Ladies and gentlemen, thank you for standing by. Welcome to the Eli Lilly and Company Q1 2018 earnings call. At this time, all participant lines are in a listen-only mode. Later, there will be an opportunity for your questions. Instructions will be given at that time. As a reminder, today's conference call is being recorded. If you should require assistance, please press star, then zero, and we will assist you offline. I would now like to turn the conference over to David Ricks. Please go ahead.
Good morning. Thank you for joining us for Eli Lilly and Company's first quarter 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, Enrique Conterno, the President of Lilly Diabetes and Lilly USA, Dr. Sue Mahony, President of Lilly Oncology Christi Shaw, President of Lilly Bio-Medicines, and Jeff Simmons, President of Elanco Animal Health. We're also joined by Christina Wright, Jim Haney, Kevin Hern, and Phil Johnson of the investor relations team. We're also joined for the first time by Dan Skovronsky, our incoming president of Lilly Research Laboratories. Dan is succeeding Dr. Jan Lundberg, who will retire at the end of May. Jan has been key to our success as we navigated the years Y, Z and returned to growth with a series of successful products.
During this conference call, we anticipate making projections and forward-looking statements based on our current expectations. Our actual results could differ materially due to a number of factors, including those listed on slide three and those outlined in our latest Forms 10-K and 10-Q filed with the Securities and Exchange Commission. 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. 2018 is off to a good start with first quarter revenue growth of 9%, which we leveraged into a 29% non-GAAP operating income growth and 37% non-GAAP EPS growth.
New pharmaceutical products continue to be the driver of our worldwide revenue growth, led by Trulicity, Basaglar, Jardiance, and Taltz, with growth in both the U.S. and international markets, where our launches continue to scale up. New product growth more than offset revenue declines resulting from loss of exclusivity on a number of established products. In addition, we continue to expand our margins this quarter. Excluding the effect of FX on international inventory sold, non-GAAP gross margin as a percent of revenue increased by nearly 70 basis points over Q1 2017, and non-GAAP operating income as a percent of revenue increased by 775 basis points to 30.4%.
Pipeline progress this quarter also included approval and launch of an additional indication in first-line metastatic breast cancer for Verzenio, based on the MONARCH 3 data, positive phase III studies of Taltz for ankylosing spondylitis, a positive phase III study for CYRAMZA in high AFP patients with second-line liver cancer, and the initiation of a phase III study for Trulicity in three and four and a half milligram doses. While we are pleased that the FDA's Arthritis Advisory Committee supported the efficacy of both 2 milligrams and 4 milligrams of baricitinib in RA, and 2 milligrams overall, we are disappointed that the committee did not recommend approval of the 4 milligram dose.
We are confident in the benefit risk profile of both baricitinib 2 milligrams and 4 milligrams for the treatment of patients with RA, supported by the clinical data generated to date and by the experience in more than 40 countries in which both doses are approved and available. We'll continue to work with the FDA on this important application. In terms of capital deployment, we announced a strategic collaboration with Sigilon to develop encapsulated cell therapies for the treatment of type 1 diabetes. We purchased $1.1 billion of stock and returned nearly $600 million via the dividend, and we are making expected progress on our Elanco strategic review and still anticipate sharing our conclusions on our Q2 earnings call this July. Slide five contains more detail on key events since our January earnings call.
I'd like to turn the call over to Josh to review our Q1 results and provide an update on our financial guidance for 2018.
Thanks, Dave. Slide six summarizes our presentation of GAAP results and non-GAAP measures, while slide seven 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. Please refer to today's earnings press release for a detailed description of the year-on-year changes in our first quarter GAAP results. Looking at the non-GAAP measures on slide eight, you'll see the revenue increase of 9% that Dave mentioned earlier. Gross margin as a percent of revenue decreased to 75.1%. This decrease was due to the effect of foreign exchange rates on international inventories sold. Excluding this FX effect, gross margin as a percent of revenue actually increased roughly 70 basis points, driven by higher realized prices and manufacturing efficiencies, partially offset by product mix.
Total operating expense decreased 5%, with marketing, selling, and administrative expense decreasing 4% and R&D expense decreasing 6%. Total operating expense as a percent of revenue declined by 710 basis points compared to Q1 2017. This significant improvement reflects our continued efforts to reduce our cost structure and increase our margins, accelerated by the restructuring actions we took late last year. Other income and expense was income of $67.5 million this quarter, compared to income of $78.3 million in last year's quarter. Our tax rate was 15.9%, a decrease of 530 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 35%, while earnings per share increased slightly faster at 37% due to a reduction in shares outstanding from shares repurchased.
We achieved this significant earnings growth by delivering high single-digit revenue growth while significantly reducing our operating expenses, creating positive leverage again this quarter. Slide 9 provides a reconciliation between reported and non-GAAP EPS. You'll find additional details on these adjustments on slide 20. Moving to slide 10, 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 four percentage point benefit. Excluding this, our worldwide revenue growth on a performance basis was 5%, driven by both price and volume. For a fifth straight quarter, our human pharma business drove volume growth in each major geography. U.S. pharma revenue increased 10%, driven by price, and to a lesser extent, volume.
Our diabetes portfolio, led by Trulicity, Basaglar, and Jardiance, was the primary driver of volume growth, with growth of 30%, offset by the losses of exclusivity for Strattera, Effient, and Axiron, and by a decline in volume for Cialis due to the entry of generic erectile dysfunction products. For U.S. pharma, it's also worth noting that when excluding LOEs, the rest of our U.S. products grew by approximately 20% in total. U.S. price growth in the quarter was favorably impacted by an adjustment for rebates and discounts, primarily related to lower Medicaid utilization than anticipated across the portfolio. While Medicaid remains a significant segment of our U.S. business, we estimate that the growth we experienced in this segment in the past several years has plateaued in recent months. Moving to Europe, we've been pleased with the overall performance of our new product portfolio across the region.
Pharma revenue grew 2% excluding the FX, driven entirely by volume despite the loss of exclusivity for Cialis. Excluding the impact of the Cialis LOE, volume grew nearly 17%. This volume growth was led by Trulicity, Olumiant, Taltz, Lartruvo, Jardiance, and Basaglar. In Japan, pharma revenue increased 1%, excluding the FX, driven by volume of new products, namely Trulicity, Taltz, and Jardiance, with a partial offset in price from the impact of the biannual price cuts. Our pharma revenue in the rest of the world increased 4% on a performance basis this quarter, led by volume growth of Trulicity, Humalog, and FORTEO. Turning to animal health. As we noted during our Q4 earnings call, we've been expecting to return to top-line growth in the second half of this year, and our Q1 results are on track with this expectation. Excluding FX, Elanco revenue declined 4% this quarter.
I'd highlight, however, that revenue in Q1 actually increased 1% in performance terms when excluding the impact of products we've made the strategic decision to exit. These strategic exits are the contract manufacturing activity that came with the BI U.S. Vaccines acquisition, as well as two terminated legacy U.S. distribution agreements and Posilac. You'll see that we provided a backup slide quantifying the drivers of our animal health revenue growth, excluding those strategic exits. We're encouraged with the revenue trends we're seeing in our ongoing or core business. New products contribute $62 million in Q1, driven primarily by Credelio, Interceptor Plus, and Galliprant. These new products drove our core companion animal portfolio up 10% in the quarter. Our core food animal business decreased 4%, primarily due to U.S. buying patterns in Q1 2017, as well as continued ractopamine competition. Importantly, though, our poultry business continued to deliver strong growth.
In Q1, poultry products grew 11%, well ahead of the market, and we expect to see full-year growth for our overall core food animal portfolio. Lastly, I'd point out this is our second consecutive quarter with overall price growth, which is a sign of solid foundations in the industry. We expect this price growth to continue through 2018. We are monitoring the trade situation closely, and while we do not see immediate impact to our animal health business, we are cautious about the broader economic impact if export activity declines. Hopefully, this provides you with useful insights into our animal health revenue growth, and Jeff can address questions you may have in the Q&A session. Now let's take a look at the drivers of our worldwide volume growth on slide 11.
In total, our new products, including Trulicity, Basaglar, Jardiance, Taltz, Verzenio, Olumiant, Lartruvo, and CYRAMZA, were the engine of our worldwide volume growth. You can see that these products drove 11.1 percentage points of volume growth this quarter. The loss of exclusivity of Effient, Strattera, Zyprexa, Cymbalta, Evista, and Axiron provided a drag of 510 basis points, while Cialis and Animal Health accounted for 230 and 120 basis points of volume decline, respectively. Slide 12 provides a view of our new product uptake. In total, these brands generated nearly $1.5 billion in revenue this quarter and represented over a quarter of our total worldwide revenue. I'd like to highlight the progress in our second quarter of Verzenio launch.
We are pleased with the continued new-to-brand share growth, which is now at 15%, and the approval of the new first-line metastatic breast cancer indication, giving us the broadest label in the class. Last week at AACR, we presented the final analysis of the MONARCH 3 data, which showed 28.2 months of progression-free survival, more than 13 months better than placebo, as well as an analysis across all patient subgroups in the MONARCH 2 and MONARCH 3 studies, which demonstrated that patients with certain concerning clinical characteristics received substantial benefits from the addition of Verzenio to endocrine therapy. Moving to slide 13. This quarter, FX had a more significant effect on our results, largely driven by the euro. Excluding FX, you can see that revenue increased 5%, non-GAAP cost of sales increased just 2%, and non-GAAP EPS increased 47%.
Turning to our 2018 financial guidance on slide 14, you will see that we've updated our guidance to reflect an additional $700 million on the top line, driven by lower expected Medicaid utilization, changes in estimates to rebates and discounts, as well as the impact of foreign exchange rate movements. A slight increase in marketing, selling, admin and R&D expenses to account for FX movements as well as for funding for additional pipeline opportunities. An increase of $25 million to the top end of our range for OID, and a decrease in our tax rate from 18% to 17%, which reflects a change in expected geographic mix of income. These updates contribute to an increase in both GAAP and non-GAAP earnings per share. Our non-GAAP earnings per share is now expected to be $5.10 to $5.20, which is an increase of 20% over 2017 at the midpoint of the range.
I will turn the call back over to Dave to review the pipeline and key future events.
Thanks, Josh. Slide 15 shows select NMEs and NILEX as of April 20th. Movements since our last earnings call include the approval of Verzenio for the first-line treatment of metastatic breast cancer in the U.S., a phase III start for Trulicity in three and four and a half milligram doses, a phase I start for the IL-23/CGRP bispecific antibody for immunology. While we had attrition of the phase II BACE inhibitor molecule as monotherapy, the trial in combination with the N3pG antibody continues, and we look forward to seeing results in this novel trial design. We also discontinued our pegilodecakin pancreatic cancer study. You'll see we've combined our NME and NILEX pipeline into one view.
In terms of NILEX, we have a robust set of life cycle opportunities for our recently launched products, which we expect will continue to bolster the growth prospects for important brands like Trulicity, Taltz, Verzenio, Olumiant, and Jardiance. These products are well-positioned in some of the largest and fastest-growing categories and are addressing areas of high unmet medical need. Key NILEX opportunities include axSpA for Taltz, atopic dermatitis for Olumiant, adjuvant breast cancer for Verzenio, the three and four and a half milligram dose study for Trulicity, and heart failure for Jardiance, which is in collaboration with Boehringer Ingelheim. On slide 16, we highlight expected key events for 2018.
In addition to noting the U.S. approval of Verzenio for first-line metastatic breast cancer, we've indicated the data disclosure of the KEYNOTE-189 study at AACR, which showed that ALIMTA, in combination with KEYTRUDA plus platinum chemotherapy, reduced the risk of death by half compared with chemotherapy alone as first-line treatment in metastatic non-squamous, non-small cell lung cancer patients. The overall survival benefit was robust regardless of PD-L1 expression status. We also announced last week that the CYRAMZA phase III study in bladder cancer did not reach statistical significance in the secondary endpoint of overall survival. There are many events to look forward to in 2018, notably the expected regulatory action for U.S. baricitinib, galcanezumab, Verzenio, and ALIMTA.
We also look forward to the data readout of the second phase III study of Taltz in ankylosing spondylitis, the readout of the REWIND study for Trulicity, and the initiation of several phase III studies, including our anti-IL-23 mirikizumab for psoriasis and ulcerative colitis. Before we go to the Q&A session, let me briefly sum up the progress we've made this quarter. In Q1, new products accounted for 25% of total revenue and nearly 30% of our human pharma revenue. Volume grew in our human pharma business by 4% despite recent patent expirations. When excluding the strategic exits, our animal health business returned to positive performance growth. We realized significant efficiencies in our cost structure, leading to operating margin expansion of 775 basis points, excluding FX.
We have made pipeline progress this quarter with the launch of Verzenio in the first-line metastatic breast cancer in the U.S., the launch of Taltz for psoriatic arthritis in Germany, and positive phase III data for new indications for both Taltz and CYRAMZA. Finally, we returned $1.7 billion to shareholders via the dividend and share repurchase. This concludes our prepared remarks. Now I'll turn the call over to Philip Johnson to moderate the Q&A session.
Great. Thank you, Dave. We would like to take questions from as many callers as possible during the Q&A session, so we do ask that you limit your questions to two or to a single two-part question. Leah, if you can provide the instructions for the Q&A session, then we're ready for the first caller.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. You will hear a tone indicating you have been placed in queue. You may remove yourself from this queue by depressing the pound key. Once again, if you would like to ask a question, star one. Our first question is from the line of Gregg Gilbert with Deutsche Bank. Please go ahead.
Thanks. Good morning, team. First, Dan, congrats to you on your new role. Dave, can you talk about the use of Olumiant outside the U.S. in terms of mix of strengths and any post-marketing safety data that you have to bolster your case with the FDA? Secondly, on the subject of drug pricing in the U.S., what types of changes are you expecting the administration to put forth? You can be as specific as you'd like, but at least conceptually, would love your opinion. How do you think Lilly's positioned relative to those potential changes? Thanks.
Great, Gregg. Thank you for the questions. Well, actually, we're going to have Christi Shaw, President of Lilly Bio-Medicines, take your question on the use of the two different doses outside the U.S. and any OUS data that may be helpful as we present our case to the FDA. Then Dave, you'll have the question on drug pricing. Christi?
Outside the U.S., in over 40 countries, you have both the two and the four milligram approved, and the majority of the use is in the four milligram, with remarkable efficacy, really, patients getting their lives back. The safety continues to hold up, that we see no new signals that are different than what we submitted to the FDA. We'll continue. I think yesterday's AdCom showed for sure the unanimous vote on the efficacy of the four milligrams is important to patients in the U.S., so we want both the two and the four milligrams approved in the U.S. for those patients.
Thank you, Christi. Dave?
Thanks, Gregg. Obviously, big topic, drug pricing. It's hard to speculate exactly what the administration will say or do, but I think I can comment on what pharma's position has been on this and Lilly's as well, which is, as it relates to relieving pain at the pharmacy counter and reducing the burden of list prices that consumers pay at the counter, we've long been proponents of rebate pass-through, both in commercial plans and Part D. I think the most important action that the administration could take would be to create either a set of experiments or mandate a rebate pass-through for patients in the Part D program. This would, I think, immediately impact seniors' cash flow and pocketbook as well as, I think, help to normalize the incentives on gross to net spread.
That I would personally be surprised if that wasn't part of the commentary, and that's something we've long stood for. That would be, I think, a positive development from our perspective. The HHS secretary has commented on Part B and the lack of market mechanism there. I would expect that to be a topic of discussion. Then we do see increased desire under this administration to approve waivers for Medicaid, giving states flexibility in a variety of forms to manage their own programs, and I would expect to see more of that. Finally, we worked closely with this administration on trade agenda to balance the incentives that foreign markets have to suppress drug pricing, which are primarily exports from the U.S. We've had some early signs of success there with the U.S.-Korea Free Trade Agreement. We'll keep on that.
I think long term, the U.S. needs to use its trading power to help equalize that sharing of cost and sort of amortizing the R&D expense that it takes to create the new innovations which are coming even more frequently from the industry. We'll watch that carefully and continue to advocate for pro-innovation, pro-patient choice, as well as policies that can make sure that this industry can continue to innovate and prosper for years to come. All those topics are front of mind, and we'll keep working on them, Gregg.
Great. Thanks. Leah, if we can go to the next caller, please.
Very good. It is the line of John Boris with SunTrust. Please go ahead.
Thanks for taking the questions and congratulations on the robust results. Just back to Olumiant, can you just quantify the number of patient years of therapy that you have on Olumiant, not just in the clinical package, but how many or how much patient years or number of patient years of therapy that you have abroad, especially since it is heavily skewed towards the four milligram? Then on Taltz, on the Novartis call, they clearly indicated that they also had a wholesaler destock, TREMFYA, in addition to that, was giving away a lot of free product. And obviously copay accumulators are also a topic that are penalizing patients on deductibles. Can you provide some commentary on the miss on Taltz and the impact across your business of potentially copay accumulators going forward?
Great, John. Thank you for the questions. Christi, if you want to start with the Taltz question, and then we will figure out who is going to be best positioned here to give some of the numbers on the patient years exposures for Olumiant and the clinical trial program.
Can you give me the clarity on the Taltz question? It was with TYMLOS.
It seemed that Novartis indicated they gave away a lot of free product through initial sampling. How much did that impact IL-17 uptake in the quarter, in particular, Taltz?
For Taltz, we did have some inventory changes, which was the biggest rationale for our decline from Q4 to Q1 in terms of dollars. Our demand was up in terms of Q4, Q1, and in fact, our NBRX has grown 30% sequentially in the first quarter. We're seeing actually real demand coming through. I can't really comment on the others and how they count their inventories. The accumulator program, I think, our goal is to make sure that patients get access to every medicine that we provide and that their doctors think they need. Whether that's a little bit of rebating, whether that's co-pay assistance, et cetera, that pass-through that Dave talked about earlier is also important to ensure that patients get access. We haven't had issues to date.
John, I don't think you're in the room. We have numbers on the patients that are in some of the overseas registries for follow-up. I think, Dan, you do have some information on the clinical trial program and the number of patients and patient years exposure.
Yeah. Thanks, John. In the safety data we presented to the advisory committee, it was based on more than 7,800 patient years in our clinical trials. That establishes the safety database for baricitinib from clinical trial experience. Your question referred also to the commercial experience outside the United States, where obviously there have been many more patients exposed to the drug, although we don't have exact numbers for patient year exposure. As you heard from Christi, despite that extensive exposure, we haven't seen any new safety signals. While we agreed that VTE is a potential risk of this drug, we haven't seen that manifest in the clinical experience.
Thanks, Dan. Leah, if we can go to the next caller, please.
Very good. That is the line of Tim Anderson with Bernstein. Please go ahead.
Thank you. A couple of questions. Going back to Taltz, in the class of the IL-17s in general, J&J's running this phase III ECLIPSE trial comparing their IL-23 to Novartis' IL-17. You have both of these mechanisms either on the market or in development, I'm hoping you have some perspective on what you think is the better, more effective mechanism in psoriasis. If that J&J trial comes out in favor of TREMFYA, doesn't that have a potential indirect impact on Taltz? Second question on your GIP GLP-1, I know you've said in the past we're supposed to see phase II data this year. Can you say what the likely venue will be and maybe preview what you're hoping to see in that data?
Tim. Thank you for the question. Christi, to you for the question on Taltz, IL-23 versus IL-17. Enrique, over to you for your first question of the day on the GIP GLP.
Sure. First of all, what I would say is, thank goodness for patients we have so many more newer medications that are providing such higher efficacy. IL-23, IL-17s are going to be great for patients, and it's going to tap into that older market where the older TNFs really lack efficacy, relatively speaking. The other thing is patients really churn through different modalities. Each patient might need something different. They respond to one and not the other. We're really confident and glad that we have both in our portfolio, and we believe there'll be specific patients for each.
Specific to Taltz, as we look at the future in the very short term, not only is the psoriatic arthritis indication starting to take off, you saw our dermatology really move in the first quarter, and we think it's due to the psoriatic arthritis indication really solidifying that efficacy there. We also have our own head-to-head in psoriatic arthritis that reads out later this year versus HUMIRA. We have our ankylosing spondylitis data too, that we have one of two studies that have completed. The second one will be the end of this year. A lot's happening with Taltz, and we feel very good about our chances of winning in the marketplace.
Thank you, Christi. Enrique?
We've been excited for quite some time about GIP GLP. Clearly, the hurdle for this product is pretty high in that we want to see superior outcomes when it comes to hemoglobin A1C and weight loss vis-a-vis current GLPs. We expect that we are going to be disclosing some of this data either later, late this year or at ADA next year. We'll have to see.
Great. Thank you, Enrique. Leah, next caller, please.
Next, we have the line of Geoff Meacham from Barclays. Please go ahead.
Hey, guys. Good morning, and thanks a lot for the questions. Just have a few more for Enrique on diabetes. Trulicity growth has been great, but how influential do you feel like REWIND could be, positive or negative, relative to the current trajectory? Jardiance SGLT2 class is growing, but we haven't quite seen a tipping point for Jardiance despite guidelines. How do you think that could play out? What do you think that could be? I know there's been a lot of baricitinib questions already, but if it's just the 2 mg dose that's approved, maybe help us with the commercial positioning. Obviously weaker, but I just want to get your context for that. Thanks.
Great, Geoff. Thank you for the questions. Enrique, we'll go to you for the first two questions for Trulicity and Jardiance, then Kristi, over to you for the question on the 2 mg dose for baricitinib and commercial implication.
Yeah. Maybe just to start with framing the Trulicity quarter, we have another strong quarter, continued solid growth. We basically have seen that the increased promotion by the new launches is basically having some impact in market acceleration. We see both. We see a very good market growth, and we see basically a good share performance with Trulicity in a more competitive environment. We very much like our
position. We have a strong access position as well. Finally, and probably something that sometimes is underestimated, but it's the patient experience that we basically receive from physicians, from patients themselves. We have an excellent real-world efficacy, which is very simply delivered. We're very excited about that. Clearly, REWIND doesn't change any of that, but it is extremely important because we believe the longer term, for us to be competitive in this class, we will need cardiovascular outcomes. As it relates to the SGLT2s, clearly we have been seeing some very good growth of Jardiance, but we had a pretty important event in Q1 related to the exclusion from CVS. Jardiance still has very good access, and what we basically have seen post the rebasing of the prescriptions of patients, many patients have been switched. We basically have seen resumed growth over the last few weeks.
Clearly, the SGLT2 class, and Jardiance in particular, is still a very small part of the overall prescriptions. We estimate that about 30% of patients with diabetes have established cardiovascular disease. The opportunity for us is of continued growth, and we're working to accelerate Jardiance and being Jardiance the catalyst for the growth of the class.
Great. Thank you, Enrique. Christi?
Thanks, Geoff, for the question. I think you saw yesterday the reinforcement by everyone that the 4-milligram dose is really needed for patients from an efficacy standpoint. Our goal is to actually have both doses available, and we continue to study both the 2 and the 4 milligrams in other studies that are ongoing.
Thank you, Christi. Leah, next caller, please.
Next, we go to the line of Christopher Schott with J.P. Morgan. Please go ahead.
Great. Thanks very much for the questions. First one was just on the Humalog performance in the quarter and some of the rebates. Just two questions there. First, can you just quantify what the benefit was in the quarter? Second, can you just elaborate on what's happening with mix here, and can we think about that as sustainable? My second question was on Taltz channel dynamics. Just another question, just quantifying what we saw in terms of the work down this quarter. You've obviously got some very healthy volume trends, but can you talk a little bit more about the underlying price dynamics in the IL-17s? Are there pressures we should be thinking about beyond just channel work down the quarter that could offset some of that volume growth? Thank you.
Chris, thank you for the questions. Just to understand the second question, when you mentioned mix being sustainable, is that specific to Humalog or is that more broadly focused across the portfolio of products in the U.S.?
It was actually specifically to Humalog, but if there's a broader trend, would love to hear that as well.
Okay, very good. Enrique, if you'll talk about the Humalog in addition to the mix, and then over to Christi for the Taltz channel dynamics. Josh, if you want to make any overarching comments, Enrique, either one, on what we're generally seeing in the U.S. across our portfolio for mix. Enrique?
Very good. When it comes to Humalog, of course, a strong quarter. We saw about a $50 million benefit in the quarter related to changes in the estimates of rebates and discounts. Part of that was Medicaid and part of that other payer mix changes. We basically see some of those benefits continuing throughout the year. Of course, some of that is also accruing as part of Q1. In essence, we are seeing lower Medicaid claims and basically other dynamics that are slightly favorable when it comes to payer mix, when it comes specifically to Humalog. When we look broadly at the portfolio, it is pretty clear that those Medicaid claims is something that we see across the portfolio, but not all of our products are as exposed as our insulins are.
Great. Thank you, Enrique. Christi?
Sure. Specifically, the inventory change we saw was about $32 million, quarter four to quarter one. As we look at the price dynamics and volume growth, ours is volume growth. As we look to the future, as patients really need the best medications out there, we haven't seen a strong need yet to significantly rebate. I know Novartis' call said that on theirs, but that's not the same case for us.
Thank you, Christi. Leah, if we could go to the next caller, please.
Yes, it's the line of Andrew Baum with Citi. Please go ahead.
Sorry, I was on mute. A couple of questions, please. Could you indicate your assessment of the impact of filling the doughnut hole in 2019, given the mix of your business for Part D patients? Second, could you talk to expectations for ALIMTA post-189 data as well as the stalling of the 340B expansion, which I assume would be helpful to you. Finally, on business development and oncology generally, I note that Michael Kalos left you to go to a competitor. I'm also aware that the deal flow we might have expected from Lilly in oncology has not as yet transpired. Could you just update us on your commitment, particularly to immunobiology and expectations and valuation you see for potential acquisition or partnering candidates externally? Thank you.
Great, Andrew. Thank you for the question. We'll go to Enrique for the first question on the doughnut hole in 2019, Sue, if you'd like to comment on expectations for ALIMTA moving forward, as well as provide your perspective as EU president on oncology business development. Either Dave or Josh, you want to give a corporate perspective, feel free to augment. Enrique?
The increased coverage during the doughnut hole for 2019, when we look at our overall portfolio, it's about $200 million, most of it being driven by diabetes.
Thank you, Enrique. Sue?
Yeah. With regards to ALIMTA, clearly we're very pleased with the KEYNOTE-189 data. As was mentioned earlier, we have seen growth in this quarter on ALIMTA in the U.S., 8% growth overall, and 3% of that was price, 5% of that was volume. We've also continued to see increase in new to brand in the combination. I think we don't give forecasts on individual products. I think it's key to note that about 50% of our sales come from the first line and second line, about 40% is first line. With that, we are, as I said, seeing a stabilization in overall share of market and an increase in new to brand. We continue to see and expect that to increase as we saw some people waiting for the phase III trial data outcome before starting the combination of the ALIMTA-KEYTRUDA and carbo.
We're really pleased with that. We think that it confirms the benefit that we've seen with ALIMTA historically as a standard of care in the first-line non-small cell lung cancer setting, and we continue to see that that will be the case going forward. With regards to business development, we are continuing to be very interested in BD across all areas, including IO. We have talked previously about our CureVac deal, which is a bet that we have, or one of the bets that we will be placing with regards to RNA-based vaccines. We anticipate that we will be doing other deals both in the IO space and in other areas in oncology in the future. We are also bringing in new people into our team.
Again, we mentioned we've brought in two physicians recently, one from Duke and the other from Memorial Sloan Kettering, and you will see us continuing to bring in more external talent.
Great. Thank you, Sue. Any additional comments on BD?
I would just say we're highly convicted to use our balance sheet to expand our portfolio with BD. We've talked about clinical-stage assets in particular, and oncology is the number one target. Jeff, I wouldn't read through the relative lack of activity most recently as any sign that we'll change our conviction. Of course, we need to look at each idea, make sure it makes sense for us to own it, make sure we like the science, and valuations are appropriate. We'll be disciplined on those matters. Strategically, we understand we need to be active externally, and you can count on us continuing to look at all available choices to add to our pipeline, in particular in oncology.
Great. Thank you, Dave. Back to a question that John Boris had asked that we did not have the data for. Thank you to our Olumiant team for providing that we now have 11,500 patient years of exposure with baricitinib when you add in the post-approval exposures. Leah, if we can go to the next caller, please.
Thank you. It'll be the line of Tony Butler with Guggenheim Securities. Please go ahead.
Thanks very much. Two questions, if I may. One is pipeline related, one is galcanezumab, and you do have some data at AAN today. I'm just curious with respect to the range of somewhat similar products that will come to market as Erclasta, I assume, later this year. What makes galc stand out, and can it do so without having a second agent in the bag, be it lasmiditan? Second, back to the previous question asked on immunobiology. You have had a relationship with an antibody-based company, I assume, for bispecifics, and I'm just curious, it seems to be an interesting area with CD3 engagers, and could you speak more to that? It's a way maybe to back end into an area in which you didn't have to go through at least a direct PD-1. Thanks very much.
Great. Thank you for the questions, Tony. Christi, we'll go to you for the galcanezumab and how we intend to succeed in that marketplace, then over to you, Sue, for the question on immunobiology, bispecific, et cetera.
Sure. Tony, thanks for the question. I think this is an area where migraine patients haven't had an option for a few decades, here we are with a couple of agents coming out quickly together. First of all, I think it's a really good thing to really have a couple of companies activating these patients. The first piece is who's going to be better at the consumer-driven area, the direct-to-consumer, I think our chances there are very good. We have a history of that. On the data specifically, we have 50, 75, and 100% measurements endpoints, we're the only one that is actually showing a 10%-15% of the patients have the ability to really be free of migraines totally. The other thing we have is that galca is fast and durable.
We see results as early as month 1, we see the results continue through the 12 months that we've looked at. You are right, we do have the cluster data coming up, nothing has ever worked in this type of migraine, if we do, it'll be a huge win for patients, obviously is then good for differentiating galcanezumab. Our second half launch, we're well prepared for to be competitive, we think we have some differentiation there.
Thank you, Christi. Sue?
Yeah, Tony, thanks for the question on bispecifics. Yeah, as we've looked at our IO portfolio and what we want to do, we want to understand really what the next generation of IO agents are. We've taken two bets. I mentioned one, and we'll be taking others, by the way, but two that we've taken at the moment. One is the RNA-based vaccines that we think really could be potentially disruptive in the future. The other is the bispecifics, and as you've mentioned, we have ongoing collaborations and actually a number of bispecifics looking at different targets that should be coming into the clinic very soon, and we're excited by those. Another asset that we've got in the clinic that we talked about before, but not too much, is the TIM-3. We're pretty excited by our TIM-3 and think that we've got a best-in-class asset there.
We've also got an IDO. We know that there's some data on IDOs. We'll have to see what happens there. We believe that we've got one that, again, could be differentiated. Those are two assets we've got in the clinic now, and as you've mentioned, we're taking bets on the RNA-based vaccines and the bispecifics.
Thank you, Sue. Leah, if we can have the next caller, please.
Thank you. That's the line of Vamil Divan with Credit Suisse. Please go ahead.
Great. Thanks for taking my questions. Maybe just following up on a couple topics that were discussed earlier. Again, baricitinib. Coming out of yesterday's discussion, I know you have a phase III program in atopic dermatitis. Can you just talk about how you see the risk-reward and the attractiveness of a product like this in atopic dermatitis, where I would think the acceptance of safety concerns may be a little bit lower? The second question I have, just following up on the question on the CGRPs. Just curious if you could give your thoughts, given we have BOTOX on the market and also some oral products that are generally used off-label for preventative use. Would you expect that the CGRP antibodies are going to be used only in patients who have gone through those products?
Do you think that there might be an opportunity to be used ahead of either the off-label ones or BOTOX? Thanks.
Great, Vamil. Thank you for the question. Christi, we'll go to you for both the bari atopic derm question as well as where you see CGRP potentially being used.
Sure. baricitinib, each disease state has its own benefit-risk ratio. If you look at what we're studying in our phase II data with lupus, we have both the two and the four milligram. If you look at atopic derm, the data that we read out in phase II, the two milligram did work. It just took a little bit longer. Whether it's two or four, we know the patients will get better there. Each disease state really has its own dosing. For rheumatoid arthritis, we strongly believe that two and four milligrams needs to be available in the U.S. as it is in over 40 countries. On the CGRP side, we expect patients to cycle through the generics, most of them already have. There's four to five million patients that are on preventatives.
We believe there's a few million more that aren't on preventatives and should be. We have every expectation that there'll be a requirement for them to have used, for example, triptans before they go on to a CGRP. We do expect that we'll compete well versus BOTOX. Getting 21 to 24 injections around your head doesn't seem as good as having a monthly injection if I'm a patient. I think we have an advantage there, they have the same hurdles from an access standpoint. I believe that usage will come, we're already talking to payers about how we make sure that access is available to the patients that need it.
Great. Thank you, Christi.
Yeah, thanks.
Leah, next caller, please.
That's the line of Marc Goodman with UBS. Please go ahead.
Just to continue on with the CGRP conversation as well as lasmiditan, can you just talk about the safety profiles that you see and how you think these things are going to be all used? Presumably, if everything makes it to the market, how the orals will be used, your oral versus CGRP orals. Second question is, Taltz. Just can you explain the specialty pharmacy buying pattern issue, and what was the impact on Taltz in the quarter? There was also some inventory patterns with respect to FORTEO. Can you quantify that as well? Thanks.
Okay. Dan, if you wouldn't mind talking about some of the safety profiles for our CGRP monoclonal antibody as well as lasmiditan. Christi, if you could then get the second part of that piece of the question that was how we see lasmiditan being used relative to oral CGRPs potentially, if you could go over again the Taltz specialty pharmacy buying patterns that we've seen that affected this quarter's revenues for Taltz.
Great. Thanks. With respect to the safety profile of galcanezumab, I think we've been really encouraged by what we've seen in our phase III trials on safety. I think that's critically important for a preventative for migraine that patients could be on for a very long time to be well-tolerated by the patients and have a very clean safety profile. That's an important differentiator for galcanezumab and for the class, probably, of anti-CGRP antibodies. When you get to the orals, which are abortives, the safety profile could be a bit different, and we've seen some evidence of that for the oral CGRPs.
I think, Christi, you were going to comment on commercial differentiation.
Sure. I think that's one of the big advantages that we bring to the marketplace is a platform that we're building for pain. We have the prevention in galcanezumab, the treatment in lasmiditan, we have tanezumab coming. The mechanism of action with lasmiditan is different than the oral CGRPs, as we look at patients, not everyone responds to the same agent. We believe that they'll be used similarly for an acute phase, that not all patients will respond to one or the other. Obviously, our goal would be to win in that marketplace and position ourselves well for that. We're working on the package to submit later this year.
On the FORTEO question, or I'm sorry, the Taltz Specialty Pharmacy, I think I answered that, but it was like a $33 million that was the inventory impact for Taltz, demand was positive quarter-to-quarter.
FORTEO.
On FORTEO, the last question on FORTEO was, basically what we saw was inventory, again, but in a different way. We saw the wholesaler buying patterns actually increase volume in Q4 of last year. Some of that has been de-stocking in Q1, but not all of it. We did have somewhat formulary loss with TYMLOS, the new competitive entries. That was a really small impact to the overall performance of FORTEO.
I was just going to add, there was another question about use in the CGRP antibodies in refractory patients. Just to point out that all of our phase III pivotal studies had patients who failed on at least two other modalities. That's likely the indication. I'm not sure that has a big commercial bearing, because most patients who are chronic migrainers or episodic migrainers, have tried many other things. I think the pool of available patients for prevention will be there. The data in our program, and I believe all the competitors, is on two failures. Despite that, the data we'll present today is incredibly strong. A large percent of patients have at least 50% reduction in headache days per month.
Great. Thanks, Dave. Leah, if we can go to the next caller.
That is David Risinger with Morgan Stanley. Please go ahead.
Yes, thanks very much. I have two questions. First, just to follow up on the CGRPs. There was a Reuters article today that described how Express Scripts is asking for lower list prices on CGRPs. Could you just provide a comment on that and whether a manufacturer could trust PBMs to not extract significant rebates in the event that a manufacturer does list the list price lower than expected? Second, with respect to Trulicity REWIND, the slide that you published this morning indicates an internal readout in 2018, but not an external readout. I just wanted to understand that a little bit better because clinicaltrials.gov indicates July completion of that trial. Thank you very much.
Great. Thank you, Dave. While the article you're referencing was specific to CGRPs, your question is really more of a policy question. Dave, if you wouldn't mind taking the first part of David Risinger's question, then Enrique, over to you for the Trulicity REWIND timing of internal readout and top-line press release relative to presentation at the medical meeting.
Yeah. Thanks, Dave. I did glance at that interview with Steve Miller this morning. I was really happy to see that Express Scripts is now for value-based pricing. Of course, we've been for this kind of construct for years, because we believe in the performance of our products, and I think in the case of migraine drugs and many other drugs, diabetes, other autoimmune drugs, even in oncology, I think we'd be willing to enter into these discussions. The point about lower list price is a little bit moot. I think the idea that the price varies in a value-based scheme based on actual product performance, I think that's the key piece. The value determination we will need to do. It's difficult to comment specifically on unlaunched products. Would we trust the PBMs? Well, I think we work closely with all the major payers in the U.S.
I'm happy to see that ESI is now changing their view and supportive of this kind of construct. We'd be happy to work with them on it.
Thanks, Dave. Enrique?
When it comes to REWIND, we do expect the internal readout in the second half with a top-line press release likely in early Q4. We will be targeting the full disclosure of the results at the next year's ADA meeting.
Yeah. Dave, just to be clear, the ct.gov date that you cite is the expectation for the last event. Obviously, with it being event-driven, there is uncertainty around that. Even once we have the last event occur that would trigger then the analysis to be done, it does take a number of months to go ahead and get all that final visits and data into the system, clean and validate the database, and then run our tables, figures, and listings and report out. Lee, if we can go to the next caller, please.
Thanks.
You're welcome. Lee, next caller, please.
Very good. It's the line of Jami Rubin with Goldman Sachs. Please go ahead.
Thank you. Maybe for you, Dave and Christi, I don't want to put words in your mouth, but it sure sounds like you're not going to launch baricitinib unless you can get both two and four milligrams approved. Is that correct? Can you cite specific examples where the FDA goes against the panel recommendation? I know recently there was a Pacira drug that was approved even though the panel went against it, but that was a non-opioid drug. In this case, there is another JAK on the market. I'm just wondering if you can comment on your level of confidence that you can convince the FDA to vote against the FDA panel on the four-milligram tablet. If you can't, would it be your decision not to launch baricitinib for RA? To what extent would that affect your 5% top-line growth objective? Thanks very much.
Great. Christi, you want to go ahead and answer the question related to the launch two and four, et cetera, then maybe Josh, if you want to comment on expectations versus 2020.
Sure. As I said before, I think the promising thing we saw is that there was unanimity in terms of the four-milligram efficacy. The thing that you saw in the voting was based on a specific indication. As we continue to work with the FDA on our labeling and our path to the market, that's where we can say where's the highest unmet need so that the patients who are suffering so much in the U.S. have access as they do in 40 other countries to improve their pain and improve their lives. We will continue to talk to them about what is the path for both two and four milligrams and what is the indication that we can best serve the highest unmet need population.
I think one of the things you saw in the vote was, the wording was very specific to the indication that was presented, which was after methotrexate. Thank you. Let's see, the AdCom. I can't comment or recall any AdComs in terms of overruling. I think, as I said, it wouldn't be overruling the AdCom, if we look at a different and carve out indication for 4 milligrams that benefits patients the most and making 2 milligram available as well to lower risk patients.
Thank you, Kristy. Josh?
Thanks, Jami. I think we've been clear about our growth expectations through 2020. We said it's a 5% compound annual growth rate, and the 5% is a minimum and not dependent on any single product. We're confident in our growth prospects. I think if you look at where we are in Q1, we're ahead of our targets to get to a 5% growth in 2020. The strength of the new products that we have on the market today and the potential new launches in team and other things that we've talked about already, I think give us good confidence that we'll be there in 2020. We're still excited about the prospects of Olumiant, particularly outside the U.S. where we've already launched.
I think if just looking at analyst models, the dollars associated with U.S. sales of Olumiant in 2020, I think in most of your models are pretty small anyway. We're confident in the strength of the portfolio. The new products will continue to drive our growth, and that 5% minimum is still valid.
Great. Thanks, Josh. Leah, if we can go to the next caller.
Yes. It's the line of Steve Scala with Cowen. Please go ahead.
Thank you. A couple questions. First, on REWIND, there's some concern about the less sick population being studied versus some of your competitor studies. Can you talk about how you design REWIND to still achieve its endpoint despite a population possibly generating fewer events? Maybe you can comment on how you arrived at the trial size, duration, and also the statistical power. Secondly, a couple questions on Elanco. Yesterday it was announced that you hired a CFO for Elanco. Is this a newly created position, and why was it done now? Can you comment on poultry trends? Can you comment on swine and cattle? You've already commented on poultry. Thank you.
Great, Steve, thank you for the question. We'll go around the horn here. Enrique, if you'll take the first question on the design of REWIND. Josh, Elanco CFO hiring that was announced yesterday. Jeff, if you can give some more details on other parts of the portfolio, including swine, that we didn't comment on in the prepared remarks. Enrique?
REWIND is an event-driven trial. We will basically have the close-out of this trial once we hit a certain number of events. The trial is appropriately powered for us to show basically a statistical difference if the product were to show it that is meaningful. We are pretty confident. I do know that we've gotten a lot of questions about the population that we have enrolled and whether that population is maybe less sick. At this point in time, I think I basically want to see the outcomes of the trial. We do have a lot of expertise when it comes to designing cardiovascular trials. We're confident that we've designed this trial in the appropriate way. Dan, I don't know if you want to make any other comments.
No, that's correct. I would just add that we'll have one of the longer duration trials here in terms of the follow-up time on these patients, which gives us sort of more area under the curve, time for the drug to work and have its effect on cardiovascular outcomes. Although the lower event rate mandated a larger, longer trial, the increased duration actually we see as a benefit to showing an effect.
Thank you, Dan. Josh?
Steve, first, our strategic evaluation of Elanco is continuing as planned, and we'll be in a position in our Q2 earnings call to announce our strategic direction. Our hiring of Christopher Jensen as the CFO for Elanco adds to that analysis. He brings good external experience and I think will position us well for any future direction that we announce and look to execute after our Q2 earnings call.
Great. Thanks, Josh. Over to you, Jeff.
Yes, Steve. First, just from an industry perspective at a high level, beef continues to be stable and continue to grow. Dairy is a slower recovery, expected probably as an industry later in 2019. Swine, I think the eyes are a little bit on trade. Again, pretty stable overall. We feel pretty good about the overall industry economics. No material impact on us. I think everyone's As Josh said in his comments, we're going to continue to watch trade. I don't think it's relative to a feed additive issue or anything like that. It would be much more just about the impact that trade barriers could have on the overall economics, especially of the U.S. industry. At this time, we don't see anything and definitely no impact on us.
As you look at Elanco's business, food animal will return to growth in the second half, as we've stated. We see that led heavily by poultry and swine, less so by ruminants.
Great. Thanks, Jeff. Leah, next caller, please.
Next is the line of Umer Raffat with Evercore. Please go ahead.
Hi. Thanks so much for taking my questions. On Trulicity, I noticed you initiated a phase III investigating a really high dose, four and a half milligrams, in diabetes. I was just curious, A, what your thought process is, but also your expectations on weight loss in that trial. I would have thought that at such a high dose you might have included a semaglutide comparator as well. Just curious how you thought about that trial. A quick follow-up on animal health. Is Posilac and Optaflexx still a driver that's been weighing in? Just wanted to understand the market access pressures in livestock. Thank you.
Umer, thank you for the question. Enrique, on the recently initiated study for Trulicity using some higher doses, Jeff, back to you for some of the animal health dynamics with Posilac and Optaflexx.
We are studying both three and four and a half milligrams. We believe those doses can be well-tolerated if appropriately titrated. We basically have designed this trial in a way that it can show actually a difference from a regulatory perspective vis-a-vis Trulicity 1.5 when it comes to hemoglobin A1C. We are also expecting to see important difference when it comes to weight loss, it's key that we meet the A1C endpoint from a risk-benefit perspective in order to get this product approved.
Thank you, Enrique. Jeff?
Yeah. Market access issues continue to be definitely an area that we're focused on. Again, we've taken some proactive actions, as Josh mentioned, with the strategic exiting as we're assessing our decisions here with Posilac and that exiting the business. Headwinds do continue for Posilac. I would note on our food animal business, first of all, international grew. As you'll note in the backup slides that we saw close to 2% growth in OUS food animal. The net 10%, though I would highlight, came from one, the majority of that being Posilac and the decline in use. Again, that's driven by our exits and then some U.S. buying patterns relative to Q1 of 2017. On ractopamine, competition continues, although we're continuing to see our business hold and remain stable in this area.
Great. Thank you, Jeff. Leah, if we can go to the next caller.
Very good. It's the line of Jason Gerberry with Bank of America. Please go ahead.
Hi, good morning, and thanks for taking my questions. First question is on Verzenio. Feedback from Pfizer is that at least in the U.S., the metastatic market for the CDK4/6 agents is getting increasingly well-penetrated, and that may be more of the near to medium-term growth is shifting to ex-U.S. expansion, at least until label expansion occurs with more early use in breast cancer settings. Just kind of curious if you agree with that assessment, and as we look at Verzenio, the real growth opportunity in the U.S. is going to be contingent upon getting new patient start share versus your competitors. Just a second question on CGRP front. How important do you think early mover advantage is in this category? One of the three kind of more advanced players in the market faces some uncertainty into its June PDUFA date.
Just kind of curious how important you think early mover advantage would be in the category. Thanks.
Jason, thank you for the question. Sue, we'll go to you for the Verzenio question. Christi, over to you for the question on CGRP first mover advantage.
Yeah. Thanks for the question on Verzenio. Well, firstly, we're very pleased with the uptake. I think that Josh mentioned we've got a 15% new to brand share. When we launched it, we launched with the single-agent activity and the combination with fulvestrant, which is about a third of the market. Literally just the end of February, we launched with the larger indication, which is the aromatase inhibitors, 2/3 of the market, and we're now at 15% new to brand, so we feel good about that. With regards to the actual market, we see plenty of opportunity actually for both growth in the market and also taking share. With regards to growth, about 50% of patients are treated with a CDK4/6 inhibitor. Again, we see an opportunity there.
One of the things that we're trying to do is to ensure that physicians really understand patients that can benefit the most, and we presented data on patients with concerning clinical characteristics where with Verzenio, we were able to see that even in those patients, we could see robust efficacy similar to the overall patient population. Obviously, with the data that we've got with the aromatase inhibitor as well, the 28.2-month PFS is seen as robust as well. We see that as beneficial, and we also see that we've got a differentiated molecule with single-agent activity and continuous dosing. Our belief is that we can both compete within the market and that there still continues to be opportunity for growth for the overall CDK market in the U.S. and of course, OUS.
We have submitted to Europe and Japan and would hope to get approval later this year in both those geographies.
Great. Thank you, Sue. Christi?
On how important CGRP and early mover is. If you look at different classes, it depends on the differentiation strategy piece. In general, though 3-4 months is not a big deal. By the time you get your label and get approved, and you're talking about access, really, it's not a big difference. If you're looking at a bigger delay and you have 2 agents in the marketplace and you're 12-18 months later, that is a detriment for sure.
Thank you, Christi. Leah, next caller, please.
Next is the line of Alex Arfaei with BMO Capital Markets. Please go ahead.
Good morning. This is Prakhar for Alex Arfaei. I just had one question. Could you provide additional thoughts behind your decision to discontinue the BACE inhibitor on its own, and yet advance the combination with the N3pG antibody? What was the milestone achieved to drive this decision? Thank you.
Great. Thank you for the question. Dan, if you'd like to comment.
Thanks for that question. You're correct that we terminated the monotherapy for our phase II BACE inhibitor. That was based on a combination of external data readouts, which, of course, you're familiar with, as well as our internal look at the data. Our theory behind this compound initially was that, given its higher brain penetration, this would have a more favorable safety profile. However, we also sought to demonstrate efficacy in phase II, and that was futility efficacy was what drove us towards stopping it. The rationale to continue it in-- and of course, in monotherapy, our bet continues to be on lanabecestat in phase III for monotherapy. As you commented, we continue with the combination.
Here, I think we have a growing understanding that we need to clear the A-beta out of the brain with a plaque-clearing antibody, in this case, N3pG, and also inhibit its production. Hitting it from both ends is the rationale there for the combo.
Thank you, Dan. Leah, if we can go to the next caller, please.
It's the line of David Maris with Wells Fargo. Please go ahead.
Good morning. A couple questions. First, going back on the administration's potential moves. When you mentioned the pass-through pricing net of rebates, can you address, does it assume that PBMs will willingly just make less money? Or how do you think mechanistically that will work without having an impact to PBMs? Separately, if you could just provide us with, if you were to think of your top 10 or 20 products' relative pricing average in the U.S. versus, say, developed Europe, what would you say the differential in net pricing would be? Is it as large as some people think, or is it because of all the discounts that it's much smaller? Thanks.
Great, David. Thank you for the questions. David Ricks, we'll have you take both those.
Sure. Thanks, David. Just on the rebate pass-through, as it relates to the Part D program, we've done modeling ourselves as well as pharma, and I know that CMS has as well. The idea isn't free, as you point out, but as Scott Gottlieb has been saying on his podium speeches lately, we've somehow devised a system where the sick subsidize the well, and I think there's something ethically wrong with that. I think there's a growing consensus about that, even amongst PBMs, apparently. The idea would be that premiums would modestly grow across the Part D program.
We're talking $1 or $2 per member per month, which is probably all that's necessary, in exchange for passing through some portion, not 100%, but some portion of rebates to consumers in the Part D program, in particular when they're exposed to the donut hole, and beyond that, their share of the catastrophic side. That's the basic idea. In that model, I think Part D plan providers would just be making a trade-off, which was slightly higher premiums in exchange for rebate pass-through. Of course, that math requires some assumptions about how much rebates pass through. Our position is that it needs to be well more than half, both to reduce the incentives of middlemen and manufacturers to raise list prices, which I think is a policy objective here, as well as to meaningful out-of-pocket savings at the point of sale.
In commercial plans, the dynamics are a little bit different. Here, I think the ultimate decider will be the ultimate payers, which are commercial payers like our company and other Fortune 500 companies. I think they are the market makers, not the PBMs. I think if they decide that employees would like to have rebate pass-through in their plans as a matter of competition for labor, that's what will happen. Lilly's made that choice, for instance, already, and the PBM we use is implementing it.
As the second question was the European pricing, and I think if you look at big markets like China, Japan, and Germany, and then compare that to government pricing in the U.S., a blend of Medicaid, DoD, VA, and Part D, I think most policymakers would be surprised to find that the U.S. government pricing is really not that different across commonly used medications from those major markets. If you change the market basket to include pure single-payer models, and particularly markets where they have a lot of layers of approval, which have the effect of beating down manufacturing pricing or use long delay periods, which erode IP, et cetera, it's less of a fair competition. I mention China, Japan, and Germany because they're the next three biggest markets, but also have relatively rapid market introduction post the regulatory approval. I think those are
Important apples to apples comparisons. That kind of analysis, I think you should expect the pharma group to do more of as we continue through this regulatory phase of price reform. I think it will shed a favorable light on the kind of deals, quote-unquote, that the U.S. government gets today.
Thanks, Dave. Leah, if we can go to the next caller.
That is the line of Steve Scala with Cowen. Please go ahead.
Thank you. A couple of questions. It was mentioned that you have seen lower Medicaid utilization, but I'm not clear on why you have seen that, so maybe you can amplify. Secondly, the abemaciclib pancreatic phase II study that was stopped, that trial was not to have read out till late 2018 or early 2019. Was it stopped for futility at an interim look, for instance? Does this failure in pancreatic decrease your interest in other new tumor types? Thank you.
We thank you for the questions, Enrique. If you'd like to comment on the first question on the lower than expected Medicaid utilization, and then over to you, Sue, on the pancreatic cancer trial.
We make our accruals for rebates and discounts before we actually receive the claims. In the case of Medicaid, it tends to lack significantly more, the receipt of those claims, significantly more than in commercial plans and other plans. What we basically have are estimates, and what we basically have seen is that the claims that we have received have been lower than we had expected. Now, there could be a number of reasons for that. At this point in time, we are basically thinking as well, okay, as we not only looking at the past, but what does this mean for us as we are looking at our accrual for Q1 and for the rest of the year, and the reason why we have a benefit coming from Medicaid when we look at the entire year.
Great. Thank you, Enrique. Sue?
Steve, no, the pancreas study actually went to the final endpoint, and we stopped the study. I think you might be looking at ct.gov, where we may have had a later timeline just as we're looking at future follow-up on patients. It does not by any means reduce our confidence in moving forward in other indications with abema. This was a pretty high bar. Pancreas, you know, is a tough tumor type. We are looking at clearly targeting tumors where the CDK pathway is important. Also, we do believe the combinations is probably the way to go. You should see some trials starting later this year, as well as, of course, our life cycle planning in breast cancer.
Great, thank you. I think we've gotten through 17 different sets of questions. It sounds like there's no more folks in the queue. I'll turn it over to David Ricks to close our session. Leah, if after that you can provide the replay instructions.
Thanks, Phil. We appreciate all of your participation in today's earnings call and your interest in Eli Lilly and Company. Our strong first quarter results represent continued progress on top line and bottom line growth prospects, and we have raised our guidance as a result. We have a broad portfolio of new products with many life cycle opportunities driving top line growth, hopefully for years to come. We are executing on our significant margin expansion opportunities. Together with a strong pipeline, Lilly continues to be a compelling investment. Please follow up with our investor relations team if you have questions we have not addressed on today's call. That concludes the call. Have a great day, everyone.
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