a slide presentation because it's been a while since I did that, 2018. So I'll use that as my reference point backwards. That's also the year that Chris Schott put a buy on Lilly. Turned out to work pretty well.

So really, the theme of this is like how can we drive continued R&D and innovation excellence at scale. And of course, if we look at, there's a beautiful Safe Harbor by the way, if you want to read it. If you look at the last 6 years, it's been a pretty sensational run for the company. And during this period of time, revenue has increased like 50%. Operating income about doubled. And those things don't explain the 653%. We also had a lot of margin expansion, and of course, that's driven by the promise of future growth driven by the pipeline.

So I want to talk a little bit about that last issue. The first 2 are pretty straightforward. If you say, well, how did you do that, what changed at R&D at Lilly, I think it was like 5 major things that maybe differentiate us from other scaled competitors.

The first is focus. Given our size, I think we do have a tighter therapeutic focus than most others. I think this gives us advantage in a number of ways. Of course, there's a portfolio effect within each one of these therapeutic areas. We can recruit and attract expertise in a density that can allow us to make good decisions consistently. And of course, also, we become more of a target for inbound R&D, and we'll talk about that in a second.

The second thing is we had a very disciplined and purposeful agenda on speed of pipeline development and preclinical speed. This originated under John Lechleiter, my predecessor. Dan Skovronsky and others led this. But you can see the results here in these time windows. We've literally cut by 50% both the drug development and drug preclinical time. And time is money. Time is reward. Time is lost opportunity for patients. And it is our belief that that contributes to a great part of our success. We can start ideas at the same time as others and beat them by years in some cases.

You may say, well, okay, maybe you sped up. But did you make more mistakes as a result? Did your outcomes diminish in terms of their hit rate? Actually, the answer is no, the opposite. During the same period of time, we increased our probabilities of success. Our actual success metrics, which I won't show here, rose for both preclinical and clinical during this period of time, which is encouraging as we go forward.

I think we also had a consistent discipline to keep investing. This is easy when you're winning. It's harder when you're not. Of course, we had drugs that fell out during this period of time, but a steady increase in growth occurred throughout this period.

And then the final thing is, we were starting from a pretty low basis on external innovation and we increased that through the period of time here. You can see that in the acquired in-process R&D spending numbers here, still a minority for Lilly. But another way is to look at the total pipeline.

The final factor just to raise is, I think, our discipline on targets. Lilly is, of course, an old company. We've been around a long time. But I think if you think of us for anything, it might be that we stick on ideas when we think they're good. And I mean here's a history of the overnight success of incretins, which started with John Eng discovering exendin-4, which is the famous Gila monster analog of human GLP in 1996 that led to the creation of Amylin, the biotech company. Lilly partnered with Amylin. We launched the first GLP-1 in the United States in 2005, a twice-daily injectable with modest efficacy and then we kept working.

And you can see there in 2010, really the first non-human data. This is my state, I believe, as it relates to the synergistic effect of GIP and GLP. So 5 years after the first GLP launched and several years before Trulicity even launched our once weekly, which then happened in 2014. And then in 2017, this chart, which is small here but shows tirzepatide, the single molecule with dual action GIP/GLP, which was worked on back from 2010 with its first Phase I data. I remember when Dan called me that day when he saw the data. People ask, when did you know tirzepatide was going to be big? The answer is that day.

And we chased that one hard, put our head down and got to market in about 5 years, once again, demonstrating the speed to market. And of course, we're not done yet, launched Mounjaro and Zepbound, we know about that. We have an exciting triple acting agonist in Phase III now, retatrutide which promises to perhaps exceed 25% weight loss, along with an oral program and 6 other clinical-stage assets in weight loss and obesity and their manifestations in other chronic diseases. So persistence over time. I think it's different. We're not chasing fads. We're chasing science and I think that's a difference at Lilly.

Another view of that total productivity picture other than the stock price appreciation is a chart we look at a couple of times a year here. So how do you evaluate the performance of an R&D organization? This is how we look at it, input versus output. And you can plot all the industry peers on here. And you can see where Lilly lies, which is cumulatively having spent about $50 billion in the timeframe we're talking about and producing almost $250 billion in NPV according to Evaluate Pharma. Not a perfect measure but one that's common across these groups.

Of course, everyone asks, well, what happened, is it all tirzepatide? No. If you remove tirzepatide, you can see we're still above the trend line of the industry. And I think this probably, more than anything, can explain the success of the company and the progression of our multiple. But we'll grow in revenue and we'll want to spend more in R&D to keep growing in percentage terms. And you may notice in this grid, there's not that many dots on the upper right-hand corner of this chart. And so that's the challenge from here for our company.

How do we grow the R&D baseline investment and sustain productivity? We have some ideas about that, but I guess we have to be humble because in the history of the industry, I'm not aware of a positive example in that space.

On the other hand, the only way we know to outgrow industry peers is organic R&D investment. So if we have to do organic R&D investment and we want to be bigger, we're going to have to figure out how to be in the upper right-hand corner of this quadrant. We have ideas about it. We're going to try that. And I think if you're long on Lilly today, you should be interested in how we're going to get there. That is effectively our growth strategy from here. One key part, as I mentioned is ramping up of external innovation. And I know a number of biotechs are in the room and at this conference, so it's worth mentioning we're open for business on external innovation, a few comments on that.

In 2018, when I gave this presentation, I spent most of the time talking about the emerging portfolio of basically Lilly-derived inventions, Taltz, Trulicity, Verzenio. Of course, we can talk about tirzepatide. But now if we look at the pipeline, more than 50% of the Lilly substrate is originally sourced outside the company. That's a very different picture than in 2018. The composition of that is some acquisition, mostly pretty early in cycle. Lebrikizumab was acquired going into phase or in the middle of Phase III, I should say. But basically everything else, pre proof of concept, which is a hallmark of our strategy.

And then you can also look at partnerships. And here, there's a long list of licensing and partnership opportunities we've taken advantage of up and down the portfolio, maybe perhaps orforglipron with Chugai being the most prominent example that's in the late phase, but really heavily populated with molecules that have been worked on with our collaborators and this remains a key part of our strategy. Once again, in the same therapeutic areas adding density and value to the work we've been doing in our own labs.

So what's ahead? Well, more of this. Sure, we can do that. That's sort of the basics of BD and our industry. But we're thinking about M&A in other ways too. And so I'd like to share a few of those thoughts with you as we try to innovate to that upper right-hand quadrant of the input-output chart in R&D.

The first is to think about M&A in a richer context. I think most of the big pharma companies in our industry, and certainly Lilly for the longest time thought about acquisition as grabbing an asset essentially. Go into a company, take their work, thank them very much. The people move on to the next thing. And then as big pharma, we develop that and prosecute it forward. Sometimes that's the right approach, but we're trying to think about that differently and more broadly.

And this started with the acquisition of Loxo and has continued on. And here, we think about now acquisition is not just assets but people and methodologies and ways to make even more medicines. Surely, one of the ways that big pharma can grow R&D productively is by having more great minds around the table and more difference in how we think about creating drugs. And this is a strategy we'll be pursuing going forward. And you can see a lot of these entities are now operating as wholly-owned cos of Lilly with the CEO who founded the company, or at least drove some of its growth retained within the company, excited about being part of Lilly, I think and helping us create more innovations for the future. So here we gain satellites to the Lilly ecosystem and sustain them through time.

Another way we're thinking about this is working with early-stage biotech. Now it's no new invention for corporate venture to invest money in biotechs. Neither it is particularly new to help with real estate and assets that they need to get going. And of course, we're doing both of those things with Gateway Labs and Lilly Venture. I think really the new idea is to be a more comprehensive interface point for emerging biotech without having to cross the threshold of M&A or partnership.

So here in San Francisco, we launched several years ago our first Gateway Labs. We've recently added one in San Diego. I think said we're launching one in Boston. Look for more in the future. But the general idea here is to take not start-ups but more of the scale-up space and add the suite of services along with space and capital that big pharma can offer and allow the entrepreneur in the biotech to drive their idea to success or conclusion.

And I think early days, this is working pretty well. So if you're a start-up looking to scale up, consider working in Lilly Gateway Labs. What do we get out of this? We get to know them well. We get to learn about technology. Our scientists are invigorated by that interface, and we get a lot more touch points in the ecosystem for future, perhaps M&A, perhaps licensing or maybe just a collaboration in other sense.

So just to conclude, as we think about our future, we have to do things that haven't been done before to continue to grow the company, anything like we've done lately. And we have to drive excellence at scale in R&D for patients. So that's a few things involved in that.

First, I think one thing I haven't mentioned so far, but as we think about how to spend our resources going forward, it seems unlikely we're going to be able to grow rapidly by pursuing a lot of small ideas. We need a few big ideas and I think that's what Lilly is for, is to pursue big unmet needs in very large populations. So we'll be looking in that space.

Of course, we have to sustain our discipline on what is good enough to be a Lilly medicine that we aren't pursuing me-too or even pretty good. We have to start with the presumption that each of our ideas will be market leading, practice changing, excellent. Sometimes we aim for that and miss, launch a medicine that's pretty good too. But sometimes we hit it. And I think that's got to be the standard as we go forward to use investor capital appropriately.

We will increase the breadth of partnerships and BD activity along with those new strategies like Catalyze360. And we have been very active lately in new modalities, particularly nucleic acid therapeutics. And we'll continue to want to be early in adopting new ways to make medicines, fundamentally, that's the value-add of our industry.

But maybe most important is the picture on the right, is to be great at scale, we need great people. And so good at what you do and want to work with Lilly, give us a call. If you're running a biotech and we want to acquire you, think about staying on. I think this is fundamentally a human business that requires really strong people, passion about a mission to make great medicines for big populations around the world, as we say, to make life better.

Thanks for listening and look forward to Chris' questions.

Question-and-Answer Session

Q - Chris Schott

Thanks for those comments. I might just kick off here. I mean Lilly's had clear success in R&D, and you're ramping that further. We're seeing lots and lots of activity, both internally, externally. Maybe elaborating on the comments you made, how do you monitor and ensure that you're getting adequate return for those investments? I know it's a big focus of yours but I was kind of thinking about the company is going to have lots of cash flow, lots of kind of flexibility, I guess, in the P&L to invest things. But how do you make sure you have discipline that you're terminating the assets that maybe don't hit those criteria and that you can maintain that upper quadrant you're trying to stay into?

Dave Ricks

I mean it's the question, right? We have to hold that standard high that's why I mentioned it. Of course, a lot easier in the retrospective scope than when you're sitting in the meeting room, looking at data that's a little murky and like is this, there, there. There's no one answer to me. I think there's a few ingredients we've tried to put into our system that have been helpful.

First, I think a multidisciplinary approach with the best minds around the table is critical. We don't want to run in silos. And I think typically around those big decisions, we'll bring in smart, experienced people from different domains and it helps us make good decisions.

Secondly, run definitive experiments. Like don't mess around. Like I think one of the big inefficiencies that can be present in smaller companies, in particular, because there's like a survival bias on your one idea is to pursue experiments that won't kill the project. And I think you need to pursue experiments that can kill the project. You have to ask the threshold question and clear the threshold.

That's not always possible due to technology, but when it is, you should do it. And I think then you can proceed with a lot more confidence versus teasing out some signal. And here, I'm thinking about like our days in neuro psych where all our experiments weren't definitive experiments. It was very fuzzy, and we'd run like 5 Phase IIIs to get to the work. That's not the world we can operate in and it's not efficient enough.

Another thing, which has been, I think, a useful side effect of a much broader BD agenda, is to compete your own ideas versus the external ideas. So sometimes the data is already out there. Some of it's in flight with yours at the same time but understanding what the other options are for the world and making sure you're pursuing the very best one. Occasionally, that means doubling down on a target, competing to an external and an internal idea at the same time, combining those programs or just being aware of what's happening in other people's walls, which hasn't been a hallmark of the company historically. And I think we've infused quite a bit of that with the external innovation agenda.

Chris Schott

Yes, absolutely. I guess one is the company has been very active on, I'd say, smaller earlier-stage deals, very active on that front. I guess does there come a time where larger M&A would make sense for Lilly. I'm not thinking about kind of big messy integration but thinking about if you saw a highly innovative business, a company growing that had technology that Lilly didn't have. Does that make sense for Lilly at some point down the road? Or should we think about this more the deals we've been seeing recently are a pretty good proxy for what to expect going forward?

Dave Ricks

Yes. I mean certainly, you would never say never. I think the big messy ones. I mean revenue-stage companies have challenges in those business cases for us. But if someone had like a platform or like a really strong pipeline that we could add value to, I don't think the number next to the price takes such a big deal anymore. I used to answer that differently. If you're going to spend 25% of your market value on something, that's the bet the company move. I don't think those exist for us, but yes, we would look at that.

The reality is there aren't that many companies that fit into the box you just described. Most companies are, in the industry, very early. And we also like the idea of, I mean, what's the basis of our value-add. It's, of course, doing the work and kind of the breadth and scale we can add to development in particular. So getting things before they're being developed is a good idea. But also in our domains of expertise, we better be able to call balls and strikes better than our competitors and maybe better than even venture capital. And if we can do that, we can pick winners. I think we have to believe we have a shot at that.

Now we don't have to pick them, they don't have to be ones. They can be zeroes too. But as long as our batting average is something north of 50%, we're killing it. If it's even north of 30%, you're probably beating the averages. So we can do more things that are smaller and end up with a more valuable portfolio. And you can see the progression that's occurred in the early-stage deals.

Chris Schott

I know you're going to provide 2024 guidance in February. But maybe just talk about some of the pushes and pulls that you're expecting this year on the P&L. Just I know you're funding a number of Phase III programs. You guys have a very important launch going on. So just help us kind of balance how we should think about Lilly's business for this year.

Dave Ricks

Yes. Well, I think core growth in Q3 was like 23%. That's pretty good. So we like the revenue line, but we also think, I mean first of all, the priorities next year; like the first priority is just execution. We've got at least two, hopefully three, pretty significant launches for us, including Zepbound in that, but also potentially donanemab and lebrikizumab and then the rollout of launches that just started like Jaypirca, pirtobrutinib and Omvoh. So I mean we're in a launch cycle.

So from an SG&A perspective, well, there's a lot of efficiency because we're dense in those TAs. You still have the variable spend. I think in R&D, as you mentioned, I can't remember if we've had this many Phase IIIs running at once the company, probably not. The guy who runs our clinical portfolio told me we had 110,000 people in the Lilly clinical trials right now. So that's a lot.

And it should be because, of course, incretins are a seminal moment and we need to take advantage of that. We have got dozens of Phase IIIs on the 3 incretins we're studying, which is tirzepatide, retatrutide and orforglipron. That's fully loaded. And then, of course, lots of other studies.

So R&D probably is growing in a healthy way. Below that, we had a weird like tax year, abnormally high. I think that's probably, should see a little improvement next year in that. But we'll take you through the details, and I think basically, people own us because of the revenue picture. And we're committed to drive that and seize the moment we're in. It's a special time in the history of the company, and we can change the lives of a lot of people if we execute on tirzepatide alone as well as what we're capable of.

Chris Schott

Absolutely. Last big picture one. Just your thoughts on the longer-term operating margin at Lilly. I know in the past you've talked about kind of 40% being not a ceiling but kind of a guide point balancing investments in R&D and SG&A. I guess the question I'm having is just when you're looking at how big this incretin franchise could become, it seems like a lot of spend has to go into that to not have the margins drift above 40%. Just any latest thoughts on where those margins could go over time?

Dave Ricks

Well, I think that's why I wanted to give this talk. I mean I think you can do that math, and I think if we live in a world where R&D does not scale, certainly, the margins could drift well north of the point you're mentioning. I don't think, on the gross margin side, there's a lot there. The mix is becoming adverse.

We're investing a ton in capital that will show up for the next 20 years in the cost of goods line. Those are good investments. We should do them, but they're not free. And then there's a floor on SG&A because you have G&A, which is you got to scale at some point. So it's really about the R&D line and what happens there. And as I tried to say here, our ambition is to grow it at the scale at the way we have. But the requirement is we do that productively. And no one's really done that before but we're going to try to take that on.

Now most of R&D, if you're worried about that, is actually project based. So the vast majority of our spend are clinical trials. So it will be very public what we're spending the money on and why we think those are good ideas or not. But that's probably where it will go. If we pick our heads up in a few years and we've doubled Lilly R&D and it's kept pace with, I think we're about 24%, 25% of sales right now, I think investors should be excited about future growth. If we've not doubled it, then we'll return to shareholders responsibly, dividend it out or buy back shares, maybe do smart M&A¸ but that's not the base scenario.

Chris Schott

Yes, makes sense. Maybe pivoting over to Mounjaro and to Zepbound. A little bit of interest in the audience for those. Maybe just help us at the stage here in terms of...

Dave Ricks

Strictly 10 minutes.

Chris Schott

I know. I thought it was pretty good, right?

Dave Ricks

Very disciplined. Yes.

Chris Schott

It was. It was. Just talk about, just to set the stage, key priorities for those 2 brands this year. And there's a lot of directions we can go, but just to kick things off with that.

Dave Ricks

Sure, yes. So I mean Mounjaro, now entering its second full year to kind of third year. So sort of starting to hit stride on access. So if you look at diabetes access, you wanted to get above 80% to really sort of be competitive with the leading agents, Trulicity and Ozempic. And we have a goal to actually move incretins forward in the disease continuum. I think it's still a rather underappreciated thing. But even today, most starts on incretins are not immediately after diagnosis or even after metformin. So that's an opportunity that still exists in that core franchise.

And access right now is well north of 80% in commercial. It's almost 80% in the total, including Part D. So '24 should be a good year for Mounjaro growth and a chance to really because I think that drug has enough differentiation to move forward effectively, potentially even disease modify. We haven't proven that, but that's -- I think some physicians would go there and really help people get their A1c well below target. Most of the patients exited our studies with an A1c below 6. So that's a dramatic change. And that's the priority there. It's really execute, get to those patients, make sure we're positioning the drug appropriately. Zepbound, it's been like 4 weeks of availability.

Chris Schott

Good 4 weeks though.

Dave Ricks

Solid start, yes. We kind of all expected that maybe. We know there's all this organic demand, and we need to fill it. So really, actually, the top priority there are ensuring a good smooth rollout, no surprises, good experiences that patients have in getting the drug and using it, of course. And the physicians hear back, particularly those that aren't, haven't been GLP prescribers historically. And then making sure we establish Zepbound as sort of the key marquee name in the obesity space, which isn't the case today. And it's the newcomer, and we can do that. And then, of course, executing on the manufacturing agenda because that's really the pivotal thing.

Chris Schott

How should we think about the ramp in payer access for Zepbound as we go through 2024?

Dave Ricks

Yes. Here, it's a little different than the diabetes because, I mean, we find that the large payers, scaled PBMs and even regional fully insured, they're pretty eager to use the product. But remember that, I mean because they're paid on volume in a sense and they want to participate in that, just like everyone does, but the real decision point is at the employer level and who can opt in and has made that decision. We've seen good growth in that year-over-year despite, I think, a lot of noise in the lay press and so forth about employers screaming about cost. It probably grew 15%, 20% last year.

Novo did a lot of that work. And here, I think 2 is better than 1. I think we'll lean on that. We're not seeing like drug-specific opt-in. It's class opt-in, which makes sense. Let the doctor and the patient decide the best drug but it's growing. And I think if you draw the line forward, that happened in the absence really of SELECT, which happened at the end of the year. And next year, there's more pivotal readouts on serious disease change. We've got heart failure and sleep apnea coming. I'm sure Novo has their own list. And for the next few years, that's how this will go.

I think those proof points will keep stacking up. Consumer demand will keep growing. Part of the employer community may look at the data and say, okay, this is a health economic story. I think most of the employer world doesn't look at it that way. They tend to look at it as a benefit. I don't know about your companies, but in my company, we have lots of benefits we have no business case behind. It's just people want it, so we give it to them because we want them to stay. And I think that will grow as well.

Then you have the government formularies. That's more on the health economic side, and I think that will improve through time, along with the fact that although Part D does not reimburse for weight loss, that doesn't mean they won't reimburse tirzepatide for other medical indications. They already reimburse it for diabetes. So there'll be others, and that will grow through time as well.

Chris Schott

It's kind of a steady progress. Is that the way to think about it?

Dave Ricks

Right. And if you go ahead, I don't know, 5, 6, 7 years, I mean it's hard to think about a world with all that data and the shift that's already occurred just in a couple of years and how we think about obesity as sort of a lifestyle thing to maybe one of the more important disease precursors that we can modify for adult health. Why that wouldn't be broadly used and broadly insured?

Chris Schott

Yes, makes sense. Duration, I think it's been a big debate on the obesity piece of things. Maybe just talk a little bit about what you've seen in terms of real-world duration on the diabetes front and how you're thinking about duration playing out on obesity.

Dave Ricks

Yes. There's a lot written about this. It makes me curious though because I think maybe, you model drug uptakes all the time, and you'll probably put something in your model for chronic drugs. And my guess is like for a good chronic drug, you'd say 12 months. That's like a good duration for a lipid medicine or heart failure medicine or diabetes medicine. When we look at the data in the U.S., the longest, not only branded but generic, too, duration agent in diabetes is Trulicity, which is interesting because it's not oral. And people think oral is convenient. But that's measuring beyond a year.

We don't have enough data on Mounjaro yet to really say what is that duration, and that's diabetes as well. We certainly don't have data on Zepbound, that's 4 weeks, probably durations been pretty good for 4 weeks. And Wegovy is not a great proxy, I know there were some publications about that. But here, you had all these like supply interruptions and tons of self-pay. And I don't think it's the steady state yet.

But that said, the expectation should not be that 110 million people will take these for the rest of their life. That's not going to happen. It doesn't happen in any other disease category. Some people will be able to take them and sustain good healthy body weight without drug. That will happen. It's not zero. But most people will need to be on drugs to sustain healthy body weight. Some will stay on lower doses, some will switch between them. That's not included in the numbers we're talking about. And some will go off and regain weight, and we'll have to work on that.

But for the time being, this doesn't matter as to the economics for Lilly or Novo for that matter because probably we have, what, like 0.5 million people on a branded weight loss GLP or incretin in the U.S. and there's 110 million. So we don't have the supply to worry about this problem. We'll just add people as supply frees up.

Chris Schott

Maybe just on the supply topic, just an update in terms of how RTP is ramping and just a bigger picture view. I know you're investing a lot, and your competitors are investing a lot. When do you think we get to a point where capacity won't be the rate limiter for the category?

Dave Ricks

Yes. Not anytime soon. Yes. I don't say that in a negative way. I think that speaks to the incredible opportunity here. But if you just step back, why are we in this situation to begin with? In '21, probably there were 10 million people on the planet taking incretin medicines. All of them GLP-1s. We see Wegovy launched. Now we have tirzepatide in Zepbound and Mounjaro forms. And of course, the scale of the opportunity isn't like 50% growth or 100%. It's like some much bigger number.

And the entirety of in 2021 of the systems on the planet that can make these drugs was fixed and mostly inside Lilly and Novo already. There is some CDMO capacity. Most of that's been contracted up already by Lilly and Novo. And this is difficult because these are parenteral systems at massive scale. And there really hasn't been drugs like that other than maybe insulin, which is why Lilly and Novo have some of the capacity to begin with.

So we don't have slack capacity basically. So we have to add it. And the delivery time for new assets, like RTP, we announced in January of 2020 right before the pandemic, built it during the pandemic, and it's just now ramping offline as we enter '24. That's about as fast as you can go. These are complicated sites, really technically demanding work, very capital intensive, populated with machines that are highly specialized and often made in not so big companies. So their scale up, we're dependent on as well. And then the expertise to bring them online and get them FDA approved is nontrivial. So all that adds up to, I think, a more steady growth in the parenteral volume.

There are some triggers that could change that, the more once monthly devices we get. We've announced our KwikPen strategy for that. That will expand capacity. We can use some of the insulin capital in the ground to do that. But the bigger one would be orforglipron, which is the oral if that makes it through trials, and we've got lots to prove there still. That's using totally different capacity, small molecule chemistry and fill/finish that's tablets. It's a lot easier than this.

Chris Schott

To the extent that asset delivers as you're hoping in the Phase III, if we look out 8 or 10 years, would you expect the majority of patients who are on an incretin, are they on oral, or are they still going to be on whether it's GGG or Zepbound or some sort of injectable?

Dave Ricks

If everything works?

Chris Schott

If everything works, yes.

Dave Ricks

I think the oral has tremendous possibility. The profile at a Phase II is basically like high-dose injectable GLPs but in oral, no tolerability food effects that are different, et cetera. So that's an appealing profile. But it's probably, I mean the case now, right, is both companies are essentially introducing and pushing volume into markets where there's good pricing, U.S., Gulf, Japan. But that will expand as the capacity expands but probably not to the satisfaction of everyone around the world.

And so you can think about this as a market level thing. When can you afford to have enough for Brazil or China or India, right? We're a pretty long way from that with parenteral. So if you say volume share globally, it's got to be a lot of oral, small molecule oral. If you say volume share in the U.S. or Switzerland, maybe more of a mix because we're not at a point now where we can combine agonism mechanisms. We don't have a GIP oral. We don't have a glucagon oral. And that's going to become the standard as combinations for obese people.

Chris Schott

Question is competition. Right now, you've got duopoly. Both companies invested heavily for a long period of time. It seems like a whole lot of people are now chasing the opportunity as they see what's happened with the market and your stock price. How are you envisioning over this time, do you expect that there will be meaningful incremental competition coming in, or do you expect this to be largely a 2-player race?

Dave Ricks

Well, first of all, I mean, we have tremendous respect for Novo Nordisk and have competed with them for like 100 years and know each other pretty well. They do a great job for patients. I think we do. And I think here's a case where probably competition spurs us both on to go faster and build out more indications and really take the inside, which credit Novo was to exploit high-dose GLPs to pursue weight loss, noticing separation between A1c and weight loss at the higher doses. And we're following them and driving that. And I think the world will benefit from that.

So that's the first competition we think about, but almost it's not the same thing where we have a fixed pie and we're fighting over share by far. There's a larger gain here by expanding access, producing more product, demonstrating health economic and clinical benefit into serious diseases like cardiovascular risk, et cetera. And I think that will happen and we know them well, and I don't expect a lot of surprises there.

I mean I think I said last year, if you're sitting in a boardroom of a large drug company, you're probably asking the CEO like where's our obesity program. So they're getting one. Some of them will succeed. Some won't. I think in our industry, as you know, there's a big first-mover advantage. And in this category, in particular, there are some specifics like the parenteral manufacturing scale problem, like the data set that will be there in 2027 or whenever the next one launches will not be just like, oh, we can lose 20% of your body weight. It will be a lot of other benefits that will have to be matched up.

But we should take them all seriously. And I think sometimes, competition discovers new things that we didn't think of, and that's good. There is a huge addressable market here. So I'm not saying it will be two companies that find it all. But probably the benefit of time and experience with this platform really lends to us and a Danish company.

Chris Schott

Makes sense. Maybe last question here in the last minute or so. We're going to sneak in something that's not obesity related, donanemab. I think kind of going back a few years, Alzheimer's was like the big category. It seems like obesity has eclipsed that. Just overall level of enthusiasm on the data you've seen, the category over time. Will this be a big piece of the Lilly story if we think out 8, 10 years?

Dave Ricks

Yes, I do. Top 3 moments in my career was looking at the TRAILBLAZER data last year. I mean because so much effort in and such an unconquered space, and we took that on pretty methodically in a new way, and it worked. That's just so rewarding. And hats off to our whole team. I mean there's so many people in our company who worked on that problem for so long. And it's a serious problem.

Lilly can be as good. I think donanemab is better. Here again, like 2 competitors, fine. There's a lot of work to do to convince the health care system to rearrange itself to treat people with Alzheimer's versus ignore them and then warehouse them, which is kind of what happens now. So we'll get to that. I think the donanemab economic story will be partly treatment, but the bigger upside is actually prevention because people who have Alzheimer's would like to be treated and slow it down, but people don't have Alzheimer's really don't want to get it. And this is not just a promise.

I think two things happened last year, which are super encouraging for the TRAILBLAZER-3 donanemab program, which is the prevention study. One is that we learned, we didn't, know the natural conversion rate of people with high amyloid and no tau and no symptoms, but we sponsored a different study with NIH and other investigators called A4, which didn't work, but it showed us what the placebo rate is. And unfortunately, it's steeper than we thought. So that would tune up the effect size on this study.

And then on top of that, we disclosed the data, as did lecanemab, that basically in our Phase III studies in the treatment setting, the earlier you treat, whether you measure by age or degree of memory and functional problems or by pathology, tau pathology, the earlier you go in every case, the drugs worked better.

So it's an extrapolation to say, okay, well, the presymptomatic disease is the same disease without symptoms. But if it is, I think you have to be very excited about the size of effect that could occur, which means you could get a drug like donanemab you take for a year, if you have the risk factors, and your probability of getting Alzheimer's will drop dramatically. I think that's an exciting medicine.

Chris Schott

Absolutely. I think we're about out of time.

Dave Ricks

Great. Thank you all for being here.

Chris Schott

Thanks for the time. Appreciate it.

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Eli Lilly and Company (LLY) JPMorgan 42nd Annual Healthcare Conference