Ladies and gentlemen, thank you for standing by. Welcome to the Q2 2018 Earnings Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. We do remind you today's call is being recorded.
Replay information will be given out at the conclusion of the conference. Your hosting speaker, Dave Ricks. Please go ahead, sir.
Good morning. Thank you for joining us for Eli Lilly and Company's Q2 2018 earnings call. I'm Dave Ricks, Lilly's Chairman and CEO. Joining me on today's call are Josh Smiley, our Chief Financial Officer Doctor. Dan Skrovonsky, President of Lilly Research Labs Enrique Canterino, President of Lilly Diabetes and Lilly USA Doctor.
Sue Mahoney, President of Lilly Oncology Jeff Simmons, President of Elanco Animal Health and unfortunately, Christy Shaw, President of Lilly Biomedicine Dezellem won't be joining us today. We're also joined by Christina Wright, Jim Haney, Kevin Hearn and Phil Johnson of the IR team. This will be the last earnings call for Sue Mahoney, President of Lilly Oncology, who will retire at the end of August. Sue led Lilly Oncology through the integration of Mclone, successfully launched several key brands, including most recently Verzenio, and has now refocused our oncology R and D strategy. I want to thank Sue for her leadership over the past 18 years at the company and for her inspiring passion for helping patients.
Please join me in
a round of applause for Sue.
During this call, we anticipate making projections and forward looking statements based on our current expectations. Our actual results could differ materially due to a number of factors, including those listed on Slide 3 and those outlined in our latest Forms 10 ks and 10 Q filed with the SEC. The information we provide about our products and pipeline is for the benefit of the investment community. It is not intended to be promotional and it is not sufficient for prescribing decisions. We continued the strong start to 2018 with the 2nd quarter revenue growth of 9%, non GAAP operating income growth of 28% and non GAAP EPS growth of 35%.
New pharmaceutical products continue to be the driver of our worldwide revenue growth led by Trulicity, Basiglar, Taltz and Verzenio. New product growth more than offset revenue declines resulting from the loss of exclusivity on a number of our established products. We continue to expand margins this quarter. Excluding the effect of FX on international inventory sold, non GAAP gross margin as a percent of revenue increased by 130 basis points over Q2 2017 and non GAAP operating income as a percent of revenue increased by nearly 600 basis points to 30.6%. We made significant progress with the pipeline, including the approval and launch of Olumiant in the U.
S, FDA and EMA submissions of nasoblucagon as well as positive Phase 3 readouts for galkinezumab and episodic cluster headache, Taltz in ankylosing spondylitis, also known as radiographic axSpA and tanezumab in OA pain in collaboration with Pfizer. In terms of capital deployment, we completed the acquisition of ARMO Biosciences, which added Pegalodecakin to our Phase 3 portfolio. We returned nearly $600,000,000 via the dividend, and we repurchased $950,000,000 of stock which completed our previous $5,000,000,000 share repurchase program. And we authorized a new $8,000,000,000 share repurchase program. And as reflected in the press release we released this morning, we concluded the review of our strategic alternatives for our Elanco Animal Health Business and intend to establish Elanco as an independent publicly traded company via an IPO and subsequent separation.
Since announcing the strategic review last October, management and the Board of Directors carefully considered a wide range of options, including the retention, the sale or the initial public offering of the Elanco business. Based on this review, we concluded that after tax value for Lilly shareholders be maximized by pursuing an IPO and subsequent separation of Elanco. We believe independence will allow Elanco to efficiently deploy its resources to those growth opportunities that best serve its customers. This will also allow Lilly even greater focus on the human pharmaceutical business to pursue our purpose of creating life changing medicines for patients. Execution of the IPO is dependent upon and subject to a number of factors and uncertainties, including business and market conditions.
From a timing perspective, we anticipate a registration statement will be available to the public in the next few weeks, and we are targeting an IPO of less than 20% of Elanco's shares before the end of this year. Given the quiet period imposed by securities law, on today's call, we will not be able to respond to many, if any, questions on the potential IPO. Moving on to Slide 67, you'll see more details on key events since our April earnings call. But now let me turn it over to Josh to review our Q2 results and to provide an update on our financial guidance for 2018.
Thanks, Dave. Slide 8 summarizes our presentation of GAAP results and non GAAP measures, while Slide 9 provides a summary of our GAAP results. I'll focus my comments on our non GAAP adjusted measures to provide insights into the underlying trends in our business. So please refer to today's earnings press release for a detailed description of the year on year changes in our Q2 GAAP results. Looking at the non GAAP measures on Slide 10, you'll see the revenue increase of 9% that Dave mentioned earlier.
Gross margin as a percent of revenue decreased to 76.1%. This decrease was due to the effect of foreign exchange rates on international inventory sold. Excluding this FX effect, gross margin as a percent of revenue actually increased 130 basis points, primarily driven by manufacturing efficiencies, partially offset by the timing of manufacturing production. Total operating expense decreased 1% with marketing, selling and administrative expense decreasing 4%, offset in part by an increase to R and D expense of 5%. Total operating expense as a percent of revenue declined 4.50 basis points compared to Q2 20 17, driven by our continued efforts to reduce our cost structure and increase our margins, accelerated by the restructuring actions we took late last year.
Total operating income increased 28% compared to Q2 2017, which put our operating margin at 29.1% for the quarter. And as Dave mentioned earlier, excluding the effect of FX on international inventory sold, our operating income was 30.6% of revenue, an improvement of nearly 600 basis points versus last year's quarter. Other income and expense was income of $12,200,000 this quarter compared to income of $60,400,000 in last year's quarter. Our tax rate was 17%, a decrease of 4.70 basis points compared with the same quarter last year, driven primarily by the impact of U. S.
Tax reform. At the bottom line, net income increased 31%, while earnings per share increased slightly faster at 35%, due to a reduction in shares outstanding from shares repurchased. We achieved a significant earnings growth by delivering high single digit revenue growth while reducing our operating expenses, significantly improving profitability again this quarter. Slide 11 details these same non GAAP measures for June year to date, while Slide 12 provides a reconciliation between reported and non GAAP EPS. You will find additional details on these adjustments on Slides 2425.
Moving to Slide 13, let's take a look at the effect of price rate and volume on revenue growth. This quarter, the effect of foreign exchange provided a 2% benefit. Excluding this benefit, our worldwide revenue growth on a performance basis was 7%, driven entirely by volume. For a 6th straight quarter, our human pharma business delivered volume growth in each major geography. U.
S. Pharma revenue increased 11%, driven almost entirely by volume. Notably, our diabetes portfolio delivered over 30% U. S. Volume growth again this quarter.
We also benefited from higher U. S. Adcirca revenue, which totaled 96 $1,000,000 Moving to Europe, pharma revenue grew 5% excluding FX, driven entirely by volume despite the loss of exclusivity for Cialis. Excluding the impact of the Cialis LOE, volume grew over 17%. This volume growth was led by Olumiant, Trulicity, Taltz, Vartruvo and Jardiance.
In Japan, pharma revenue increased 3% excluding FX driven entirely by volume. Volume growth was driven by new products namely Trulicity, Ceramza, Taltz, Jardiance and Olumiant with a significant contribution also coming from Cymbalta. This volume growth was partially offset by price from the impact of the biannual pricing cuts, which took effect in Q1. Our pharma revenue in the rest of the world increased 8% on a performance basis this quarter, led by volume growth of Trulicity, Ceramza, Jardiance, Basaglar, Lartruvo and Taltz. Turning to Animal Health.
In total, our Elanco revenue declined 1% this quarter in performance terms. Our core Elanco business, which is the foundation of the business going forward, increased 8% in performance terms. Core Elanco excludes strategic exits, which are listed on Slide 41. New products contributed $75,000,000 to our Animal Health sales in Q2, driven primarily by the companion animal portfolio. This was nearly double the amount in Q2 last year.
The core food animal business increased 10% in Q2 driven by the U. S. Purchasing patterns in 2017 as well as strong growth in poultry and aqua products, partially offset by continued ractopamine competition. The core companion animal business grew 5%, driven by uptake of Galliprant, Credelio and Interceptor Plus, partially offset by continued Trifexis competition. We continue to take actions to focus Elanco's business in its core areas and to improve profitability.
Since our last call, we completed the sale of the Sligo, Larchwood and Augusta manufacturing facilities and we exited a distribution agreement and a product that is not core to Elanco's strategy.
Correlate Elanco strategy. We also made
the decision to suspend marketing of Imrestor, while we pursue additional indications that could allow Imrestor to provide more value to our customers. Slide 14 outlines the same information for our June year to date results. Now let's take a look at the drivers of our worldwide volume growth on Slide 15. In total, our new products including Trulicity, Taltz, Basaglar, Verzenio, Olumiant, Jardiance, Lartruvo and Ceramza were the engine of our worldwide volume growth. You can see that these products drove 12.4 percentage points of volume growth this quarter.
The loss of exclusivity for Effient, Strattera, Cymbalta, Zyprexa, Avista and Axuron provided a drag of 4.50 basis points, while Cialis accounted for 170 basis points of volume decline due to the entry of generic erectile dysfunction products. When excluding LOEs and Cialis, the rest of our products had volume growth of approximately 16%. Slide 16 provides a view of our new product update. In total, these brands generated over $1,700,000,000 in revenue this quarter and represented 28% of our total worldwide revenue. I'll explain to colleagues with the performance of Taltz, which grew by 39% in the U.
S. And 59% worldwide versus Q2 2017, driven almost entirely by volume. This growth was due to the continued uptake in psoriasis and to a lesser extent, the launch of our second indication for Taltz in psoriatic arthritis, both here in the U. S. And in Europe.
We're also pleased to announce this quarter that Taltz had positive Phase 3 results for our second study in ax axSpa, which Dave mentioned earlier, and was granted a label update in both the U. S. And Europe to include data in difficult to treat genital psoriasis. Later this year, we plan to initiate a head to head trial with Tremfya, which will be powered to test superiority on key measures in patients with moderate to severe plaque psoriasis. This investment underscores our confidence in Taltz as well as Lilly's long term commitment to immunology.
Moving to Slide 17. Continuing with our non GAAP explanations, this quarter the effect of FX on our income statement was minimal, with a small positive impact on revenue and a small negative impact on earnings. Turning to our 2018 financial guidance on Slide 18. You will see that we've updated our guidance to reflect an increase of 3 $100,000,000 on the top line, driven by strong performance across our portfolio, particularly in diabetes and the continued uptake of our new launch brands as well as higher collaboration revenue, partially offset by the impact of weaker foreign currencies. An increase in gross margin percent of 50 basis points on a reported basis, primarily driven by the favorable impact of foreign exchange movements, partially offset by an inventory charge related to the suspension of investor sales.
A percentage point increase in the non GAAP gross margin percent primarily driven by the favorable impact of foreign exchange movements. And finally, an increase in our tax rate on a reported basis from 17% to 22.5%, which is driven by a non deductible IP R and D charge for the acquisition of ARMO Biosciences. On a reported basis, earnings per share for 2018 is now expected to be in the range of $3.19 to $3.29 while our non GAAP earnings per share is now expected to be between $5.40 5
$0.50 At the
midpoint of the range, this represents an increase of 27% over 2017. Our updated guidance implies second half non GAAP EPS of between $2.57 $2.67 which exceed the current consensus and does not assume U. S. Price increases for the remainder of the year. However, it's lower than our first half EPS due to the expected U.
S. Generic competition for Cialis in September, higher second half R and D expenses to support additional late stage investment, including mirikizumab, Olumiant and Taltz Nylex and the IL-ten from the ARMO acquisition, launch investments for galpanezumab and to a lesser extent, the higher U. S. EdCirca collaboration revenue that we realized in the first half. In total, we expect strong second half performance led by volume gains in our new products, which allows for targeted investments in our long term portfolio and which positions us well to achieve our 2020 financial objectives.
Now I'll turn the call back over to Dave to review the pipeline and key future events.
Thanks, Josh. Slide 19 shows select enemies and Nylex as of July 17. In my summary of the quarter at the beginning of the call, I mentioned the positive movements for nasoglucagon and the Phase 3 addition of PEGylated IL-ten from our acquisition of ARMO Biosciences. The ARMO acquisition also includes Phase 2 studies for peglodecakin, which are now reflected in the pipeline. Additional movements since our last earnings call include the start of Phase 3 studies for mirikizumab, our IL-twenty three antibody in both psoriasis and ulcerative colitis the start of Phase 2 for our tau antibody for Alzheimer's, the addition of the AURORA kinase inhibitor into Phase 1 with the completion of the Orca acquisition.
Attrition of lanabasastat, the base inhibitor for Alzheimer's disease we were studying in collaboration with AstraZeneca and the attrition of 1 Phase 1 diabetes asset. On Slide 20, we provide an update on expected key events for 2018. In addition to the pipeline movement I've already noted, you'll see that we've added a new line to reflect our expectation that the U. S. OLYMPTA label could be updated before the end of the year for the Phase 3 KEYNOTE-one hundred and eighty nine data.
Under regulatory submissions, you'll see the submission of nasoglucagon and the new indication for ceramza second line liver cancer as well as Lilly and Berriere Ingelheim's revised expectation that the U. S. Submission for the combination of empagliflozin, linagliptin and metformin XR will occur in 2019. In the Phase 3 data presentations and publication section, we reflected presentations at ASCO of the REACH 2 study of Saramza as well as the presentation at the American Headache Society of the Phase 3 cluster headache trials for Galconazumab. And in the Phase 3 top line data disclosure section, you'll see the announcement of positive Phase 3 data for tanezumab in OA pain and the attrition of latabasastat.
In terms of Phase 3 study initiations, you'll see the Phase 3 starts for mirikizumab that I noted earlier and now expect to start Phase 3 before the end of the year for baricitinib in lupus and in adaptive Phase twothree for alopecia. We've also added a line for initiation of Phase 3 for our novel GIP GLP agonist in Type 2 diabetes. We now have data in house from the Phase 2 study of this next generation incretin. In the past, we've said that we have a high bar for efficacy to move this molecule into Phase 3 given the competitive intensity in this category. The Phase 2 results met this high bar.
We look forward to presenting this data at EASD this fall. And following the data presentation, we will host a call to discuss the data. In addition, we plan to start Phase 3 in late 2018 or early 2019. Finally, we had positive Olymta legal rulings in both the U. S.
And Japan, while the German Federal Patent Court held our Olymta vitamin regimen patent invalid. We strongly disagree with this ruling and we plan to appeal the decision. This was clearly a busy and productive quarter for the company and there's still many events to look forward to in 2018. Notably, I'd highlight the expected regulatory actions for Galganizumab in the U. S, for ZENIO in Europe and Japan, as well as the data readout of the REWIND study for Trulicity.
Before we go to the Q and A session, let me briefly sum up the progress we've made this quarter. In Q2, new products accounted for nearly 28% of our total revenue and over 30% of our human pharma revenue. Volume grew 9% in our human pharma business despite recent patent expirations. And when excluding strategic exits and FX, our Animal Health business grew by 8%. We realized significant efficiencies in our cost structure, leading to operating margin expansion of nearly 600 basis points excluding FX.
We've made excellent progress this quarter in the pipeline with the launch of ILUMIAN for RA patients in the U. S, the submission of nasoglucagon to the FDA and EMA and positive Phase 3 data for tanezumab as well as new indication data for Taltz and Galganezumab. We also returned over $1,500,000,000 to shareholders via the dividend and share repurchase. We authorized a new $8,000,000,000 share repurchase program and made a significant strategic decision on the future of our Elanco Animal Health business. Before we move to the Q and A, I would like to share that we will hold a live investor meeting this December to provide our initial 2019 guidance and highlight pipeline progress, including lifecycle opportunities for select marketed products.
Given the limited space available, our Investor Relations team will be in contact in the coming days to issue invitations and provide more logistical details. This concludes our prepared remarks. And now I'll turn the call over to Phil to moderate the Q and A session. Great. Thank you, Dave.
We would like to take questions from as many callers as possible. So we do ask as usual that you limit your questions to 2 or to a single question with 2 parts. Kevin, if you could please provide
First question is from the line of Jon Boris, SunTrust. Please go ahead.
Thanks for taking the questions and congratulations on the operating results in the quarter. Dave, first question just has to do with the blueprint obviously proposed by HHS Secretary and the White House administration. What do you view as the base case scenario potentially coming out for the industry and or best case scenario that could come out of that blueprint? And then just any thoughts on this issue that's rising on co pay accumulators that are certainly blunting manufacturers' ability to use co pay assistance against co pay accumulators. It seems to be very detrimental to patients getting access to medicines.
So any thoughts that you have around that? Second question just has to do with the emerging pain franchise, just your optimism over that franchise, especially Galconizumab, which seemed to have hit some pretty decent data in cluster headache, which is an area where nothing seems to have worked in that area. So just your thoughts on that and lasmiditan, the timing for filing of lasmiditan here in the back half? Thanks.
Great, John. Thank you for the questions. Dave, if you want to go ahead and comment and then Dan, if you want to add anything on the paint franchise that would be great. Dave? Okay, great.
Thanks John and thanks for the questions. Keith on the policy side, of course the blueprint was rolled out in May and recently and all actors in the industry seem to have responded to the request for information. So I think you're asking me to guess at where this will land. That's a really difficult thing to do at this point because there's dozens of ideas in there. I think we can comment on actions that have been initiated though because I think that indicates where the administration might be going first.
And of course, many of you may have noted last week the administration sent to OMB a proposed rule change for the ending kickback safe harbor, which relates to rebates. We don't know the substance of that rule change, but this is heavily commented on through the RFI via questions. And I think you'd be right to assume that there will be some changes to the anti kickback statute as it relates to rebate treatment. We don't know what those are and I think we're preparing for all scenarios there. But this is consistent with the broad theme of looking at ways to reduce the gross to net spread in the industry and to allow patients to have a more price point in high deductible or without insurance that's closer to net pricing.
Overall, we support that. I don't think that's a bad thing for innovators and we'll have to watch how that rule develops. We don't have any specifics as of today. You also saw the administration move on putting a task force together related to addressing off patent brands boutique super inflationary price increases in the absence of IP. This is really a regulatory failure from our perspective.
The administration is talking about importation. We think that's the wrong road to go down, but rather to fix the regulatory system to begin with. Nonetheless, clearly that is a hot button issue and we agree it should be solved. The method we disagree with, but we'll have more to say about that in the future. I think for innovators over the I think I said in the Q4 call in January, we could expect a busy year in regulatory reform and I think in fact that's what we're seeing.
For innovators, at the end of the day, as long as we can embrace a pro innovation market driven set of changes that embraces choice, I think we're going to be fine. Getting from A to B, we'll have to see how these changes unfold. And as of today, it's difficult to say more than I I did already. But of course, we watch it very carefully and at various investor updates, we'll be happy to provide additional commentary as additional actions come forward. On the copay accumulators, this is going in the opposite direction of everything I just said.
This is shifting costs back to consumers by extending the time they spend in the high deductible phase. We don't think by itself it's a good policy. Now coupled with many other things, it could blunt the impact of that. But frankly, I think this although has I would say for Lilly has had very limited impact on our performance is a concerning thing to watch as we watch the back and forth in commercial markets. Of course, payers and ultimately employers are doing this because they want to control drug spending costs.
We understand that there may be other ways to do that though. Finally, on pain, we're excited about the pain portfolio. You're seeing data emerge now from tanezumab. We have the data as you mentioned on galikanezumab, sort of all the Phase 3s in house. And lasmiditan, we do plan to submit before the end of the year as well.
Clearly pain is a huge unmet need in this country. I think you're seeing good interest in the first CGRP antibody launched that we expect that to continue. Migraine is an enormous problem in this country and there are many chronic and episodic sufferers there that we hope to reach with CGRP antibodies as well as products like lasmiditan which can leave acute suffering. So we're bullish on that category. Of course, we need all the data and the caution on tanezumab remains the safety study that there's a large safety study that will read out in 2019 and that's really the pivotal question to answer on this program.
We know the drug can reduce pain based on prior Phase III studies. Dan, do you have any additional comments
to make or? Yes, I'll just reiterate that we're pleased with the data that we're seeing with Galkanezumab, of course, and I think probably I highlight 3 opportunities here for Lilly, specifically in the migraine space. First, we're really quite pleased with the quality of our data. Works fast and has a prolonged maintenance of efficacy in our clinical trials. I think we'll be, right now, as far as we've seen, the only CGRP antibody that has 100% clearance data, so 100% reduction in migraines.
That's statistically significant in our clinical trials. The second opportunity here is with lasmiditan. As you heard from Dave, having both of these products we think could be important for patients. And then of course the third is what you mentioned, which is cluster headache, which is another important indication and we're pleased with the data we have there. So differentiated opportunity here for Lilly.
Great.
Thanks, Dan. Kevin, if we can go to the next caller, please.
And next question is from the line of Chris Schott, JPMorgan. Please go ahead.
Great. Thanks very much for the questions. Just 2 here. Maybe first on tanezumab, can you just put this initial Phase 3 data we saw into context as you think about your enthusiasm for the how How should we think about that safety profile going forward? My second question was on price increases.
It seems like the tone across the industry is a bit more restrained than in the past on willingness to take increases. Is this a 2018 dynamic or do you see these trends continuing out into 2019 and beyond? And I guess given the disconnect we're seeing between gross
and net pricing, if there is
a slowdown in list price increases going forward, should we think about that impacting net price increases or is that less correlated than it's been in the past? Thanks so much.
Great. Chris, thank you for the question. So Dan, if you may want to comment on tanezumab and then Dave feel free to compliment that answer and then maybe take the price increase question. Dan? Yes, thanks.
On tanezumab, of
course, we previously said we have a lot of confidence in this mechanism of action based on the wealth of data that's been generated in the past. And of course, the challenge here is to discharge the safety risk. Having said that, we also changed some aspects of how we administer the drug in the new Phase 3 program on which we're collaborating with Pfizer. So this first study was primarily focused on that aspect. And so this is a titration study where we're investing subcutaneous of 2.52.5 going up to 5 milligram doses and we're pleased that we hit our efficacy outcomes here.
With respect to RPOA, rapidly progressive osteoarthritis, your question on thresholds, of course, we and others here have thresholds in our clinical trials that we're watching for. We haven't spoken specifically about what those might be and our trials continue to proceed. So we're excited about that. This study wasn't designed to discharge the safety risk. That study will come with data probably next year or late this year.
And that's a next year, 3,000 patient 56 week clinical trial.
Thanks, Dan. Dave? Yes, I've definitely added to that. I think as I said before, the key gating thing is this large safety discharge study. We now have, I guess, more than a dozen Phase III trials on tanezumab on efficacy.
Really the question is, is it safe for long term use? On price increases, it's difficult to comment on others' actions or even what happens long term. As this blueprint has been rolled out, I think our point of view is, is it's a potentially sweeping set of changes. Let's see what develops here in 2018 as those changes get implemented or not. And then on the back end of this important public conversation about how do we reduce out of pocket costs for patients while preserving innovation and allowing market forces to prevail, how can we reshape the system around those principles.
On the back end of that, of course, we'll reevaluate our strategies. Net pricing is subject not just to list price changes. And as you know, Chris, the yield of those is quite different across different categories, but also subject to prior period adjustments on assumptions made in gross to net, on current channel mix and many, many other things. So you'll see, I think in the U. S, we're reflecting a 1% positive, which reflects prior increases as well as all those other dimensions.
As Josh said, we don't have list price changes in our outlook and it's still very robust and that's kind of where we're focused is driving volume of new products here in the U. S. And abroad. Thanks, Dave. Kevin, if we can go to next caller, please.
And the next question is from the line of Greg Gilbert, Deutsche Bank. Please go ahead. Thanks. First for Dave,
I was hoping you could share with us, not a question about the IPO here, but how will the Elanco transaction or transactions in the coming quarter shape your thinking about capital allocation priorities for Lilly? And then shifting gears to diabetes, you touched on this a bit, but given the strong profile for the current injectable GLP-1s and the emerging oral GLP-1, can you put a little more meat on the bones in terms of that bar you talked about? Is that the primary endpoint or a multitude of endpoints that shaped your thinking there? And perhaps you can fill in any updates on your own oral GLP-one work? Thank you.
So Dave could comment on the lead capital allocation moving forward. And then Dan and Enrique, if you'd like to take the question on what we saw with our GIP clip in Phase 2. Dave? Yes, thanks, Craig. Well, as I said, this move is really the result of a deep and thorough analysis of the value maximizing decision for Lilly shareholders.
We think an IPO produces that, the best debt protects value. And also that it will allow more focus, focus for Elanco on its priorities, allocating its capital to the priorities to grow that business and serve its customers and focus for Lilly, which for us assuming this all goes forward as planned will be a human pharmaceutical business with I think many opportunities to invest in creating breakthrough products for patients. Our strategy on capital allocation doesn't change as a result of this decision, which is really first to invest in our own business, our own organic R and D and the launches and capital needed to manufacture those products etcetera. Secondly, to look at business development to build our pipeline as the commentary there isn't different than before, which is really we're mostly interested in clinical stage assets that can build in our core 5 therapeutic areas. I think you saw a number of moves in Q2 in that regard, most notably the ARMO acquisition as an example of the kind of thing we're interested in.
And then finally, if we run out of those ideas, we'll return capital to shareholders. And this quarter, we're announcing a share repurchase program, which will allow us to continue to do that. And as we said, there was 900,000,000 dollars or so in share repurchase activity in Q2 consistent with those priorities. So I think we've taken a balanced approach on capital allocation. You expect that to continue.
And if we have more capital to balance, we'll do just that. Thanks, Dave. Dan?
Yes, sure. We've previously said that we see incretin biology as an important platform for Lilly to continue to build on, that there's a lot more opportunities here for patients. And so over the years, we've invested here and developed and tested now a number of different molecules that could offer differentiated efficacy in this platform. So for example, the oxintomodulin molecules, we are now testing a second one of these in clinical trials. The GIP GLP and other molecules that are in earlier development.
In each of these cases, we're really looking for what we consider to be breakthrough efficacy. In the case of GIP GLP, here we were encouraged that dual agonism of both of these receptors, which we think is very important in our preclinical studies, showed highly differentiated weight loss and glucose control. So we're encouraged by that. We took it into Phase 1 clinical trials. We commented that we're encouraged by what we see and saw there, and therefore, moved it into Phase II clinical trials.
And I'll hand it to Enrique for the future for this module.
Yes. No, I think you've framed it well, but we do have a high bar for any type of next generation incretin and this product clearly met that bar, but we won't be able to comment on the specifics of the efficacy. Just to say that we do plan to have a full presentation at EASD and then an investor call following that.
That will be early October. That's correct. Okay. That's all. Thank you.
Catherine, we can go to the next caller, please.
And that will be Andrew Baum, Citi. Please go ahead.
Thank you. A couple of topics, please. Just to zoom in on the first question around the Blueprint, particularly the proposal on rebates. Our understanding is this totally relates to the federal sponsor plan. I just want to make sure that's consistent with your understanding.
2nd, assuming that is the case, how do you envisage the world working if PBMs are meaningfully amend their structure of their rebates or move rebates altogether for federal plan? Is it conceivable that the commercial side of the business will remain as is, which you anticipate that may change? And finally, as for timing, we're assuming that nothing is going to happen just given plans are set until 2020 at the earliest again, is that consistent? And then the second topic is one question on tanezumab. What are you anticipating in terms of the labeling requirements for radiographic scans given in the real world patients may be co medicating with end stage, which may increase some of the safety signals you saw in the earlier trials?
Thank you.
Okay. We've had a series of questions essentially on the BLUEPRINT, specifically the rebate program. And is that only applying in our standing to federal programs? Will that be the impact of PBMs during the commercial business if that kind of change will go into effect? Earliest timing that we're thinking is 2020 appropriate.
And then we also had a question on tanezumab in terms of labeling required for radiographic scan. So maybe Dave, if you want to take the first question. I'm not sure as much we can say, but whatever we can say on the blueprint speculation. And maybe Dan, if you want to comment on Tanezumab. Yes, I was just going to reiterate, Andrew, it's difficult to speculate on a proposed rule change, but all we have is the title of the rule.
You can read it like we can, which basically says a change
to the rebate rules
on the anti kickback statute and replacing it with a new set of safe harbors. Mike Carrigan is with us, who is our General Counsel. I think we could ask him about what anti kickback statute refers to, but I believe it is just federal programs. Mike, do you want to comment on that?
Well, I think we'll have to see. The anti kickback statute addresses payments made to induce prescribing. So it's we'll have to monitor it closely, but there's a potential yet that it could expand more broadly beyond just the federal programs.
Okay. Thank you. And then tanezumab and the radiographic labeling?
Yes, sure. So it's certainly premature to speculate on the labeling of tanezumab given that we don't have the primary safety data yet. But as you know, we made some changes to the Phase 3 program to try and decrease the risk of RPOA. I think most significant among those is lowering the dose of tanezumab and so that's again why this titration study was the 1st step in demonstrating that we still have the efficacy that we need. Another change was reducing or eliminating the concomitant use of NSAIDs in OA patients, as well as changing our screening methods, as you mentioned.
Let's see what the data show and based on that, we'll be able to talk more about where we're headed in late 1.
Thank you, Dan. Kevin, next caller please.
And next we have David Risinger, Morgan Stanley. Please go ahead.
Yes, thanks very much. I have a few questions. First, with respect to the strategic exits that you mentioned for Elanco, obviously, you can't talk about the IPO, but I just wanted to better understand when those strategic exits were completed that had a negative impact on revenue in the Q2 and thus when they will annualize. So that's the first question. 2nd, with respect to Jardiance and Tradjenta, both of those products were flattish sequentially.
So they were outliers. Obviously, the rest of the portfolio was extremely strong. Could you help us better understand why they were flattish sequentially despite the prescription growth that we saw? And then my final question is with respect to your Alzheimer's candidates. You have 2 candidates in Phase 2 with readouts in coming years.
Can you just provide a framework for those 2 Phase 2 programs, including the timing? Thanks very much.
Great, Dave. Thank you for the question. So maybe Josh, if you want to take the first questions on when we've completed some of these strategic exits and sort of what the time courses for those eventually to annualize. And then Enrique on the sequential growth patterns for Jardiance and Trojent and then over to Dan for the question for our Alzheimer's programs in Phase 2. Josh?
Okay, great.
Thanks, David. The most significant of the strategic exits would be our Aposolact business and the Augusta manufacturing plant in Georgia. We really just completed that exit over the course of this month. So now as you know, OZLAC has been declining over the course of 20172018. So I think you'll start to see this annualized in total revenue beginning in the second half of this year, just as we start to work through some of the significant headwinds we saw last year.
I think it will be totally out of the numbers by the time you get into sort of late 2019. But the majority of the effect that we see for Paws Life, that's going down every quarter because of the product before the strategic exit, the product was declining pretty significantly. We also announced that we were, on a smaller basis, exiting a few contracts, including a manufacturing contract that we had around BI when we acquired the vaccine portfolio. It was a low margin opportunity, but on the top line that will start to come out of the numbers in the second half of this year as well. And if you'll remember when we gave guidance for Elanco, at the beginning of the year, we said you would see a pickup in growth in the second half of the year as some of these items began to normalize in the numbers.
I think that's why we have focused on the core Elanco business, which really looks at that portfolio, which is not we're not exiting from and is the basis of our growth going forward. Great.
Thanks, Josh. Enrique?
Very good. So let's start with the Easter one. Tragenta net sales in the U. S. Reflect the trends that we see when it comes to total prescriptions.
Basically, it's a steady number of prescriptions quarter on quarter and that's basically what we see when it comes to net sales. When it comes to Jardiance, just maybe to provide a bit more color, we show in the case of Jardiance a 58% TRx growth versus the previous year quarter on quarter. On a sequential basis that growth is 13%. So there is solid growth when it comes to Jardis. But the net sales, there's a disconnect there because the net sales for the quarter versus the previous year only increased 28%.
We did have an adjustment to due to changes in estimates for rebates and discounts, normalizing for that, that growth versus the previous year would have been 46%. Now when we look on a sequential basis in the case of Jardiance, some of those changes in the estimates for rerates and discounts really belonged in Q1. So you basically have a double whammy effect when you look at the sequential quarter on quarter comparison.
Thank you, Enrique. Stan?
Yes.
Thanks for the question on the neurodegeneration portfolio. We actually have 3 neurodegeneration targeted molecules in Phase 2 trials starting with D1 PAM. This is designed to be a symptomatic molecule for patients suffering with dementia. Initially, we're testing it in Parkinson's disease dementia. We have reason to believe that there's higher probability of success in that population.
But if we get a positive signal there, we would very quickly move that also in parallel to Alzheimer's disease. So that's the first. The other 2 that you mentioned, the next one behind it is N3PG, that's an anti plaque A beta antibody based on what we saw in some pretty extended Phase 1 trials. This molecule can clear plaques really to a very dramatic depth, so a great degree of clearance and also with a great amount of speed, so faster clearance, I think, than we've seen with other mechanisms. So we're excited about that.
We're testing that as monotherapy. We're also testing it in conjunction in combination therapy. I believe it's the first combo trial of 2 disease modifying drugs in Alzheimer's disease with a base inhibitor, with the thought here that although base monotherapy has been disappointing, if you turn off A beta production also clear out the plaque that could have added benefits. So that trial is enrolling. And then we also have the tau monoclonal antibody.
This is specific for aggregated forms of tau and we think this is an important therapeutic modality in Alzheimer's. Both of those Phase 2, really all 3 of the Phase 2 trials are designed to give us efficacy signals both on biomarkers and on cognitive endpoints. I think on clinicaltrials.gov, we show the disease modifying trials ending in 2020 to 18 month treatment period. But depending on enrollment rates and depending on the potential for interim analysis, there's also potential to have data readouts earlier, even next year. But we'll have to wait and see how those trials
go. Great. Thank you, Dan. Kevin, if we can go to the next caller.
And the next question is from the line of, one moment please, it's going to be Jamie Rubin, Goldman Sachs. Please go ahead.
Thank you. David, just want to go back to some of the questions around rebate structures and I recognize that it's early and it's hard to predict how this is going to play out. But just when you look at your own numbers and think about different scenarios, looking at filings, Lilly's gross to net of 48% is the widest in the industry largely because of your diabetes franchise. If there is a change to those rebates, what would you expect to happen to volumes? You just said that volumes are that rebates are used to induce volume.
So would you expect volumes to go down for that business? Conversely, if rebates go away, Lilly has about $10,000,000,000 in rebates. How can this not be a net positive even if you take into consideration lower volumes and potentially lower list price? How are you thinking about the different scenarios that can play out here? Thanks.
Great. Jamie, thank you for the questions. Dave? Yes. Thanks, Jamie.
I mean the huge opening caveat here is we don't know, right. We don't know what this rule is. We don't know where the system will go. We've paused on the list price change in the U. S.
Waiting to see what's happening here. But just to get the numbers right, so we reported last year 51% gross to net spread. You're right in that the diabetes segment in particular drives that primarily because you have a very large Medicaid population and you have very large gross to net spreads in Medicaid approaching the federal cap at 100%. So we've been pretty open about all that. It depends on how this rule would be enacted, whether we change the Medicaid system, whether we had commercial, etcetera, to really guess at what would be on the other side of it.
As I said in my first response though, we make innovative products, hopefully products people want and need. I think the current system has resulted in basically a structure of the industry where the hospital systems, insurance carriers, distributors and manufacturers seem to be fine with the current system. The problem is we're shifting too much cost via list pricing directly to consumers. I have to believe that if consumer pricing came down, it would improve volume, improve medication adherence, improve outcomes for patients. So we think that's why in general, we think this direction of travel is a good way.
Now we have to see all the specifics because clearly there's a lot of room for disruption in a negative way here and it'd be very difficult for Lilly to predict what would happen to the gross to net line you're talking about or more specifically without seeing the totality of the regulatory reforms.
Is there a scenario though where this is a net positive for the industry even if volumes do go down, but your rebates go away as well?
I think there's a lot of scenarios, Jamie. It's hard to speculate.
Okay. Thank you.
Yes. Great. Thanks, Jamie. Kevin, if we can go to the next caller.
And next we have Geoff Meacham, Barclays. Please go ahead.
Hey, guys. Thanks for the question. On Olumiant, I just wanted to ask you guys a little bit more detail about the strategy going forward for the 4 mg dose in RA. What are the options you're looking at? And maybe just put this in the context of the priorities compared to your label expanding studies and atopic dermatitis, psoriatic arthritis, etcetera.
And then Dave or Josh, with the Elanco spin out, you pipeline progress and obviously a few smaller scale deals already done in oncology. Maybe just help us with is it fair to say BD is now a lower priority? Is there a category that you feel like you'll still need to add assets, like for example, in oncology to be more competitive? Thank you.
Great, Jeff. Thank you for the question. So Dan, maybe if you can comment on strategies going forward for the 4 mg in RA and how that may compare with other Nylex opportunities that we're evaluating. And then Dave, obviously, comment on the business development priorities that we have moving forward. Dan?
Yes. Thanks. We're excited about the potential of baricitinib for patients. That potential is being realized, of course, to a greater extent outside the U. S.
In places where both doses are approved. At the advisory committee, I think we were clear in our position about the benefits that each dose could have for patients and we were clear after the AdCom in our disappointment. I think in terms of next step for next steps for the 4 milligram dose, we're still considering what different possibilities might be internally at this time. I think that in terms of the prioritization here, there's great opportunities for baricitinib in RA, but also in some of the other indications. So the lupus data, which was recently published in Lancet, I think represents a really great opportunity for patients and an opportunity here for us to be 1st in class here in lupus.
We're also excited about atopic derm, where we now have a Phase 3 trial ongoing. So lots of opportunity for patients with very remaining.
Yes, I would just add that we've launched just now started promoting in July in the U. S. With the 2 milligram anecdotal feedback is very positive. And we know from the German launch and French launches, which are ongoing, that patients have rapid pain relief. This is a different modality than they're used to in disease modifiers for RA and we're far from disappointed with the performance of the molecule at a global basis.
Work to do in the U. S, we'll update investors in probably more detail at the Q3 call on that performance. And the lifecycle as Dan pointed out is potentially quite broad. On the second question of BD priorities, I hate to say this, Jeff, but I think you have it exactly wrong. I wouldn't interpret it at all that we're satisfied with BD.
We are in a position now with where we're growing the top line, we're growing income, we're growing cash flows, we are very interested in acquiring assets that add to all of our therapeutic areas of interest. We're not plugging a hole here. It's really about building value for the long term. And because we are optimistic about the short and mid term in terms of growth prospects, we're in a position to do just that. So I would expect to see a continuous flow of pipeline adds from Lilly, hopefully from our own labs, but if not from outside labs as well.
And we have more than enough resources to execute that strategy. Great. Thanks, Dave. Kevin, if we can go to the next caller, please.
And next question is from the line of Jason Gerberry, Bank of America. Please go ahead.
Thanks for taking my questions. I guess just first question I guess, rebates. But can you talk about second half where you are in terms of comps? And then kind of moving forward into 2019, how comfortable are you at this stage that the biosimilar competitor won't really represent a meaningful source of competitive pressure to the business? And then my second question, just on Galkanezumab, the feedback from the Amgen launch in the CGRP space seems to be pretty favorable.
I'd just be curious to get your evolving thoughts on do you think payers are going to cover multiple CGRP agents on par or parity or do you think that they'll opt for exclusive contracts out of the gates? Thanks.
Sure, Jason. Thank you for the question. So Enrique, we'll go to you for Humalog. I'm not sure, Dave, if you may want to handle it or we'll look to We'll start. Okay.
For gafenizumab. Yes, absolutely. Enrique?
Sure. So, HUMIRA had an excellent quarter. We did have a benefit in Q2 due to changes in the estimates for rebates and discounts. That benefit was relative to the previous year was about 9 points, so an important benefit. Now as we it's difficult to for us to be able to project forward, but we are seeing a bit of a benefit also when it comes to mix.
When we look at the different segments, which is a positive for Humalog and for the insulin franchise. Now, as it relates to ADMELOG, it's very difficult to for us to forecast and predict how the competitor will basically play in the markets. Clearly at this point in time, what we basically see them is gaining share in particular in the area of managed Medicaid. But it's difficult for us to predict what type of access and uptake will be they'd be able to have in 2019.
Okay, great. As it relates to access in the migraine categories, it's pretty early days here. I understand mostly payers haven't listed the new therapy. We're of course, per the guidance from the FDA in early conversations with payers about our data and seeking that kind of feedback from them. I can tell you what our strategy is, which is we think broad access to these medications is appropriate, in particular given the population.
So these are mostly commercially insured working women who are having anywhere between 420 headaches a month, that's our study population, which causes absenteeism, debilitation, lack of ability to predict and schedule and plan, not to mention just the human suffering costs. So we think employers will be very interested in covering this class. We need to get that message through. It could be a great category for some value and outcomes based pricing approaches and we're optimistic long term that the class will have good coverage. Enrique, do you have anything from your conversation with payers to add?
No, I think we're very excited about the opportunity that this new product would present for us and we're working actively to try to ensure broad access.
Okay, great. Thank you. Gavin, next caller please.
Next we have Steve Scala, Cowen. Please go ahead.
Thank you. Several questions. First, on Taltz, in Q1, inventory was down 33%. How much of the stellar second quarter performance was restocking the trade versus underlying demand? 2nd, a filing of Galganezumab in episodic cluster headache is not in the events table.
Why is the 2018 filing not likely? Is this a result of the miss in the chronic cluster headache setting? And then lastly, do you have any early reading on 2019 formulary discussions? Are they resulting in similar positions as 2018? Or is there a step change
in any way? Thank you.
Okay, Steve. I'm not sure with Christy being ill if we've got a strong answer for you on the Q1, but we'll give at least a short answer for you. We can follow-up later if needed on the pulse question for Q1. And then maybe, Enrique, if you'd like to also comment on the 2019 formulary question and I'll be happy to go ahead and provide a comment on the galkanezumab filing for the bundle.
Yes. I think the short answer is that the Taltz performance when we look at Q2 is really demand driven. We've seen improvements on across our prescription trends in both derm and rheumatology. So we are very encouraged with the Taltz performance. We typically do not comment on specific formulary forecast for 2019.
Yes. And Steve, on your question for Galkanezumab and cluster, I'm very pleased with the results that we saw in the Phase 3 studies and certainly we'll discuss those with regulators, but are not making any kind of a comment at this point in time on potential filing or timing for such a filing. Kevin, if we can go to the next caller, please.
And that will be Umer Raffat at Evercore. Please go ahead.
Hi, thanks so much for taking my questions. I had 3, if I may. Dave, first, someone brought it up earlier as well and I wanted to make it a bit more specific on a product level as it relates to rebates. And I guess my question was, when I look at mealtime insulins, Lilly and Novo basically split the market and Sanofi has minimal share. So do you foresee any scenario rebates where Sanofi becomes a more meaningful player in mealtime insulins?
So that's first. And second and third are maybe more on R and D. First, on IL-ten, my question is in your ongoing Phase 2 trials of PD-one plus IL-ten, they're both open label in lung. And any observations from that trial to date? And then also on R and D, on tanezumab, have you do we know what the rate of conversion was from Type 1 to Type 2 RPOAs in your prior trials?
Thank you very much.
All right. Thank you for the questions. Enrique, maybe you'd like to comment on the first question about any possibilities we see for Sanofi to become a more meaningful player in mealtime insulin. Maybe Sue or Dan, if you'd like to comment on data from the IL-ten. And then, Umer, I'm sorry, I actually can't read my own chicken scratch for what you asked on tanezumab.
It's conversion from RPOA-one to RPOA-two and maybe either Dan or Dave, if you want to comment. So, Enrique, I'll start with you.
Yes. The premise of the question was under some sort of a different structure when it comes to rebates and so forth. It's and I think Dave already mentioned this, but it's very difficult to speculate where the changes will be and where the competitive dynamics will be as a result of that change. Clearly, we do track Sanofi's products in the mealtime insulin space, but so far I think the uptake is very minimal.
Great. Thank you, Enrique. Sue, you want to start on the IL-ten question?
Yes, sure. We have 2 Phase 2 studies with IL-ten as you mentioned, one in the frontline and the one in second line. Both those studies are currently enrolling. The endpoint is response rate data, and we're anticipating seeing that next year.
Great. Thank you, Sue. Dan, do you want to add anything or are you?
It's fine. Okay.
And then on tanezumab question?
Yes. So I understand your question about rates of conversion in to RPOA2 from RPOA1 in previous trials. I know there's a lot of interest in comparing what we'll be seeing in this current trial and future trials of tanezumab with the past experiences. But there's some really important differences I think that should lead us to avoid those kinds of comparisons, primarily around the way that we screened for events and adjudicated events, which is quite different in this trial and understandably since we knew what we're looking for much more thorough. So we don't have relevant data from the past to compare to.
With regards to this current trial, we're not disclosing any more details at this point in time, but that should happen in a future meeting. Thank you,
Dan. Kevin, next caller please.
Next is Vamil Divan, Credit Suisse. Please go ahead.
So maybe just 2 on the oncology side. 1 on Verzenio, the performance is pretty good this quarter. Just if you can give a little more color on which patients are getting Verzenio relative to Ibrance or KYSQUALI? And then the second one on ALYMTA, you mentioned you're hoping to have the label updated to include KEYNOTE-one hundred and eighty nine data later this year. Just if you can comment on what you're seeing in terms of adoption of that regimen in practice today, such as the OLYMPTA use is now in combination with KEYTRUDA in the frontline setting?
Thanks.
Vamil, thank you for the question. So Sue, for you on both RASENIO and OLYMPTA updates.
Sure. Yes, thanks for the question. Yes, we're really pleased with the update on Verzenio today. The sales this quarter were $57,700,000 so that's $28,000,000 increase versus last quarter. What we're seeing is, as you know, we're the 3rd to market CDK, but we are 2nd now in terms of both NRx, the new to brand and also in TRx.
In this quarter, our MBRx share was 18.7%, and we continue to see that increase. So we are pleased with the uptake. What we're seeing is when physicians are using Vivenio. And so far, we have about 1500 physicians who have charged VIVENIO. The patients that they're using in is across the spectrum in the frontline and mainly in fulvestrant.
We do have some single agent activity, but really we're starting to see much more now uptake in the frontline, so with the aromatase inhibitors as well as with the second line in fulvestrant. And the things that are resonating is the continuous dosing. The single agent activity is clearly a differentiator. And people are also interested and I think the data is resonating in the fact that we see positive data in patients who have got concerning clinical characteristics. So we feel pretty good so far about the uptake in Vicenio.
We see opportunity to continue to grow that brand. The market is growing about 22 percent and only about 50% of patients are still getting a CDK4six inhibitor. With regards to Alimta, we've got the data update now in for the KEYNOTE-two-one gs data is now in the label. We have also submitted to the FDA to include the KEYNOTE-one hundred and eighty nine data. What we are seeing is, as you heard, we are growing ALIMTA in the U.
S. We had a 2% growth based on volume, 1% price or 3% overall. And although the data was only presented at ASCO fairly recently, since that time, we are seeing an increase in new patient prescriptions. So sort of as a reminder, about 50 percent of Alimta use is in the sort of in promoted areas. We do have Alimta.
Some of the use for the KEYNOTE-one hundred and eighty nine regime is sort of in addition to Alimta use that we've got now, but we're clearly also seeing an increase in the triplet use, and we continue to believe that we'll see that going forward.
Great. Thank you, Sue. Kevin, next caller, please.
Next is from the line of Louise Ekken, Cantor. Please go ahead.
Hi. Thanks for taking my questions. So first question I had was what gives you confidence that you will hit STAT6 versus just not inferiority in the REWIND trial for Trulicity? And even if it's not stat sig, can Trulicity still continue its robust growth trajectory that you see currently? And second question was just back on tanezumab.
How do you think the FDA will balance the side effect profile of your drug versus the need for alternatives to opioids? Thanks.
Great, Louise. Welcome to the call. So Enrique, if you'd like to handle the question for rewind and then Dan over to you for the question on tanezumab. Enrique?
So Trulicity today is having fantastic growth. Clearly the GLP-one market is growing very fast at 26%, but Trulicity is also having continued share growth over the last few months. We have an excellent access position and quite frankly an unmatched patient experience when we look at the real world efficacy that Trulicity delivers that we look at patient adherence and very simply delivered. So very excited about the core performance of the product. Clearly REWIND as we've said before is an important trial for us and we believe that we've designed this trial in the appropriate way.
We expect that we're going to have a top line sometime by the end of the year. But we one of the differences for REWIND versus other trials is the time the patients are going to be on the product. This is not a short trial, it's fairly long and we expect that patients would be on average over 5 years on Trulicity. So we look forward to the results of that trial, but at this point in time, we're not going to speculate.
Thank you, Enrique. Dan? Yes. With respect to cinezumab,
of course, with Pfizer, our priority here in the current slate of trial is to demonstrate the benefit risk of this drug for patients in a variety of settings. Having said that, your question was sort of broader about the societal impact here of the opioid crisis and the need for non opioid alternatives for chronic pain. Of course, we also see that. That's one of the reasons we're excited by the potential of the pain portfolio and one of the reasons that several years ago we decided to invest in the future for tanezumab. I think how regulators will see the interplay between new molecules for pain versus the opioid crisis is important.
And we think that we have an important role to play there in helping solve that problem.
Thanks, Dan. Kevin, next caller?
And we do have a question from the line of Steve Scala, Cowen. Please go ahead.
Thank you. Back on REWIND. On the Q1 call, it was stated that the top line press release could be anticipated in early Q4. Enrique, you just said year end, so I'm wondering if there has been a change in timing. Secondly, on Alimta, does the ruling in Germany change anything in the market such as allowing a generic launch?
And then lastly, on Verzenio, a Phase 2 study in MCL had completed in March, but there's been no update when might we see the data. Thank you.
Christy, thank you for the question. So Enrique, back to you for the rewind follow-up and then Sue to you for the Germany ruling for and the Verzenio Phase 2 in MCL?
There has been no change in timing. We expect that the top line will be released in Q4.
Okay, great. Thank you, Enrique. And Sue?
Yes. With regards to the Elimpda Germany, we have injunctions in place, so it's really hard to say what the situation is with regards to generics. I mean, some may go at risk, but it's really hard to say with regards to that.
And then for Resenio, we had the MCL Phase 2 wrap up. Any thoughts on plans for MCL going forward?
Yes. I'm going to have to get back to you on that one. I'm not sure of the plans with regards to the publication on that, but we'll certainly get back to you on that one.
Great. And then also just to place some context for our Q2 results, European sales of Alimta were about 100 and $45,000,000 less than $30,000,000 of that came from Germany. Kevin, if we have another caller, we'll be happy to take the question.
That will be Jaime Ankuba, BOA. Please go ahead. And your line is open at this time. Hema Incova, your line is open.
Are you okay?
Yes. Yes, we can.
Okay, great. Thanks very much for taking my question. On Slide 5, you're indicating a potential debt offering prior to the IPO and not asking in terms of the transaction details, but do you expect this Elanco to be a levering up event for Lilly?
So Josh, if you want to respond to the question in terms of will this cause Lilly to actually lever up?
So the debt offering will the intent at this point is to do that before we launch the IPO of less than 20%. Obviously, over time that sits on Polanco's books. I think if you look at Lilly's capital allocation priorities and cash flow, we do expect to be more levered over time as a function basically of tax reform. You'll recall that prior to tax reform, we were in a position where we had cash that was restricted and how we could use it and it was in effect trapped overseas. As that has freed up, we don't need to keep as much cash.
So you should expect to see Lilly on a net basis be more levered. And in fact, in Q2, we moved into a net debt position. So it's less an issue of what will happen with Elanco because that will normalize over time and more a function of our capital structure, which is now gives us much more flexibility as we're able to manage and use cash around the world.
And this is Phil. I guess in my new role as Treasurer, when we would separate Elanco should that occur, which is our plan, We would lose a certain amount of EBITDA. There would not be a significant reduction to our debt. So there would be a modest maybe 20 basis point increase in the debt to EBITDA kind of numbers that we have, but a very minimal change in terms of Lilly's leverage moving forward. Kevin, do we have any more callers in the queue?
That's very helpful. Thank you. You're welcome.
No further questions in queue at this time.
Excellent. You very much. Dave, if you'd like to go ahead and conclude the call with some comments. Thanks, Will. We appreciate your participation in today's earnings call and your interest in Eli Lilly and Company.
Our strong first half growth makes us increasingly confident in our ability to deliver 5% compound revenue growth from 2015 to 2020 and to achieve a 30% operating margin in 2020. While our first half pipeline accomplishments continue to highlight the depth and breadth of our prospects for growth beyond 2020. As demonstrated most recently by our decision on Elanco, we continue to take concrete actions to focus our resources and allocate capital to best serve our customers and to create value for our stakeholders. With a diverse set of new product opportunities to drive growth, a strong R and D capability and a clear path to margin expansion, we believe Lilly continues to be a compelling investment. Thanks again for dialing in.
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