Thank you for your patience, and welcome to the Lilly Q2 2024 Earnings Call. I will now hand it over to your host, Joe Fletcher, Senior Vice President of Investor Relations. Please proceed.

Thanks, Paul. Good morning, everyone. Thanks for joining us for Eli Lilly and Company's Q2 2024 earnings call. I'm Joe Fletcher, Senior Vice President of Investor Relations. And joining me on today's call are Dave Ricks, Lilly's Chairman and CEO; and Dr. Dan Skovronsky, Chief Scientific Officer and President of Lilly Immunology; Gordon Brooks, Interim Chief Financial Officer; Anne White, President of Lilly Neuroscience; Ilya Yuffa, President of Lilly International; Jake Van Naarden, President of Lilly Oncology; and Patrik Jonsson, President of Lilly Cardiometabolic Health and Lilly USA. We're also joined by Makela Irons, Mike Springate, Lauren Zurke of the IR 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 several factors, including those listed on Slide 4. Additional information concerning factors that could cause actual results to differ materially is contained in our latest Form 10-K and subsequent filings with the SEC. The information we provide about our products and pipeline is for the benefit of the investment community. It's not intended to be promotional and is not sufficient for prescribing decisions. As we transition to our prepared remarks, please note that our commentary will focus on non-GAAP financial measures. Now I'll turn the call over to Dave.

Thanks, Joe. It's an exciting time here at Lilly as our growth trajectory accelerated in the second quarter. Our investments in advancing innovative medicine, focusing on manufacturing expansion, are bringing Lilly medicines to more people around the world. On Slide 5, you can see details of the financial performance in the second quarter and progress related to our strategic deliverables. Revenue grew 36% in Q2, with our new products growing nearly $3.5 billion compared to the same period last year. U.S. demand for Mounjaro and Zepbound is strong and growing as access and supply continue to expand. While weekly prescription volume was volatile in the first half of the year due to challenges fulfilling high demand, our progress on supply gives us confidence in our outlook. Q2 saw impressive performance across other areas of the business as well. Excluding the sale of the rights to Baqsimi last year, non-incretin growth was 17% worldwide, with growth spread across geographies, including 25% growth in the United States. Our $3 billion increase in revenue guidance reflects our expectation that momentum will accelerate through the balance of the year. We achieved several key pipeline milestones, including the approval of Kisunla, the brand name for donanemab in the U.S. for the treatment of Alzheimer's disease, and approval of Jaypirca in Japan for people with relapsed or refractory mantle cell lymphoma who are resistant or intolerant to other BTK inhibitors. Additionally, the submission of tirzepatide in the U.S. and the EU for the treatment of moderate to severe obstructive sleep apnea in adults with obesity, and the positive top-line results from the SUMMIT Phase 3 trial evaluating tirzepatide in adults with heart failure with preserved injection fraction and obesity. Lilly now has a significant opportunity to create new medicines through a broad internal portfolio and active business development to support our long-term growth. In obesity, our strategy is to comprehensively address this global public health crisis, pursuing opportunities against every rational mechanism, indication, and dosage form. We are investing broadly in this disease and now have 11 new molecules currently in the clinic across multiple indications. We also continue to invest in a wide range of late-stage Phase 3 programs. We recently shared the positive data for tirzepatide in obstructive sleep apnea, and Orforglipron, our oral GLP-1 small molecule, has a comprehensive Phase 3 program underway in diabetes and obesity with nine trials currently running and readouts starting next year. With tirzepatide, our GIP/GLP-1 glucagon tri-agonist, we have initiated a broad Phase 3 development program studying the molecule in obesity, obstructive sleep apnea, osteoarthritis, cardiovascular and renal outcomes, as well as type 2 diabetes. These readouts start in 2026. Our top priority remains executing on our ambitious manufacturing expansion agenda. In May, we announced plans to invest an additional $5.3 billion in our Lebanon, Indiana manufacturing sites, bringing our total investment there to $9 billion. We believe this is the largest single investment in synthetic medicine active pharmaceutical ingredient manufacturing in the history of the United States. Importantly, this expansion will enhance capacity to manufacture active pharmaceutical ingredients for Zepbound and Mounjaro. Since 2020, we have committed more than $18 billion to build, upgrade, or acquire facilities in the U.S. and Europe, and we began to see the benefit of these investments. We are making near-term progress to ramp production, including at new sites like Research Trial Park, existing Lilly sites, and contract manufacturing organizations. Our Concur North Carolina site is progressing well. We're in the process of running validation and expect this facility will initiate production by the end of 2024, with product available to ship in 2025. We also continue to make progress on different presentations for tirzepatide. We have now launched our multidose quick pen in multiple markets outside the U.S. with positive early indicators of patient adoption. Lastly, in terms of external innovation. In July, we announced a definitive agreement to acquire Morphic, a biopharma company developing oral therapies for the treatment of serious chronic diseases, including a Phase 2 asset being evaluated in inflammatory bowel disease. Now, let me turn the call over to Gordon to review our Q2 financial results.

Thanks, Dave. So, I'm on Slide 7, which summarizes the financial performance in the second quarter of 2024. Second quarter revenue growth of 36% was primarily driven by Mounjaro and Zepbound as well as Verzenio. When excluding revenue from the sale of rights to Baqsimi in Q2 of last year, revenue grew 46%. Gross margin as a percent of revenue increased from 79.8% in Q2 of '23 to 82% in Q2 of '24. Gross margin in the quarter benefited from favorable product mix and higher realized prices, partially offset by higher production costs. R&D expenses increased 15%, driven by continued investment in our portfolio and in our people. Marketing, selling, and administrative expenses increased 10%, primarily driven by promotional efforts associated with ongoing and future launches as well as investments in our people. Operating income increased 90% in Q2, driven by higher revenue from new products, partially offset by operating expense growth. The effective tax rate on a non-GAAP basis was 16.5% in Q2 of '24 compared with 16.1% in Q2 of '23. The Q2 '24 tax rate reflects a mix of earnings in higher tax jurisdictions, while the Q2 '23 rate reflected the impact of earnings from the sale of rights for Baqsimi. At the bottom line, we delivered earnings per share of $3.92 in Q2, an 86% increase compared to the prior year.

Thanks, Gordon. It's been another busy quarter. I'll start with comments on the Kisunla FDA approval, then the tirzepatide heart failure Phase 3 readout. Then finally, I'll cover the rest of the updates for the quarter. We are, of course, very excited about the FDA approval of Kisunla for treatment of Alzheimer's disease. This followed the June Advisory Committee meeting where we had another chance to present and discuss the compelling data package characterizing the safety and efficacy of this medicine. We were pleased by the discussion of the FDA advisers, particularly with regard to our data supporting stopping Kisunla therapy when amyloid plaques are removed to minimal levels. In our trial, nearly half of study participants completed their course of treatment with Kisunla in 12 months. We believe limited duration therapy, along with a once-monthly infusion schedule, could result in lower patient out-of-pocket treatment costs and fewer infusions required. The vote was unanimously positive on all questions presented. Then a few weeks later, the FDA approved Kisunla, including labeling that physicians may consider stopping the dosing of Kisunla based on the reduction of amyloid plaques. Following the July approval, we launched Kisunla, and we're delighted to see that patients have already begun receiving this new Lilly medicine as part of clinical practice. Importantly, Kisunla is broadly covered for Medicare patients through approved CED registries. Regulatory reviews continue worldwide with potential action yet this year in several countries. We're pleased to have recently received a positive opinion for genenimab from the Pharmaceuticals and Medical Devices Agency in Japan. And finally, our Phase 3 prevention study, TRAILBLAZER ALS 3, continues to progress as planned.

Thanks, Dan. Before we go to Q&A, let me briefly sum up our progress in the second quarter. Exceptional revenue growth in Q2 was driven by Mounjaro, Zepbound, and Verzenio. We are pleased with the ramp in production in the first half of the year and expect continued expansion ahead. Significant advances in our pipeline include the approval of Kisunla for Alzheimer's disease, the submission of tirzepatide for moderate to severe obstructive sleep apnea and obesity in the U.S. and Europe, and positive results from the Phase 3 study of tirzepatide for heart failure with preserved injection fraction and obesity. We are investing in product launches, the advancement of our pipeline as well as our ambitious manufacturing expansion agenda. All of this and the incredible work of our teams around the world give Lilly leadership confidence that we have a very bright future ahead and a better opportunity than at any time in our company's history to impact human health on a global scale. Now I'll turn the call over to Joe to moderate the Q&A session.

Thanks, Dave. We want to take questions from as many callers as possible and conclude our call promptly. Paul, please provide the instructions for the Q&A, and we're ready for the first caller.

The first question today is coming from Seamus Fernandez from Guggenheim. Seamus, your line is live.

Great. Thanks so much. And just I'll stick with my one question. It really is on your awareness of ASP movements in the market, so the average selling price. By our calculations, when we sort of look at the ASP averages, removing rebates, inventory, et cetera, relative to comments made yesterday on Novo's call, I'm just trying to get a better understanding of what you're seeing in the market with regard to average selling price. The prices look reasonably close to us with the tirzepatide franchise having higher sort of ASP per script, but not dramatically higher given concerns of real pricing deterioration. I guess the only question that I have here is, what are you seeing from an ASP perspective? And do you see this as kind of a natural evolution of this market as competition emergence as we saw with Ozempic historically and Trulicity in 2019? Thanks so much.

Sure. Thanks for the question, Seamus. Regarding price trends, we saw initial advantages in the first half of the year due to Mounjaro, but that will change in the second half as the co-pay program moves out of the base period. We anticipate stable pricing across quarters in 2024, with no unusual fluctuations from Q1 to Q2, and our guidance for Q3 and Q4 reflects this stable pricing. In the second half of the year, without the influence of Mounjaro, we expect pricing to align closely with what we saw in the previous year. Those are the key dynamics we observe in pricing.

Great. Thanks for taking my question. Congrats on all the progress on the manufacturing. Maybe just a two-part for me on that one. Just wondering if your unit guidance for the at least 1.5-fold increase in sellable doses includes the Zepbound bound star vials that you're rolling out in the U.S. or if that's a potential driver of upside? And then as we think about RTP, I know you continue to make progress there. The scripts suggest you're at about 1/3 of the way through the ramp to peak. But this inventory restock that you talked about today suggests maybe more of a meaningful step up. So just can you quantify for us where you are in the ramp in RTP? Thank you.

I believe today we are reaffirming that 1.5 is essentially a baseline for our expectations on second-half volume. The vials contribute to that, but with around 20 weeks remaining in the year, there’s a limit to how much we can ship. They do enhance a crucial part of the supply chain, particularly the final container closure, which uses different lines than syringes or cartridges. This improvement adds to our capacity, although the most significant impact will likely be seen in early 2025 as this new form scales up. Regarding RTP, it's important to note that the increase in volume shipped in Q2 was not predominantly to RTP. That site is progressing well, and we are gradually increasing production as planned. Additionally, Concord is on track with its timeline, and we anticipate product from that site by the end of this year or early next year. Ultimately, the improvement in our overall network performance helped us restore wholesaler inventory levels in Q2 and exit the FDA shortage list, reflecting our performance across various parts of our supply network.

And congrats on all the progress. There seems to be a broader debate on the role emerging earlier-stage competition in the obesity market could play where that fits in the market broadly. I'm sure you're not surprised by the breadth of agents being developed in the space. But just interested in your latest views in terms of barriers to entry you see for some of these newer competitors and how you think about defending Lilly's market position over time? Thank you.

Yes, I'll start with some R&D comments on BarCentry. The first, I think, is having a successful drug in Phase 3 clinical trials and getting it approved. You can see that we've invested thoroughly, I would say, in our Phase 3 portfolio, often pursuing multiple indications in multiple populations at once. Just being able to get to that point, I know investors have gotten excited about various releases of Phase 1 data. But it's still a challenging space to develop drugs and we usually wait until we've seen pretty robust Phase 2 data before we get too excited about a particular molecule. So that's the first thing. And I think a lot of the news we've seen from different companies only sorts out as we get to see Phase 2 data and which molecules make it and which have the right profile and which don't. But I wouldn't be expecting 100% success here.

A few additional comments. I think when we look at the marketplace, there are two very important barriers. We have been extremely successful in gaining access across both Mounjaro, where we are currently at 93% access in the commercial segment and 89% in Part D. Similarly, for Zepbound, we have achieved 86% access after 7 months in the marketplace, which is quite significant. The second piece is the amount of outcome indications. We are investing heavily in both Mounjaro and Zepbound, and similarly for the Phase 3 assets of our Zepbound and retatrutide. Overall, we believe that we are extremely well-positioned to compete here. We are not surprised to see that most of the firms are actually leaning into this very important space. But with the cost we have not had in the market today, the Phase 3 assets and what we referred to in the prepared remarks, we are well-positioned to compete today and tomorrow.

But here, we're highlighting our 11 assets, all different targets. And maybe just a reminder, Chris, we had our Phase 1 MAD data for tirzepatide in 2016, which was 8 years ago. That's a massive lead over other GIP/GLP agonists that are behind us. On the oral side, you can get more in category differentiation based on target engagement, safety profile, etc. But again, we have the most advanced program. As Dan highlighted today, there's a follow-on program to add to that sort of portfolio we have there. And finally, another issue that's certainly work to do is scaling manufacturing. The volume is really high in this category; it probably will end up being one of the highest volume categories in the history of the industry.

I have a question about the compounding of GLP-1s, particularly regarding tirzepatide. How do companies like IMS manage to avoid infringing on patent protection? Is this likely to end up being resolved in court, possibly involving you and Novo as well? An article in the New York Times just mentioned that patients are facing serious issues with compounded GLP-1s, suggesting they might be overdosing on these formulations. So, not only does compounding affect your sales, but it could also damage the reputation of the entire class. What can we anticipate Lilly will do about this?

Yes. Thanks for raising this important topic, Tim. Of course, we've been watching this carefully, not really out of concern that they're taking away our business. We've been largely supply-constrained here, but rather the impact it's having on patient health. We often can secure samples from these kinds of compounding labs and analyze them in our own labs. What we found is that for the most part, in most instances, this isn't tirzepatide at all. Our drug is not available to compounders, rather they're purchasing either other chemicals entirely, which we often find or make producers of tirzepatide that are often full of impurities sometimes contaminated by bacteria. This is a safety risk to patients that we take seriously and we try to raise awareness of the potential dangers here.

Yes. And from a policy standpoint, you can expect us to be active here. We've taken public positions. We're obviously engaged with regulators and considering all kinds of legal actions and have filed some. Of course, compounding is a long-standing practice under the 503A provisions of the FDA, which is meant to customize doses for individual patient needs. It's not clear to me medically what that would be for tirzepatide. But I guess that's legal in a sense. It's the mass production that's concerning. We don't see a lot of that with our medicine more with the other one. But I think if we just step back and reflect on why there's shortages, it's because of parenteral manufacturing constraints in the industry and the lead companies. A lot of that constraint is invested in improving those processes to ensure compliance with the GMP standards that the FDA and Europe have enforced. And we agree with that strict enforcement. So, it's a little odd that the answer to that constraint, which is about raising the standards of the industry to a sterile product is to create another industry that is non-sterile product. So, we'll be putting Lilly on the front foot here over the coming months to address this.

Thanks for taking my question. I want to ask about operating leverage. I know in the first quarter, when you guys raised the guidance by $2 billion on the top line, it dropped down to EPS by $1.30. This quarter, guidance went up by $3 billion, but it dropped down at a much higher leverage at $2.16 EPS, almost a 90% incremental margin. My question is not so much what your operating leverage is going to be in 2025 or future year guidance, but instead, I'm basically asking if you annualize the momentum of your Q4 numbers per this year's guidance, the EPS upside implied to consensus could be almost as much as half of Lilly's entire full year EPS where it stands right now. So, I'm just trying to think through how do you plan on spending on various functions and what the incremental margins could look like as the revenue momentum really kicks in with the improving supply?

Good. Thanks. Appreciate the question. Yes, we've been speaking for a long time about operating margins and getting to the mid- to high 30% range. As we've seen this year, Mounjaro and Zepbound are taking the inflection point upwards, and so we're seeing ourselves at the top end of that range. For the first half, margins are a little inflated. We haven't yet leaned into all of our promotional channels and incretins. You don't see, for instance, TV commercials for incretins. We haven't done that, given the supply situation. And R&D takes time to scale thoughtfully. It doesn't always align exactly in sync quarter-by-quarter with revenue. That said, our guidance for the year does indicate we will stay in the upper 30% range for the full year, with growth first half, if you look at the first half, as the two quarters' growth into the second half.

Great. Thank you very much for taking my question. Congrats on the quarter. My question is regarding the rest of the world sales for incretins. It seems like Mounjaro is doing quite well there. If I take out the 15% or so for stocking in the U.S., it seems like ex-U.S. is already about 33% this early in the launch. So, I would love to understand how has been your experience so far? And is there going to be any different uptake for ex-U.S. versus your prior generation incretins for both Mounjaro and Zepbound given that these are really efficacious drugs?

Sure. Thanks, Mohit, for the question. We've seen some great progress with the launch of Mounjaro outside of the U.S. I think what you've seen in terms of growth in the earlier launch countries, such as the U.K., UAE, and Saudi, have already achieved a leading share and continue to drive momentum in overall market growth. As we take a look at Q2, the main driver of that growth has been Mounjaro in markets where we've already launched earlier in the cycle, with the majority of that coming from the Quick Pen presentation, especially in the UAE. Some of that is channel dynamics similar to the U.S. At the same time, if you take a look at Q2 and the trajectory for Q2 relative to historical peak sales of any of our brands, we have already surpassed that with a limited number of markets where we've launched. So, as we look at the coming quarters, we've recently launched in Germany, and now also in Spain with Quick Pen presentation. We'll also look to monitor demand and also supply capacity and expect to launch in new markets. The near-term growth will predominantly come from already launched markets for Mounjaro.

Thanks for taking my question. In the prepared remarks, Dan mentioned engagement with regulatory authorities on a potential pivotal trial in NASH. Can you provide any color on these discussions and how Lilly is thinking about tirzepatide versus this indication? When could we receive updates? Thank you.

Yes. Thanks for the question. We're really excited about the opportunity to help patients suffering from NASH. The data that we shared in Phase 2 for tirzepatide appetite is quite profound in terms of the size of effect we can have. A couple of issues in mass drug development that we're trying to tackle include the current standard of liver biopsy to identify the patients to enroll in these trials and also then measure the outcome. We're working hard to develop noninvasive biomarkers that can be used to identify the right patients to enroll in mass studies and potentially could be used as an outcome to see if a drug is working. My hope is that we could develop those kinds of biomarkers for both purposes and could be suitable for accelerated approval of mass drugs in the future.

Hi, guys. Thank you so much for taking my question. I wanted to touch on manufacturing and specifically, on the concern that you raised back in February around the proposed acquisition of Catalent by Novo Holdings and the subsequent sale to Novo Nordisk. Are you still as concerned as you were in February? Or given what you've been able to do with your footprint, is this less of an issue?

Yes, I can take it. We remain concerned about that transaction. I don't think it was ever really about the trajectory of our ramp, although we rely on one of the Catalent sites for GLP-1 and other diabetes production. It's more the oddity of your main competitor being also your contract manufacturer and how to resolve that situation. There's also an industry structure issue. CDMOs are important for managing capacity across the sector. If we ended up in an outcome where that sector didn't exist, they all became captive of large pharma, it would really constrain availability in the development of medicines, particularly out of biotech. So, we've aired those concerns publicly and privately since the proposed transaction was announced, and we’re waiting to see what happens. Nevertheless, we’re building aggressively ourselves. Our primary strategy is self-run sites. We've announced about $18 billion in the last several years, probably not done there. We’re quite comfortable building operating sites and we know we can execute that drill and repeat it, and that's our base plan.

Let me add my congrats on the results as well and the corporate updates. So, Zepbound's breadth of health and work or productivity benefits seem to be underappreciated by many. There are articles from time to time that patients need an off-ramp from therapy, et cetera. And my question is, what is Lilly doing to encourage patients to stay persistent with therapy? And how does Lilly intend to better communicate not just Zepbound's health benefits, but its worker productivity benefits to employers in order to drive much greater employer inclusion of obesity drugs as part of employee benefits?

Absolutely. First, when we look at persistency, it's very early after the launch. Based on the feedback we have from providers and patients as well, this is a drug that patients want to stay on because they experience the benefits of weight loss and the downstream implications on comorbidities. You're right; the employee opt-in efforts are key. We believe our outcome data on obstructive sleep apnea will help us tremendously, and more readouts will come in the following years. We're also targeting value-based agreements with several payers where we are looking into the benefits of tirzepatide in the workplace in terms of reduced absentees, increased productivity, et cetera, which has gained a lot of interest. In terms of consumer engagement, addressing ease of start and staying on therapy is key for us. We’re working to improve our consumer platforms and digital channels to enable patients to experience the benefits that Zepbound provides over time.

Just coming back to the margin question earlier, given another expense in the 2024...

Apologies team. We will get Kerry reconnected with a better line momentarily. And we'll move on to the next question, in the meantime, if that's okay from Chris Shibutani from Goldman Sachs. Chris, your line is live.

With all the different oral mechanisms in particular, variations on it from yourselves as well as competitors, can you update us on your thinking on what the basis of competition is going to be? And what kind of opportunities do you really envision? I think there has been for a while now a comparison on the basis of percent weight loss, particularly for the injectables. But as we move into orals, it seems as if tolerability profiles really matter. So how are you thinking about it? And how do you recommend investors think when we compare datasets across these other oral products in development? Even if the mechanisms are different, how do we get smarter about differentiating and interpreting data?

Yes. Thanks. I'll start, and then Patrik will add anything to commercial differentiation. In the clinical trials, first of all, as I've said before, take some caution on the small short Phase 1 trials. There's more to see. Most of the drugs that we've seen actually aren't different mechanisms that are GLP-1 agonists. In this class, I don't expect there to be differentiation in terms of efficacy or weight loss. You can dial in the amount of weight loss you want depending on how aggressively you dose and what population. Tolerability is another issue that usually comes along with efficacy. The faster you ramp up to higher doses, the less tolerability you have. The different companies have to work through their own escalation of dosing to match the desired efficacy with some reasonable tolerability. The variable linking those two things together is often the half-life of the molecule. So shorter half-life molecules give you bigger peak-trough pharmacokinetics of the drug. We think that's what drives the tolerability issues. What you want is a long half-life molecule that can be dose escalated more smoothly. That probably will be the differentiation rather than anything that companies are currently talking about in terms of efficacy. As I mentioned, it's a long road from early data to Phase 3 clinical trials like we have with Orforglipron, and we expect some attrition. I'm excited about next-generation molecules. All these ones we're talking about now are GLP-1s and will offer efficacy sort of in the range of injectable semaglutide. Ultimately, we'd like to see drugs that offer efficacy and tolerability that exceed that, things that could combine multiple incretins like tirzepatide does, and we are certainly working on orals that could also agonize GIP-1, for example.

From a commercial point of view, we are regularly conducting both consumer and provider market research. When we look into the preferences, the true drivers today are still the degree of weight loss and safety and tolerability. The need for an oral option with injectable-like efficacy is critical for those patients who have a fear of injections. Beyond that, we see compensating weight loss, lean mass versus fats, and durability as key aspects that we are looking into as well.

Just coming back to the margin question earlier, given another expense in the 2024...

Apologies team. We will get Kerry reconnected with a better line momentarily. And we'll move on to the next question, in the meantime, if that's okay from Chris Shibutani from Goldman Sachs. Chris, your line is live.

With all the different oral mechanisms in particular, variations on it from yourselves as well as competitors, can you update us on your thinking on what the basis of competition is going to be? What kind of opportunities do you really envision? There has been for a while now a comparison on the basis of percent weight loss, particularly for the injectables. As we move into orals, it seems as if tolerability profiles really matter. How are you thinking about it? How do you recommend investors think when we compare datasets across these other oral products in development?