Ladies and gentlemen, thank you for standing by, and welcome to the Q3 2016 Earnings Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. Instructions will be given at that time. As a reminder, today's conference call is being recorded.
I would now like to turn the conference over to your host, Doctor. John Luckliter. Please go ahead, sir.
Thank you, and good morning, everybody. Thanks for joining us for Eli Lilly and Company's Q3 2016 earnings call. I'm John Lechleiter, Lilly's Chairman, President and CEO. Joining me here in Indianapolis on today's call are Derica Rice, our Chief Financial Officer Doctor. Jan Lundberg, President of Lilly Research Laboratories Doctor.
Sue Mahoney, President of Lilly Oncology Enrique Conterno, President of Lilly Diabetes Dave Ricks, President of Lilly Biomedicines Chito Zuleta, President of Emerging Markets Jeff Simmons, President of Elanco Animal Health and Christina Wright, Brad Roebling, Chris Ogden and Bill Johnson of Lilly's IR team. 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 is not sufficient for prescribing decisions.
Before discussing key events for the quarter, I'll start as usual with a summary of our progress since the Q2 earnings call in late July, and I'll use our strategic objectives framework for this discussion. Our first strategic objective, grow revenue. Q3 revenue increased 4% on a constant currency or performance basis, driven by 7% pharmaceutical volume growth. Consistent with previous quarters this year, our new products Trulicity, Cyramza, Jardiance, Basaglar, Portrazza and Talt accounted for nearly all of that growth. On our strategic objective, expand margins, our non GAAP OpEx as a percentage of revenue declined 20 basis points compared to the Q3 2015.
We expect continued progress in the 4th quarter as our full year guidance at the midpoint of our ranges implies an improvement of about 200 basis points to 2.50 basis points in OpEx as a percent of revenue for the year. Under the heading of sustaining the flow of innovation, alaratumumab was approved in the U. S. Last week for soft tissue sarcoma and will be sold under the trade name Lartruvo. Europe's CHMP provided positive opinions recommending approval of oleratumumab for soft tissue sarcoma and of Glaxamby for type 2 diabetes.
And along with AstraZeneca, we received fast track designation from the U. S. FDA for AZD-three thousand two hundred and ninety three, the oral base inhibitor for Alzheimer's disease. On our strategic objective to deploy capital to create value, we announced an agreement to acquire Boehringer Ingelheim's U. S.
Animal health vaccines business, filling a key strategic need in our companion animal portfolio. In both human pharma and animal health, we will continue to actively pursue external opportunities to enhance our future growth prospects. Finally, during the quarter, we returned over $500,000,000 to shareholders through our dividend. In summary, the progress we're making in 2016 places us on track to achieve each of our strategic objectives through 2020. Now let's move on to a review of the key events that occurred since our last earnings call.
We continue to make progress on the regulatory front.
As I just mentioned, here
in the U. S, the FDA approved Lartruvo in combination with doxorubicin for the treatment of adults with soft tissue sarcoma with a histologic subtype for which an anthracycline containing regimen is appropriate and which is not amenable to curative treatment with radiotherapy or surgery. This is the 1st FDA approved frontline therapy for soft tissue sarcoma in 4 decades. It also marks the 3rd product from our Mclone acquisition to receive regulatory approval. This is an accelerated approval based on data from our Phase 2 trial.
Continued approval for this indication may be contingent upon verification and description of clinical benefit in a confirmatory study. The Phase 3 announced study is fully enrolled and is currently expected to complete in late 2018. In Europe, we received a pair of recommendations approval from the CHMP. The first recommendation was for granting a conditional marketing authorization for Lartruvo in combination with doxorubicin for the treatment of adults with advanced soft tissue sarcoma not amenable to curative treatment with radiotherapy or surgery and who have not been previously treated with doxorubicin. Similar to the U.
S, Lartruvo was reviewed under the EMA's accelerated assessment program. As part of the conditional marketing authorization, we will need to provide results from our ongoing Phase III study. Until availability of the full data, the CHMP will review the benefits and risks of Lartruvo annually to determine whether the conditional marketing authorization can be maintained. The second recommendation was for glixambide, a single tablet combining Jardiance, our SGLT2 inhibitor and Tradjenta, a DPP-four inhibitor. The specific recommendation was for use in adults 18 years and older with type 2 diabetes to improve glycemic control when metformin and or sulfonylurea and one of the individual components of Gixambi do not provide adequate glycemic control or when a patient is already being treated with the free combination of Jardiance and Tradjenta.
Glaxamby, Jardiance and Tradjenta are products of the Boehringer Ingelheim and Lilly's diabetes alliance. Finally, along with AstraZeneca, we received fast track designation from the FDA for AZD-three thousand two hundred and ninety three, an oral beta secretase cleaving enzyme or base inhibitor being studied in Phase III trials for Alzheimer's disease. On the clinical front, we announced that following a preplanned interim analysis for MONARCH 2, an independent data monitoring committee provided the recommendation to continue the study without modification as the interim efficacy criteria were not met. The MONARCH II trial compares abemaciclib with fulvestrant versus placebo with fulvestrant in women with hormone receptor positive human epidermal growth factor receptor 2 negative locally advanced or metastatic breast cancer. The trial will continue to completion in the first half of twenty seventeen.
At the European Society For Medical Oncology meeting, early data in lung cancer were presented on the combinations of KEYTRUDA with Alimta and of KEYTRUDA with Cyramza. KEYNOTE-twenty one, a randomized Phase 2 study, included Cohort G studying KEYTRUDA added to ALYMTA plus carboplatin versus ALYMTA plus carboplatin in first line nonsquamous nonsmallcell lung cancer patients regardless of PD L1 expression levels. The combination of KEYTRUDA and ALYMTA CARBO nearly doubled the response rate compared to ALYMTA CARBO alone. There's been considerable focus within the investment community on the durability of responses. In this study, we were very pleased that patients on the KEYTRUDA ALEMTA CARBO arm experienced progression free survival of 13 months.
While the overall survival data were not yet mature, roughly 75% of patients on both arms were still alive at 1 year. This is at the top end of results we've seen for any combination trial in a broad population of first line non squamous non small cell lung cancer patients, and we look forward to the presentation of additional data from this trial at future medical conferences. Updated data were also presented from the KEYNOTE-ninety eight study evaluating KEYTRUDA with CYRAMZA in second to fourth line non small cell lung cancer. Here too, we observed promising clinical activity, including durable responses. 80% of patients experienced a decrease in target lesions spanning the spectrum of PD L1 status, while the objective response rate was 30% with responses seen in both non squamous and squamous non small cell lung cancer patients.
In addition, the disease control rate was 85% and median progression free survival was not yet reached. The data from both KEYNOTE-twenty one gs and KEYNOTE-ninety eight provide proof points for how we intend to deploy our diverse oncology portfolio across the 3 platforms of cell signaling, tumor microenvironment and immune oncology to pursue a rational and differentiated combination strategy across our diverse oncology portfolio in order to improve outcomes for patients. Shifting to immunology, I'm pleased to report that we achieved the primary endpoint in the SPIRIT P2 study of ixekizumab in patients with active psoriatic arthritis who had been treated with 1 or more conventional DMARDs as well as had an inadequate response to 1 or 2 TNF inhibitors or intolerance to a TNF inhibitor. The results of SPIRIT P2 further build on the existing benefit risk profile Taltz obtained from a very large clinical program. With this second positive psoriatic arthritis study, we plan to submit ixekizumab for psoriatic arthritis in the U.
S. In the first half of next year, followed by submissions in Europe and other geographies, and we plan to present the data at a medical meeting in 2017. Keep in mind that psoriatic arthritis has already been approved in Japan. At the EADV meeting in Vienna, we also presented initial data on our head to head study called Ixora S of Taltz versus STELARA in patients with moderate to severe plaque psoriasis. The primary endpoint of this study was met as Taltz demonstrated superiority to Stelara on the PASI 90 score at 12 weeks.
These data reinforce the strong clinical profile of Taltz and we look forward to presenting additional data from this study next year. As expected, earlier this month, we achieved last patient visit in the expedition 3 trial of solanezumab in patients with mild dementia due Alzheimer's disease. As a result, we plan to issue a top line press release before the end of the year. In other news, we announced the retirement of yours truly as President and Chief Executive Officer effective December 31st this year. I will continue on Lilly's Board of Directors until the end of May serving as Non Executive Chairman.
Dave Ricks, currently President of Lilly Biomedicines, will assume the role of President and Chief Executive Officer and join the Board on January 1. Dave will become Chairman of the Board on June 1. We announced the agreement to acquire Boehringer Ingelheim, VetMedica's U. S. Feline canine and rabies vaccines portfolio as well as a fully integrated manufacturing and R and D site and a number of pipeline assets for approximately $885,000,000 including the estimated cost of acquired inventory.
This innovative platform of companion animal vaccines has high brand awareness and an established loyal customer base. The addition of these assets advances our strategy of offering a balanced portfolio to both prevent and treat disease. This acquisition is subject to FTC approval and closing of the BI Sanofi asset swap. We expect to close the deal early next year. The U.
S. District Court for the Southern District of Indiana ruled against Lilly and its partner, Acrux, case for the testosterone treatment Axuron, ruling that Axuron's formulation and Axilla application patents are invalid and the applicator patent, although valid, would not be infringed by generic competitors. We have appealed the ruling. The formulation patent expires in February 2017, while the Axilla application and applicator patents expire in 2027. The U.
S. Patent and Trademark Office determined that the method of used patents for Effient are invalid. Lilly, Daiichi Sankyo and Yubei strongly disagree with the PTO's ruling regarding validity of the Effient method of use patent and have appealed the ruling. Separately, next steps are being discussed with the District Court in ongoing litigation on both the method of use patents and the compound patent. As a reminder, the method of use patents expire in 2023, while the compound patent expires in April of 2017, and we are entitled to pediatric exclusivity until October of 2017.
Finally, we distributed over $500,000,000 to shareholders via our dividend. During the quarter, we did not repurchase any stock, leaving $2,650,000,000 remaining on our 5 $1,000,000,000 plan. As we announced on our 2nd quarter earnings call, we do expect to provide annual increases in our dividend and we'll continue to balance share repurchase with external opportunities to enhance our future growth prospects. And now I'll turn the call over to Phil for a discussion of our financial performance for the quarter. Phil?
Great. Thank you, John. Slide 7 summarizes our presentation of GAAP results and non GAAP measures, while Slide 8 provides a summary of our GAAP results. I'll focus my comments this morning 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 Q3 GAAP results. Looking at the non GAAP measures on Slide 9, you can see the Q3 twenty sixteen revenue increased 5 percent compared to Q3 2015 reaching $5,200,000,000 Gross margin as a percent of revenue decreased 1.4 percentage points to 76.4%.
This decrease was driven by the effect of foreign exchange rates on international inventories sold. This effect resulted in a benefit to both this quarter and last year's quarter, but the benefit this quarter was substantially smaller than the benefit realized last year. Excluding this FX effect, our gross margin percent increased by 30 basis points, going from 75.2% in last year's quarter to 75.5% this quarter. Total operating expense, defined as the sum of R and D and SG and A, increased by 4% compared to Q3 of 2015. Breaking this into its component parts, marketing, selling and administrative expenses increased 2%, while R and D increased 8%.
The slight increase in marketing, selling and administrative expenses was due to higher spending on new products, largely offset by lower spending on late lifecycle products. The increase in R and D expense was driven primarily by higher late stage clinical development Other income and expense was income of $27,000,000 this quarter compared to the $87,000,000 reported in last year's quarter. Our tax rate was 22%. This is a decrease of 2.90 basis points compared with the same quarter last year. This decrease was primarily due to certain U.
S. Tax provisions, including the R and D tax credit that are in force in 2016, but it lapsed during last year's Q3. At the bottom line, net income decreased 2% and earnings per share decreased 1%. Slide 10 contains non GAAP adjusted information for the 1st 9 months of the year, while Slide 11 contains a reconciliation between reported and non GAAP EPS, and you'll find additional details on these adjustments on Slides 2425. Now let's take a look at the effect of price rate and volume on revenue growth.
On Slide 12, in the yellow highlighted row at the bottom of the table, you'll see the 5% revenue growth I mentioned earlier. On a performance basis, our worldwide revenue grew 4% this quarter, driven entirely by volumes. By geography, you'll notice that U. S. Pharma revenue increased 17%, driven primarily by volume.
Trulicity was the main driver of U. S. Volume growth with meaningful contributions also coming from Humalog and Taltz. Having completed the take back of North American rights for Erbitux on October 1 last year, we also benefited from booking end sales of Erbitux this quarter. As cited in our press release issued earlier this morning, we have experienced less product returns than anticipated for Cymbalta post its patent expiration, leading to a reduction in the returns reserve this quarter of approximately Excluding this item, our U.
S. Pharma revenue grew 10% this quarter with an 11% increase due to higher volume and a 1% decline due to lower realized prices. The decline in UCAN revenue of 8% was driven by the negative effect of price and to a lesser extent lower volumes and unfavorable FX movements. On a constant currency or performance basis, UCAN revenue decreased 6%. This decrease was driven primarily by lower volume and price for Cymbalta and Olympta following patent expirations, partially offset by the uptake of new products, including Trulicity, Basaglar, Cyramza and Jardiance as well as higher sales of Humalog, Tradjenta and Cialis.
In Japan, pharma revenue increased 15% in total, driven by an 18% benefit from a stronger yen to a lesser extent increased volume, partially offset by a 6% negative price effect from the latest biannual price cuts. On a constant currency basis, Japan Pharma revenue decreased 3%. This performance decline was attributable to the entry of generic olanzapine this past June. Excluding Zyprexa, Japan Pharma revenue in Q3 grew 6% on a constant currency basis, led by Cyramza, with additional contributions from Cymbalta, Strattera, Trulicity, Basaglar and Jardiance. Turning to emerging markets, we saw revenue decline 8%, primarily driven by the negative effect of foreign exchange.
On a performance basis, emerging markets revenue decreased 3% due to lower volumes for off patent brands, including Cialis, Zyprexa, Alimta and Cymbalta, partially offset by higher volumes for Humulin, Trulicity, Tradjenta and Cyramza. Also this quarter, our pharma revenue in China decreased 7% due to foreign exchange, while revenue was flat on a constant currency basis. Changes in order timing from our distributors negatively affected growth this quarter, while positively affecting growth last quarter. We estimate the growth in underlying demand for our products in China this quarter was about 5%. Turning to Animal Health.
This quarter, worldwide revenue decreased 9%, both in total and on a constant currency basis, including a 14% decline in Companion Animal and a 6% decline in Food Animal. Animal Health revenue was significantly impacted by distributor inventory destocking in the quarter following a changeover to SAP at the end of Q2. This inventory impact represented the majority of the decline in companion animal revenue in Q3 and has contributed to the volatility in our Animal Health results. In Food Animal, economic weakness in Latin America combined with market access pressures in the U. S.
Contributed to lower revenue in the quarter. Note that on a year to date basis, which includes the SAP inventory impact in both Q2 and Q3, Animal Health revenue is flat. On Slide 13, you'll find the same price rate and volume analysis, but on a year to date basis. As I mentioned earlier, excluding foreign exchange, our worldwide revenue grew 4% this quarter, with nearly all of that growth coming from higher volume. In total, our new products Trulicity, Cyramza, Jardiance, Taltz, Basaglar and Portrazza were the engine of our worldwide volume growth.
Slide 14 shows that these products drove 6.6 percentage points of volume growth this quarter. The take back of Erbitux contributed nearly 2 percentage points to our volume growth, while Humalog contributed nearly 1 percentage point. You'll also see that the loss of exclusivity for Zyprexa, Cymbalta, Endovista, while largely in the rearview mirror, still provided a drag of roughly 2 percentage points on our volume growth. Specific on Humalog, you will see that U. S.
Sales this quarter are down 14% as higher volume was more than offset by lower realized prices. This quarter's net realized price was negatively affected by changes in estimates for rebates and discounts. Normalizing for changes in estimates for rebates and discounts in both Q3 2016 and Q3 2015, the underlying U. S. Sales trend for the quarter for Humalog was basically flat.
Now, let me turn the call over to Derica.
Thanks, Phil. As in prior quarters, I'll start by sharing some color on our new product launches. During the Q and A session, Sue, Enrique and Dave can provide more details. As you can see on the graph on Slide 15, our new products generated over $500,000,000 in revenue this quarter led by Trulicity and SIRAMZA. This represents about 10% of total worldwide revenue, up from 8% last quarter.
And as Phil mentioned earlier, these products drove over 6.5 percentage points of our worldwide volume growth this quarter. We continue to be pleased with the uptake of Trulicity. Here in the U. S, we're capturing nearly 30% of new patient starts in the GLP-one class. In addition to our strong performance, we're benefiting from strong growth of the class itself with the U.
S. GLP-one market growing nearly 30%. As I mentioned last quarter, in many we're seeing uptake comparable to that seen with the early uptake of Victoza. SIRAMZA continues to grow globally, driven largely by strong gastric cancer uptake in Japan. OUS markets now account for nearly 60% of our worldwide Soramza sales.
And we look forward to continued growth in these markets, not only in gastric cancer, but also supported by the ongoing launches of the colorectal and lung cancer indications. U. S. SIRANZA sales declined this quarter, largely as a result of competitive pressure from immuno oncology therapies and non small cell lung cancer, while our share of market in gastric cancer has been relatively stable. Moving to JARIETZ, while less than we expected, the SGLT2 class in the U.
S. Is growing over 20% and our new to therapy share with endocrinologists is now over 35%. Along with Boehringer Ingelheim, we expect FDA action on the infra reg outcome submission in early December and continue to see an update of the Jardiance label to reflect the compelling CB data for infra reg outcome as a catalyst for the growing of the class and of Jardiance. Taltz, which launched in the U. S.
In April, is off to an excellent start. We're seeing strong growth on the IL-seventeen class in psoriasis and are pleased that our new to brand share market with dermatologists, a proxy for use in psoriasis, is already over 10%. While it's still early in our OUS launches, feedback has been positive and we look forward to launching Taltz in Japan this fall for both psoriasis and psoriatic arthritis. The rollout of abasiglar in all U. S.
Countries continues and we are preparing for our U. S. Launch in mid December. Finally, we continue to see strong uptake of IO agents in first line squamous non small cell lung cancer, which is clearly affecting use of Portrazza. Moving to slide 16, you'll see the effect of changes in foreign exchange rates on our 20 16 results.
This quarter, FX had a small positive impact on revenue growth. Excluding FX, worldwide revenue grew 4%. In performance terms, growth in non GAAP cost of sales at 4% was in line with revenue growth, while non GAAP operating expenses grew just slightly faster than revenue at 5 and non GAAP EPS increased 1%. Moving on to our pipeline update, slide 17 shows our pipeline as of October 19. Changes since our last earnings call are highlighted with green arrows showing progression and red arrows showing movement out of the portfolio.
In our NME pipeline, you'll see the green arrow denoting FDA approval of argtruvo in soft tissue sarcoma. We began Phase 2 testing of 2 molecules, the low dose base inhibitor that we discussed at our Alzheimer's disease meeting last December and the BTK inhibitor in immunology we licensed with ARMY. We also started Phase 1 testing for a small molecule cancer compound and we terminated development of 2 Phase 1 oncology assets and of glozolomat, a sclerostin monoclonal antibody for osteoporosis. In our NILIX piloting, as shown on Slide 18, we began the Phase 3 study of solanizumab in prodromal Alzheimer's disease. Currently, we plan to recruit nearly 2,500 amyloid positive patients for this study.
The blinded treatment period will be 24 months and we anticipate trial completion in mid-twenty 21. On solanizumab, John mentioned earlier that we are on track to issue the top line press release for Expedition 3 before the end of the year. I'd also note that we have a small number of investor interactions with management scheduled this quarter and all of these interactions will occur before management sees the expedition 3 study results. If we hit the most aggressive timeline from moving from last patient visit to database lock, we may be able to present the expedition 3 data at the CTAD meeting in December. However, it is also quite possible that we will not present the data at a medical meeting until next year.
Should we present the expedition 3 data at CTAD, the presentation will be made available via a live webcast open to the investment community. So live participation will not be required to access the information in real time. Turning to Slide 19, let's recap the recent progress we've made on the key events we projected for 2016. Since our last call, we've added green check marks for the initiation of the Phase 3 study of solzanizumab in prodromal Alzheimer's disease, the internal data readout that John mentioned earlier of the Phase 3 SPIRIT P2 study of ixekizumab in psoriatic arthritis, the presentation at EADV of data from the Ixora S study evaluating ixekizumab head to head against dolara and psoriasis and the U. S.
Approval of LYTRUVO for soft tissue sarcoma. Also, one event we thought that might occur in 2016, which is now expected in 2017, action on Cialis pediatric exclusivity, while another was expected in 2018, the cluster headache readout for galcanezumab. Turning to our 2016 financial guidance on Slide 20. At a high level, our expectations are largely unchanged. You'll see that our outlook for non GAAP earnings per share is unchanged.
While we made small adjustments to our GAAP earnings per share guidance range, as well as to our line item guidance for revenue, SG and A expense, other income and capital expenditures. In summary, our Q3 financial performance places us on track to achieve our full year guidance. In the quarter, we posted revenue growth of 4% on a constant currency basis, driven by 7% pharmaceutical volume growth. We made progress on the pipeline with the FDA approval of Lartruvo, recommendations for approval of oloratumumab and Gluixambi in Europe and granting of FDA Fast Track status for our base inhibitor AZD3293. We continue to have strong momentum behind our innovation based strategy.
And as we transition to new leadership next year, our management team will remain focused on executing our strategy to create value for all stakeholders, including shareholders. We also remain firmly committed to achieving the midterm financial goals we articulated on our earnings call in July, which included driving a minimum of 5% compounded annual revenue growth from 2015 to 2020, even without solanizumab, reducing OpEx as a percent of revenue to 50% or less in 2018, increasing our gross margin as a percent of revenue in 2020 compared to 2015, launching 20 or more new products in the decade from 2014 through 2023 and providing annual dividend increases to our shareholders. This concludes our prepared remarks. Now I'll turn the call over to Phil to moderate the Q and A
session. Phil?
Thank you, Derica. So we've got nearly an hour for the Q and A session. We would like to get to as many of the callers on the line as possible. So if you would please limit your questions to your 2 most important ones or one with 2 parts, that would be very much appreciated. Mary Beth, if you could go ahead and give the instructions for the Q and A session and then go to our first caller, please.
Certainly, sir. And we'll go to our first question from the line of Jamie Rubin from Goldman Sachs. Please go ahead.
Wow, first time I've been asked first. Anyway, question, couple of questions on GuardDance. My first question is, why did the FDA require 3 more months for review? Is this a positive? Is this a negative?
And Enrico, how are you feeling about getting the superior label in Jardiance? And I mean, what are the options? Is the option to get a superior label, I. E, an indication for CV risk reduction or is the other alternative to get no mention of that in the indication section, but the EMPA REG trial mentioned in the label somewhere. If you can talk about those two possible scenarios and what they mean in terms of consensus expectations?
Secondly, just curious to know what's happening with pricing in diabetes because it does seem to be getting worse. You talked about rebates and discounts with Humalog, but it also seems that we're seeing some price discounting in SGLT2 just based on Invokana's recent performance and their weakness due to discounting. So if you could talk about that as well. Thanks very much.
Great. Thank you for the questions, Jamie. Enrique, those are all yours.
Very good. So when it comes to the Jarden review by the FDA, we did get these 3 months extension on the action date. The new action date is now December 4 this year. It's difficult to say always what drives that, but the FDA considers some additional information analysis that we had provided basically major amendments and they basically have the right to do so. I would highlight that this is not the only major amendment that has happened in the diabetes area.
There've been a number of 3 months extension, but I don't think it will be appropriate to color this in any way positive or negative. When it comes to the indication and the label, as you know, we have basically requested a separate distinct indication for Jardiance given the data from EMPAL REC outcome, something along the lines of reducing the incidence of cardiovascular death in patients with type 2 diabetes and established cardiovascular disease. We believe that the data warrants this type of indication. Clearly there are a number of different potential outcomes when it comes to the label we would get. It's the FDA is in the reviewing the label and is probably not appropriate for me to comment more at this stage given that the action date is getting very near.
I will continue to highlight that I believe that we have the strength of the evidence to be able to have a new indication. Clearly, Whether we have it in particular in the U. S. Having an indication does make an important difference. So we are seeking that.
Of course, we if the clinical data is included in the body of the label, Yes, we could still make a claim, but the strength of the claim is not the same. So we view this as important for us and for Jardiance and for Lillian BI. BI. Let me answer your question on pricing in diabetes first. When it comes as it was stated as part of the remarks by Phil, when we normalize for changes in the estimates of rebates and discounts for both Q3 and Q4, we basically see in the case of Humalog that our normalized sales would have been minus 1% instead of minus 14%.
Now minus 1% still implies a pretty important impact. It implies lower prices because we grew volume 10% with Humalog in the U. S. So that's basically minus 11% when it comes to price. What are we seeing?
Well, we are seeing 2 things, increased rebates across the board, but in particular when it comes to Part D, at least from how Lilly views this business. And we basically see a significant more business flowing through less profitable books of business, less profitable channels, Medicare, Medicaid, charge backs. So as we look at those books of business, there's been an acceleration of those books of business at the expense of commercial and cash. So those impacts are pretty significant. Now you have seen that in the case of Humela, we had quite a bit of volatility.
We expect for this volatility unfortunately to continue given that we make estimates at the end of each quarter on those rebates and discounts, but we find out what those where the product flow through, which books of business afterwards and in some cases many quarters afterwards. So the last point that I would make because it's probably important as you look at your different models and as we think about the Humalog and what is the ongoing growth trend for this product. As we look at the normalization that I referred to, one third of that normalization refers to Q3 of 2016, 2 thirds is really related to Q3 of 2015.
Enrique, thank you very much for the comprehensive response. Mary Beth, if we can go to the next caller, please.
Thank you. We'll take our next question from the line Tim Anderson from Bernstein. Please go ahead.
Thank you. A couple of questions. On solanezumab, I know obviously everyone's expecting and watching the results of expedition 3. But if that trial is a total fail, what happens to the prodromal trial? Would that completely continue unchanged?
Or could it potentially get scrapped? The second question was on baricitinib. I know there's a fair amount of excitement around the upcoming launch and the profile has looked promising, but I can't help but think that it's going to get meaningfully sidelined by payers in the U. S. Given how crowded this market is.
And if that happens, then it would be a very slow launch curve like we've seen with a lot of other products. I'm wondering if you can comment on this assessment.
Great, Tim. Thank you for the questions. Dave, we'll move over to you for these 2.
Great. Thanks, Tim. Should I think we've talked about the various scenarios with SOLA before. We continue to characterize it as a high risk, high reward program. The scenario you paint is what we think is the least probable, but it certainly could happen.
In this scenario, SOLA would really not separate at all from placebo. I think we would be reevaluating all of the SOLA programs, frankly, Tim. And the way we've set up the prodromal program, which we've just begun, is there's a recruitment start with a special cohort that we can also evaluate more information on. We're doing this for a couple of reasons, but one of the reasons is the ability to stop the trial should Expedition 3 be negative. So we've gated the investment in that way.
As I said, we're not counting on that as the most probable scenario, but we've prepared for that contingency. We're excited about baricitinib 2. The profile from the Phase 3 program for very large studies is extremely positive. That drug is under review at the FDA, and we're anticipating a launch sometime in 2017. You're identifying a key issue in that class.
RA is crowded. It is heavily managed by payers. Lilly has a strategy on baricitinib to really focus on the differentiation of the product versus the standards of care of methotrexate and Humira. We want to position the product in really the pre biologic setting and that may take some time to achieve as you're pointing out. However, I would say there are all kinds of payers and those that are more clinically focused and focused on improving outcomes for pretty significant condition, lifelong condition for young people, RA, we think we can make early headway in those settings.
Others, which may be more sensitive to rebate flow, etcetera, obviously, that's going to be more difficult, but I think Lilly is prepared to be patient and build out the product through time, reminding everyone that the current IP is very long and we have a long time to fulfill full value for baricitinib. Thanks for the questions.
Great. Thank you, Dave. Mary Beth, if we can go to the next caller, please.
Thank you. The next question from the line of Tony Butler from Guggenheim Partners. Please go ahead.
Yes. Thank you very much. Dave, a question on Pulse and the anti IL-seventeen class. I understand the commentary around the growing class. And clearly, if we listen to Novartis, they'll be quite enthusiastic.
I'm just wondering though as we looked quarter to quarter at the U. S. Sales, while the rates nice, the absolute numbers, I guess one could say it's rather anemic. And so real questions around payers, I guess, and whether or not the full channel opportunities being utilized by Lilly and more importantly, how you think you might be able to address that relative to Cosentyx or others that may enter that market in psoriasis? Thank you for your time.
Great, Tony. Thank you for the question. Dave?
Yes. Tony, thanks for the question. We are both excited about the uptake of the IL-seventeen class and Taltz within it. In fact, as we exited Q3, we're seeing Taltz new to brand share in dermatology, which is really our key leading indicator for performance, as peaking over 10% already, ahead of Enbrel, for instance, and at least at par with Cosentyx in that setting. So we're happy with the initial adoption and the breadth of trial and usage, which are other key indicators for us.
At this point in the launch cycle, I'm not sure net sales should be the absolute market we'd be looking at, although of course we're looking forward to growing that quarter on quarter going forward and you did see growth from Q2, which was reminding everyone just a few weeks of shipments in Q2, it wasn't a full quarter. Also, visavis Cosentyx, which enjoys 3 indications, we only have the 1 in psoriasis, as was mentioned in the call text earlier. We do plan submissions now for PSA in the U. S. Shortly.
And we have an axSpa program ongoing. So net net, I think we're happy with where we are. Global rollouts are beginning in the second half of the year as well in Europe and Japan, which are also significant opportunities. We've got a life cycle coming. And where we are head to head against the incumbents of TNF, Stelara and even Cosentyx within the class, which is the U.
S. Derm market, I think early performance indicators are quite strong.
Great. Thanks, Dave. Mary Beth, if we can go to the next caller.
Next question from the line of Steve Scala from Cowen.
I have a couple. Assuming solanezumab data is tracking towards CTAD presentation, would there be a top line release? And if so, when would that be issued? And externally, of course, we know nothing about what was seen in Expedition 3. Does Lilly also know absolutely nothing about what was seen in Expedition 3?
Or is some data being analyzed or already has been analyzed? So that's the first question. 2nd question is Lilly seems to have done some opportunistic spending in Q3. Companies typically do this for various reasons, one of which is anticipation of positive upcoming developments. Certainly, it would not be done when delay or disappointment is expected.
So how should we interpret your opportunistic spending in the
Q3? Thank you.
Great. Steve, thanks for the questions. It's always an exciting moment waiting to hear you give them. If we can go Dave for the SOLA questions on the CTAD and potential timing for a top line press release issuance, as well as whether or not people have seen anything at Lilly on Expedition 3 to date. And then Derek, if you'd like to handle the spending question, that'd be great.
Dave?
Yes. Let me answer the first or the second sorry, question first. Steve, we have seen nothing on Expedition 3, and that will remain true until literally a few days before your second question, which is a top line press release, which we will do with absolute urgency after management's had a chance to look at the data coming in, reminding everyone that the period between last patient visit and that management review involves a lot of data cleansing, QA, QC effort to make sure what we're looking at is a true signal and those are normal procedures that do need time and effort to make sure that the much anticipated readout is accurate. Following a top line release, probably by just a few days, would be CTAD, if we can make it. This will be a slide format of a summary of the top sort of data points, which would fill out things beyond what would be anticipated in a top line release at that time.
That's just reminding everyone sort of a best case scenario for us right now, if everything goes smoothly operationally. And just to remind everyone, you do not need to register for CTAD. They've asked us to say that and that it will be available from the comfort of your computer to view in real time should that presentation occur in 1st week in December.
Great. Thanks, Dave. Derica?
Hi, Steve. Good morning. In regards to our operating expense and spending in the Q3, there was really nothing unusual or lack of transparency in terms of what we're doing behind the scenes. It really is driven by the new product launches and our support of that. You've probably seen some of our new DTC ads that we've launched in the quarter as well.
That's driving the spend as well as our launch prep. We talked about the recent approval of Lartruvo and we've been anticipating that for some time. In addition, you also see that we continue to invest in our pipeline. And if you look at our total operating expenses for the quarter, our biggest growth was in that realm in terms of R and D. And it really is progressing, continue to progress our pipeline and to pursue the opportunities that we have embedded there that we believe still keeps us on track to achieving that potential of 20 launches in a 10 year span.
So whether you call it opportunistic, we see it more in a sustained fashion that this is what we've been geared up to do.
Thanks, Derica. Mary Beth, if we can go to the next
Thank you. The line of Mr. Chris Schott from JPMorgan. Please go ahead.
Great. Thanks very much for the questions. First one was on basic law. You've had a few big formulary wins for 2017. Can you help us just understand the dynamics of that product in the U.
S. Next year? I guess specifically what percent of market do you have access to? And how should we think about Lilly prioritizing that product relative to other assets in the diabetes portfolio? My second question was on abemaciclib.
Just helping us put a little bit the continuation of the MONARCH II study into context. Do you still believe you can differentiate that asset from Ibrance even though the product didn't achieve its interim efficacy criteria? Thank you.
Great, Chris. Thank you for the questions. We'll go to Enrique for your Basaglar questions and then to Sue for Benecyclin. Enrique?
So we've had successful contracting season with Basaglar. So we feel good about our commercial access in particular. Clearly contracting is not done yet. And just to remind everyone, we expect to launch on December 15 this year. So I won't be able to provide specific numbers at this stage, but just we are very pleased with the access that we will have.
In terms of the priority that we will basically have on basically clearly is a newly launched product and we need to make this product relevant in the basal insulin space, really a new segment for us. So from that perspective it's important and it's important because also it really fully completes the diabetes portfolio that we can offer our customers. We now have a complete portfolio, a full range of insulins, a GLP-one with Trulicity and then great oral products. I would as we look at our performance in the U. S.
Market and in other major markets, we're actually growing market share with every single product. I think as we launch Basaglar, I think it is key that we continuing driving the entire portfolio and the success that we're seeing with Trulicity and the opportunity that we have with Jardiance.
Great. Thank you, Enrique. Sue?
Yes. With regards to bemaciclib, we continue to be very excited by this molecule. And if we look at the interim, we as we've said previously, it was a high bar. If we look across the CDK4six inhibitors, about 50% of the infants have been met and 50% haven't. So I don't think we should read too much into us progressing with MONARCH2.
We're looking forward to seeing the final data next year. And of course, we've also got the MONARCH 3 data as well expected towards the end of next year with an interim or so earlier. From a differentiation perspective, there are no heads to heads. But if we look at abemaciclib, it is we've seen single agent activity now in the MONARCH-1 trial. And also if you saw the neo Monarch data that was presented at ESMO, we saw single agent activity there.
We see 14 times more potency to CDK4 than CDK6 with abemaciclib. We continue to be able to dose this continuously and it crosses the broad brain barrier, if I can say that. So we, as I said, continue to be excited by the molecule and do believe that actually could be a best in class CDK4six inhibitor.
Great. Thank you, Sue. Mary Beth, next caller please.
We'll go to the line of Mr. Gregg Gilbert from Deutsche Bank. Please go ahead.
Thanks. First on CTAD, is there other data you plan to present there, if not Expedition 3 or with or without Expedition 3? And what longer term strategic and financial and possibly R and D decisions are tied to the outcome of Expedition 3? I think you already touched on the R and D piece, but maybe strategic and financial longer term? And then Enrique, what can you say about the launch of Basaglar in the U.
S? It's somewhat imminent. I'm sure you have a pretty good sense of demand and what price you're willing to part with the product. So whatever you could help us understand heading into that would be very helpful. Thanks.
Great, Greg. Thank you for the questions. Dave, if you could answer the question on the CTAD data being presented anything other than Expedition 3 and maybe at least within the overall Alzheimer's disease portfolio and Biomed's portfolio, what that might mean from an investment perspective? Derek or John, feel free to chime in from a corporate perspective if you'd like and then we'll go over to Enrique for the base of our launch question. Dave?
Yes. Thanks, Craig. CTAD is an important Alzheimer's meeting. It's not a large meeting, but it's one where top experts who do clinical research around the globe in Alzheimer's all come. As a result, we are consistently at that meeting with posters, other presentations.
As you know, Lilly has done a lot of work, whether it be in diagnosis work with our pet, scanning business, we have some data reading out in that area, as well as other supportive data, looking at disease modification, etcetera, in different populations. So there are other presentations. I don't have a list in front of me, but we can provide that in follow-up. The second question is really what would change going forward if Sola is positive? And I think here we've given long term guidance without Sola, but certainly we would anticipate a rapid submission and introduction to the major markets and the normal kind of go to market commercialization effort that would come with that, which is typically expense followed by revenue.
I would also say this will present 2 new opportunities for Lilly, I think unique ones within the field of neuroscience and Alzheimer's. One would be to look at acceleration and sort of full funding for other Alzheimer's products, particularly those with a beta based mechanisms. Certainly, with a lead like that in solo, we would want to fast follow with other innovations we have coming. We're doing that, but we can always look at speed and veracity of that effort. And then finally, looking at combinations and sequences of therapies that could be combined with solanezumab to further arrest the disease, that only makes sense if SOLAR works and we have those sort of queued up, but certainly not in our funding and expense base today.
So there are many we'll have to prioritize amongst those and I think, of course, qualitatively, the way solar works will have some bearing on how much of that additional investment we would trigger. Great.
John or Derek, any comment?
No? Okay. If we can go over
to Enrique for the base
question. So maybe just a few additional comments on BaselGuard. Clearly, we will be disclosing the lease price in the near future. But I think it's fair to say that the real competition when it comes to prices really happens with the rebate levels and at the net price level. As I mentioned, we do we will have good access.
Now this doesn't automatically mean that the base secular is going to be a win. We need to make this product relevant with our customers. We need to build that brand and we need to provide great experiences. Yes, in some cases, Lantus and Toujeo are excluded from formularies, but this is not the case for Tresiba and Levemir. So at the end of the day, we need to make sure that Basaclar is an important compelling options for those patients and those customers.
And we are working to make sure that that happens.
Great. Thank you, Enrique. Mary Beth, next caller please.
We'll go to the line of John Borris with SunTrust. Please go ahead.
Thanks for taking the questions. First question just has to do with the pricing risk and election cycle. If you look at most of the election cycles historically, it would seem as though that if investors actually own the group coming out of an election cycle, they'd be rewarded pretty handsomely. However, you do have some things that are being tossed about most notably Proposition 61 that will be on the ballot November 8th, on the California ballot proposing a statute which could create a price ceiling on prescription drug cost by state programs. Just your thoughts about this election cycle and what might be different and is there any silver lining on pricing coming out of that?
2nd question just has to do with Trulicity, just an update on REWIND and thoughts around the upcoming interim analysis and stoppage of that trial?
Great, John. Thank you for the questions. John Lechleiter, if you'll take the first part of that question and then we'll come over to Enrique for the REWIND question. John?
Yes. Thanks, John. Prop 61, we're fighting that tooth and nail in California. It's not only bad legislation, it's bad for your health and we're trying to impress that on the voters. What we found is that the more people become aware of what's at stake here and what's the likely outcomes of Proposition 61, the less they're the more they're prone to vote against it and vote it down.
So, we have a pretty big campaign underway in California right now to increase that level of awareness and hopefully to continue to shift voters toward a position of being against it for a whole variety of reasons. It's difficult to say the larger we're going to see some price relief after the election. I think in terms of where drug pricing sort of fits in what I call the rhetoric that you're always going to get in a campaign season, particularly one that's as polarized as this one. So I think there may be some acute relief. I think the bigger question is Hillary Clinton wins, what does she have in mind for health care?
If Donald Trump wins, what's the direction going to be? It's pretty clear whether you say you want to repeal and replace the Affordable Care Act. Something needs to be done if we're going to render sort of a health insurance availability for everybody in this country sustainable on an ongoing basis. So I think that's going to be the bigger focus for the industry is sort of what happens in those probably critical first two years of the first term, which we know what happened in 2,008, 2,009. And I think that's what the industry has to be prepared for.
At the same time, I think that frankly, if we're successful in with SOLA, the outcome of SOLA and there's hope for Alzheimer's. Keep in mind of the top ten causes of death in this country. I think I heard the other day Alzheimer's is the only one where we continue to see increases in the rate of mortality. So I think if the industry can demonstrate once again like we did with HIV AIDS, like we did with hepatitis C and so many other diseases that we can make an impact on something that increasingly everybody is fearful of and concerned about. I think that changes the dynamic too.
We don't know what that outcome is going to be, but it's going to be a very interesting mix come January 1. And I'm sure Dave Ricks is ready to jump all over it.
Thank you, John. Enrique for the REWIND update.
Sure. So our REWIND trial with Trulicity has scheduled completion date right now of July of 2018. We expect the interim later this quarter. We already had the number of events to be able to reach the interim by the DMC. It will be meeting later this quarter.
And clearly, we've learned a lot from both the leader and the SUSTAIN trials. I think it's important to remind everyone that given that the number of events that we have at interim is significantly lower than what Victoza had with leader. So the HACSA ratio for us to be significant will have to be quite impressive. We will see what the data says once we have the readouts.
Great. Thank you, Enrique. Mary Beth, next caller please.
Thank you. That would be the line of Mark Goodman from UBS. Please go ahead.
Yes,
Mark, if you can hear us, it sounded like we lost you. Hello? Yes, we can hear you now.
Enrique, first, can you help explain why glysambi is not doing better? I mean, we look at the prescription trends and I just would have thought this product would have taken off much better. Second question is, can we get a little more color on Animal Health and just what happened in the quarter and what's going on there? And third, you mentioned the CGRP headache cluster. Can you just talk about the timeline change there and what happened and if there's been any other timeline changes to that program?
Thanks.
Great, Mark. Thank you for the questions. We'll go around the table here. We'll start with Enrique on the Glaxambe question over to Jeff for more color on what's going on with the Animal Health business and then back over to Dave for the CGRP timeline question. Enrique?
Sure. So, we the strategy that we had for GLEXANVI was a different one prior to the readout of the EMPER REG OUTCOME trial. As we see it today, we need to make sure that we are positioning Jardiance as a standard of care and we need the new indication to truly do so and really reinvigorate the growth of the SGLT2 class. We believe that Gliktambi will have a very significant benefit once this happens, but investing today in a really big way in Glixambi really doesn't make sense, whether it's access or promotional investment. Bixambi has today fairly low access.
We are in the 20s when we look at commercial access and it's even lower than that in Part D. We need to retake that once we get the new label for Jardiance. Great.
Thank you, Enrique.
Jeff? Yes, Mark, thanks for the question on animal health. Bottom line, our animal health quarterly results have been more volatile this year, as you know. Inventory destocking was a significant event in Q3 and it contributed to the revenue decline this quarter. We don't see these results as a trend.
Just as we enjoyed the benefits as you recall of the distributor purchases in Q2 ahead of our SAP cutover in the U. S, inventories were depleted in Q3, which caused the majority of the decline in our companimal business. So I would note the SAP transition has gone very smoothly. On the Companion Animal side, our business is up 3% year to date, which really normalizes for the Q2 and the Q3 inventory impact. And what's driving this is 1, successful launches of some new innovation as well as we believe our improved competitiveness with the combination of Novartis and Elanco.
On the food animal side, food animal is down 1% year to date and really outside the U. S, we've experienced weakness in Latin America And really this region represented the entire decline for our OUS food animal in Q3. And then in the U. S, we faced some market access challenges this quarter, in particular, Paline, a product in our U. S.
Swine business, poor customers pursuing the China export market, remove pylene, they'll do that on and off. They'll come on and off the product depending on needing the export markets or not. So that's that in summary. And then as John noted, 2 weeks ago, we announced the acquisition of BI's companimal vaccine business, subject to the closing again of the BI Sanofi asset swap. We see this as a tremendous complement to our companimal business in the U.
S.
Phil, can I just just a clarification? The number I quoted for Glixambi is on a as a preferred position, so lowest branded copy. The access is higher than that when we look at overall access.
Great. Thank you for the clarification, Enrique. Dave, on the CGRP timeline?
Yes. So, I think, Mark, you're asking about the push out on cluster headache. This is for galkinezumab, reminding that everyone that galkinezumab would be the 1st therapy in this class, actually the 1st therapy ever to our knowledge to be approved with well controlled studies in cluster should those studies read out. We have pushed back the timeline into next year based on enrollment. And really to clarify that, it's actually the ability to have subjects have cluster headaches.
Some forms of the condition are episodic. So while we recruited well the number of people in the program, we're waiting for the cluster events to start, which can demonstrate the value of the product. So that's goes part and parcel with any new pushing into a new therapy area like this, where studies haven't even been done before with medicines on a large scale. But we're excited about that part of the program. Again, it would be first with that indication.
To our knowledge, it gives us some, I think, credit with the neurologists for tackling a tough condition and potentially some value support as we go to market. Also, I'd say the migraine program is on track. We've communicated previously that that's a mid-twenty 17 readout with potentially submission by the end of 'seventeen. So we're feeling good about, galcanezumab overall.
Great. Thank you, Dave. Marybeth, if we can go to the next caller, please.
That line will be Vamil Divan from Credit Suisse. Please go ahead.
Great. Thanks for taking my questions. So, first just on the diabetes side, the Pertulicity Jardiance. Can you provide a little more color in terms of how much of the sales is coming for, I guess, the classes as a whole and also your products from specialists versus generalists? Just trying to see if they're getting better traction a bit with the primary care physicians.
And then second on Taltz, you mentioned psoriatic arthritis and also in closing spondylitis. Can you just give us a better sense there in terms of how you view the commercial opportunity for those two indications relative to the psoriasis indication? Thanks.
Great. Thanks, Vamil. Enrico, we'll go to you for the Trulicity and Jardiance question on specialist use versus PCP prescribing and then over to Dave for psoriatic arthritis and ankylosing spondylitis opportunity. Enrique?
So I don't have the numbers the exact numbers in front of me, but when we think about especially versus primary care for this product to be successful, we have to be relevant when it comes to primary care. We expect long term that over 80% of the volume will basically come from primary care as we think about these 2 products. Now, something that is encouraging about the uptick of both of these products is that our share with specialists, it is indeed higher with endocrinologists than with primary care physician. This is important as a leading indicator as we look at the future and a great prognosticator of what is to come ahead.
Great. Thank you, Enrique. Dave?
Yes. Thanks for the question, Vamil. What I hear you, Ashamed, is as we look forward to the future indications, what's how do we think about the size of those markets. I would say on PSA, which will be the next one for us, based on differentiation we think we have versus standards of care like Humira, reminding everyone that IL-17s can be used without methotrexate and you get sort of this dual skin and joint benefit that's at least as good on a joint. We're encouraged by what we see so far in our estimates.
Our own estimates actually have gone up since we started the program because treatment rates for PSA appear to be quite a bit higher than psoriasis when it comes to using biologics. Just to give everyone a bit of frame on that, when you look at products that are indicated only for psoriasis and psoriatic arthritis, take Cosentyx for instance, they actually have a little bit more volume coming out of non derms than derms right now. And I think that indicates that although the incidence rate is lower for PSA, rheumatologists are more comfortable with biologics. They're treating PSA at a higher rate. AxSpA is, I would say even more of an underdeveloped opportunity.
In particular, Lilly's program will feature the potential to be indicated in non radiographic axSpA. So this is an absence of x-ray proof of the condition. This is a recognized indication in Europe, but not yet by the FDA. Should we achieve that, I think that presents a very significant market expansion opportunity for axSpA where the biologic basis of the condition is known to be quite similar to PSA and psoriasis. So there's a lot of promise being held out for the class in axSpA.
We see some early data from Cosentyx in that regard. We're using even higher doses. So I think we are optimistic on all those indications as being meaningful part of the ultimate success story of Toll's.
Great. Thank you, Dave. Marybeth, next caller please.
That line of Mr. Jeff Holford from Jefferies. Please go ahead.
Hi. Thanks very much for taking my call. First one, just very quickly on Effion. Assuming that the exclusivity wouldn't be based on the 2023 patent, could you just give us what the more conservative timeline to think about for loss of exclusivity in the U. S.
Would be? And then secondly, just thinking about going into next year post election and just thinking about some of the rebating you've already mentioned on Humalog. With the LIS and JUUL's rebating changes that have been kicked around a few times and are being kicked around again during this election cycle. Could you just talk a little bit about your exposure to the LIS and dual eligible population? What you think the probability of any rebating changes could be there and any ways the firm could potentially mitigate those?
Thanks very much.
Great, Jeff. Thank you for the questions. Dave, if you'd like to go ahead and comment first on the Effient question. And then maybe, John, do you want to comment just generally on the size of impact of the dual LIS? And then maybe Ricky or Dave, Sue, if you want to comment on any specific impacts or mitigation that you see with your particular areas of the business, that would be great.
Dave?
Yes. I'll be brief. I mean, we've been, I think, consistent through time in saying that the IP that we are counting on for our own plans is sort of being quite firm as the compound patent, which expires naturally in Q2 of next year and then as extended with pediatric work, which we have confirmed would take us into early Q4. The other IP, we're disappointed and we plan to
John, on the John, on the overall impact of the dual LIS proposals?
Yes, Jeff. I think if the low income subsidy patients and the duals moved out, and that's been bandied around for quite a while and talked about the order of magnitude of the impact it would have on the industry is akin to the overall impact of the Affordable Care Act. So we're talking something around $110,000,000,000 $120,000,000,000 over I think a 10 year period. So it's a significant hit and it's again, as I said earlier, it's not just bad policy, it's bad medicine. These folks are not going to enjoy near the kind of care and access to modern therapy that they're able to benefit from as the under the Part D coverage.
So you can bet we're going to fight any such proposal tooth and nail.
Any other comments from our VP? Well, I'll let Enrique talk
a little bit about the inline business because we had a very significant exposure, say, 5 years ago in biomed with all the neuropsych products, but that's pretty well diminished in the U. S. I would just say from a policy perspective that I think 2 other bad things will happen if that goes through. 1 is, it will create an incentive to actually price higher because you want to get the starting point above where it is today given the 23% from the beginning plus the accelerated rebate based on price increases. I think that will have a perverse effect actually on pharma pricing.
And then the second is, I think it will take away an incentive long term to develop medicines for dual LIS beneficiaries, which is probably the last thing anyone in Congress would be wanting, but that will be the net effect of that change. If it occurred, we're optimistic that we can fight that.
Thanks. Enrique? Well, clearly, when it comes
to diabetes, this would be a very significant impact. Now as we look at Lilly relative to our competition, I think we're well positioned. We have stronger accents generally in commercial than in RD. And we have continued to prioritize that because clearly it is a more profitable business, a more sustainable business and we've done this across all of our products.
Thank you. Marybeth, if we can go to the next caller please.
Thank you. That would be the line of Alex Arpad from GMO Capital. Please go ahead.
Good morning, folks. My apologies if these were addressed, I was disconnected briefly. How should we think about pricing for Humalog? Obviously, significant impact here. I'm just wondering if we could get your longer thoughts there.
And then on SOLOG, do you have any have you had any updated conversations with regulators or just updated general thoughts regarding you changing your primary endpoints on Expedition 3? Thank
you. Alex, thanks for the question. Enrique, if you could touch briefly on heumalog pricing as you're seeing it. And then we'll go over to Dave for any discussions we've had with regulators related to the change in endpoint that we announced earlier. Enrique?
Sure. So I've commented on some of the dynamics of the quarter and some of the mix changes as we look at the increases in Medicare, Medicaid, charge backs as a percentage of the overall business. Clearly, we expect those some of those dynamics to continue. For the most part, now as we look at the different formulary, Dave, all of the large formulary have gone exclusive. So we whether it's on the Part D side or on the commercial side as of 2017, I think we basically have a situation where Humalog will be exclusive in a certain number of formularies and our competitor in some others.
Clearly, there could be switches back and forth that will deteriorate prices even further. But we have not seen that because there's a very high disruption cost at the patient level to be able to switch 100% of the business now for more incremental gains. So it's difficult to say what the pricing dynamics would be, but prices net prices when it comes to Humalog are pretty low already.
Great.
Thank you, Enrique. Dave? Yes, Alex, really no change. We announced in March, as you know, the shift to a primary endpoint for cognition, secondary will be function, so it was key secondary. I mean, at that time, we said we are in constant conversation with regulators around the world, but this is really a sponsored decision.
Really nothing has changed with that. We're now, of course, past last patient visit, waiting for the data later this fall, and we'll just have to take a look at the data when it reads out here in through the end of the year. And again, maintain that we think in mild Alzheimer's, certainly in prodromal and absolutely in pre Alzheimer's conditions, measuring cognitive changes is a much more sensitive and much more appropriate way to measure disease impact and disease modification. Of course, we will measure function in mild Alzheimer's, but I would point out that for the mild study, we started with AZ with called DAYBREAK with the prodromal mild combination study on our base inhibitor with AZ as well as our own prodromal program we just began with SOLA, all of those use cognition as the primary endpoint. This is a bet we're making across the portfolio and we think is well founded based on expert advice we have and the way science has evolved.
Thank you, Dave. Mary Beth, next caller, please.
Will be the line of Colin Bristol from Bank of America. Please go ahead.
Good morning and thanks for taking the questions. Just on Jardiance, sales still lighter gain versus what's implied from script volumes. Can you give some color on what's driving this? I know you said last quarter it was a mix of gross to net adjustments and high use of co pay cards. I'm just wondering, should we assume that the current net pricing is like a reasonable baseline?
Or is there a negative pricing dynamic that could dissipate? 2nd, on Animal Health, just a follow-up. It seems like your comments suggest these are just one time occurrences that are impacting performance. And so should we anticipate a rebound in sales strength in 4Q? And then just lastly on EBEMA, can you confirm we should still expect the Monarch 3 interim before year end?
And sorry if I missed this. Thanks.
Great. Colin, thank you for the questions. So we'll start with Enrique for the Jardiance question. Over to you, Jeff, then for the Animal Health and what you see for the dynamics heading into next quarter. And then Sue on the timing for MONARCH 3, which we did actually update back in August, but happy to go ahead and provide you that updated language so everyone on the call has got that.
So we start out with Enrique.
In my view, the most relevant factor to look at when we think about Jardiance overall is class growth. And as we look at class growth, we have shared and we have been concerned with the overall growth that we are seeing in the SG UH-two class in the U. S. The class as we look at the last 4 weeks relative to the same 4 weeks of last year is only growing about 20%. That's significantly below our expectations.
We are hopeful that the inclusion of the EMPEREG outcome data on the label will be a catalyst for the overall growth and we feel confident if we get the right language that we'll be able to make a huge value proposition for this product in the eyes of our customers. As we look at SG02 class growth, it is a little bit different outside of the U. S. In Europe, the class is expected to double. Same case in Japan, more than doubling Japan in 2016.
Yes, from a slower base, but from a smaller base, but the growth dynamics I think are very encouraging. We are doing fairly well when it comes to share. We now have a 30% new to brand share in the U. S. Our overall share in Germany is nearly 40% and above 40% in Italy and basically growing in Spain, U.
K, Canada. So I feel very good about the position that we have within the class itself. Now on the pricing question and rebates, I did comment on some of the co pay cards and some of the impact of those. I also mentioned that the impact of the co pay cards is going to lessen over time because there's a duration of this co pay card. So we have implemented some of those changes.
We have a number of patients on this copay cards already and some of them are also on the market. So we expect this to be a long term phenomenon and we will see this decreasing over time.
Great. Thank you, Enrique. Jeff?
Yes. Colin, on the Animal Health business, I think overall at a high level as we noted last December in our investor conference, we are going through a transition period. What I would note is, yes, the SAP cutover is complete and that volatility is completed. So we do see less volatility going forward. I think we're keeping our eyes on a few things that are absolutely critical for Animal Health business.
1, our companimal competitiveness, as I've shared, we feel very good about that. Some of our growth engines like our vaccine business and expansion of that. And then we noted 7 big products that were critical for innovation, which you know drives animal health just like pharma. We put 5 of those 7 products into the market and they'll be foundational to our growth going forward. And then on the margin side, we continue to stay focused on the margins where we're moving to that low to mid-20s and we see that happening in 20 16.
So overall Elanco, our Animal Health business is well positioned in the top tier to remain competitive in this competitive consolidating industry.
Great. Thank you, Geoff.
Sue? Yes. With regard to bemaciclib, so the MONARCH 2 data, we should have final data in the first half of next year. With regards to MONARCH 3, again, these are event driven trials, so they could change, but our projection is that for MONARCH 3, we'll have the final data towards the end of next year. We do have an interim that we would see in the first half of next year.
It has a high bar. Our base plan is that we will continue through to the final data.
Great. Thank you, Sue. We're reaching the end of the call. I'm going to try and put a little pressure on the next caller as well as whoever responds. If we could, Marybeth, go to the last caller for a single question and a prompt response to the question, please, and then we'll have Dave wrap up the call.
Certainly. That would be the line of Andrew Baum from Citi. Please go ahead.
I'm feeling the pressure. Could you talk to the CDK4six category? Firstly, in relation to the competitive adverse event profiles of the particular drugs. I'm interested obviously in the clinician feedback about the low grade diarrhea versus the monitoring requirements that Novartis is going to face. And then second, should we expect that formularies are going to exercise pressure in this segment as well, given there'll be 3 drugs with very similar profiles in the way they've pulled to signal off the formulary that CVS has in CML as well as other small molecule drugs such as Xtandi?
Is this the way the world will work within small molecule oncology drugs going forward?
Andrew, thank you for the questions.
Yes. Okay. So with regards to abemaciclib, I can't comment on the safety profiles of the other products. But if we look at abemaciclib, I think we've seen that we've got a very tolerable drug that we can continuously dose. With regards to the diarrhea, if you again saw the new monarch data, if you could give over the counter loperamide, we saw very little diarrhea and very manageable and feel good about the safety profile there.
Again, I think formularies, it will depend on what the data shows and how they shows and how they differentiated as to what happens with regards to payers and formularies.
Great. Thank you very much, Sue, for the quick response. And now we'll go over to Dave Ricks to close out our call this morning.
Thanks, Phil. For those of you listening live or to the replay, we appreciate your interest in our company and your participation in today's call. Should you have any questions we didn't address, please contact our IR team and they'd be happy to help as usual. This is Brad Roebling's last earnings call, and we thank him for his support of our investors and wish him all the best in his new business development assignment. Thanks, Brad.
And finally, I'd like to take the opportunity to thank John for his steady leadership during one of the most difficult periods of our company's 140 year history. Spurred on by John's vision and his commitment to innovation, Lilly is today in the midst of one of our most productive periods of new product launches and we've achieved great progress building an R and D engine that has the potential to launch 20 new products in 10 years beginning in 2014. John, many analysts and portfolio managers I've met with in recent weeks have expressed their sincere appreciation for your contributions to the company and to the sector. You've earned their praise, and we all owe you a debt of gratitude, and we wish you all the best in the next chapter of your life.
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