Ladies and gentlemen, thank you for standing by. Welcome to the Q3 2015 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, this conference is being recorded. I'd now like to turn the conference over to John Lechleiter. Please go ahead.
Thank you and good morning everyone. Thanks for joining us for Eli Lilly and Company's Q3 2015 earnings call. I'm John Lechweiter. I'm Lilly's Chairman, President and CEO. Joining me 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 Zunueta, President of Emerging Markets, Jeff Simmons, President of Elanco Animal Health and Alyssa Radner, Brad Roebling and Phil Johnson of the Lilly Investor Relations 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. So let me begin by providing an overview of Lilly's 3rd quarter. Again, this quarter, we posted strong non GAAP financial performance. With our continued focus on expanding margins, we leveraged constant currency revenue growth of 5% into operating income growth of 27%. Year to date, we've leveraged 3% constant currency revenue growth into 16% operating income growth.
Along with this strong financial performance, our focus on innovation continues to pay off. Just since our last call, in diabetes, along with Boehringer Ingelheim, we presented results from the EMPA REG outcome study with Jardiance. This is the first time a diabetes medication showed a significant reduction in both cardiovascular risk and cardiovascular death in a dedicated outcome study. We anticipate that our colleagues submit these data to U. S.
And European regulators before the end of this year. In biomedicines, we announced results from 2 Phase 3 rheumatoid arthritis studies evaluating baricitinib head to head against 2 of the most widely used RA treatments. In one study baricitinib showed superior efficacy to methotrexate in treatment naive patients. And in the second study, it showed superior efficacy to adalimumab, the market leading biologic in patients with inadequate response to conventional DMARDs. These are outstanding results.
Our team is now squarely focused on global regulatory submissions. And in oncology, the U. S. FDA granted breakthrough therapy designation to our CDK4 and 6 inhibitor abemaciclib for the treatment of patients with refractory hormone receptor positive advanced or metastatic breast cancer. This is our 2nd oncology molecule to receive breakthrough therapy designation following oleritumab for soft tissue sarcoma.
As you know, the FDA may grant this designation in certain circumstances where there is preliminary clinical evidence that a drug may demonstrate substantial improvement over available therapy on a clinically significant endpoint. These are all excellent examples of the progress we're making in delivering innovation that is valued by patients, physicians and payers. Also since our last call, we were reminded of just how vexing the pursuit of pharmaceutical innovation can be. Despite demonstrating HDL and LDL changes consistent with our Phase 2 study, our CETP inhibitor evacetrapib did not demonstrate a reduction in major adverse cardiovascular events in the Phase 3 ACCELERATE trial. Lilly and its academic collaborators decided to terminate development of evacetrapib based on this new information.
This was an unexpected and disappointing development for patients with high risk vascular disease and for Lilly. Despite this setback, our pipeline is strong and our future growth prospects are bright. We continue to look forward to revenue growth and margin expansion throughout the balance of this decade and we believe we've built a sustainable R and D engine for the long term. Now let me highlight additional key events that have occurred since our Q2 earnings call in late July. On the commercial front, in diabetes, we launched a number of products in major markets.
We launched our weekly GLP-one agonist Trulicity in Japan. Along with Boehringer Ingelheim, we launched our insulin glargine product in Japan as well as the UK, Germany and a number of other European markets. And here in the U. S, we received approval for and launched SYMJARDI, a twice daily combination pill containing the SGLT2 inhibitor empagliflozin and metformin. Also in the U.
S, we launched Humalog U200 Quickpin, the 1st concentrated meal time analog the first concentrated meal time analog insulin in the U. S. Market. On the regulatory front, our colleagues at Boehringer Ingelheim completed the FDA submission of GENTA Duetto XR, a once daily combination pill containing linagliptin and metformin. In Japan, we submitted ramucirumab for second line non small cell lung cancer and ixekizumab for both moderate to severe plaque psoriasis and for psoriatic arthritis.
In the U. S, we submitted Humulin Regular U500 in the QuickPen delivery device to the FDA. The product is already marketed in the U. S. In a vial and syringe format.
As I mentioned earlier, the FDA granted breakthrough therapy designation to avemaciclib based on data from our Phase Ib cohort expansions in breast cancer. On the clinical front, we had a number of noteworthy disclosures. As Enrique discussed on our investor call a few weeks ago, along with our colleagues at Boehringer Ingelheim, we at Lilly are thrilled that Jardiance is the only diabetes medication to show a significant reduction in both cardiovascular risk and cardiovascular death in a dedicated outcomes trial. In this case, in patients with Type 2 diabetes at high risk of CV events. Roughly 1 in 2 deaths in people with Type 2 diabetes is due to cardiovascular disease despite the use of statins, blood pressure medicines and antiplatelet therapy.
Clearly, a significant unmet need remains for further reducing cardiovascular risk in people with Type 2 diabetes to help them live longer and healthier lives. Highlights from EMPER REG outcome study included a 14% reduction in the primary outcome measure of the 3 point MACE endpoint comprised of of cardiovascular death, non fatal heart attack or non fatal stroke, a 35% reduction in hospitalization due to heart failure, a 38% reduction in death from cardiovascular causes and a 32% reduction in death from all causes. This is great news for patients with Type 2 diabetes at high risk for cardiovascular events. As I mentioned earlier, the positive clinical data readouts didn't stop there. Along with Incyte, we were extremely pleased that baricitinib demonstrated superior efficacy to methotrexate in treatment naive patients with RA and to adalimumab in RA patients with inadequate response to conventional DMARDs.
We'll present detailed data from these trials at the American College of Rheumatology meeting in San Francisco in November and we will host an investor call on November 11 to review the results with you. Finally, in clinical news, we terminated the development of evasetrobi for the treatment of high risk cardiovascular disease as I stated in my opening comments. We expect to disclose detailed findings from this study at a medical conference next year. On the business development front, earlier this month as planned, we took back North American rights to Erbitux from Bristol Myers Squibb. We announced the acquisition of worldwide rights to a Phase 3 intranasal glucagon from lowcemia.
This product could be the 1st needle free rescue treatment for severe hypoglycemia. We expanded our collaboration with INNOVENT based in Suzhou, China to include the development and potential commercialization of up to 3 anti PD-one based bispecific antibodies. We entered into a preclinical research collaboration with Imaginab centered on T cell based immuno oncology therapies and we announced the expansion of our immuno oncology collaboration with AstraZeneca to include a range of additional combinations across both companies' portfolios. In other news, we entered into a settlement agreement with Sanofi to resolve insulin glargine patent litigation. Under this agreement, Sanofi granted Lilly a royalty bearing license so that Lilly can manufacture and sell Basaglar in the QuickPen device globally.
Also Lilly and Boehringer Ingelheim will be able to launch Basaglar in the U. S. In December 20 of Lilly's vitamin regimen patent for Olymta. We expect a written decision upholding the validity of the patent in the coming weeks. This is the first of 2 decisions pending.
If the patents are ultimately upheld through all challenges and appeals, they would provide intellectual property protection for Alimta in Japan until June 2021. The U. S. District Court for the Southern District of Indiana ruled that our Olymptavitamin patent regimen our Olymptavitamin regimen patent would be infringed by generic Challenger's proposed products. The court had previously upheld the validity of this patent, which provides intellectual property protection for Alimta until May 2022.
The generics have appealed these rulings, but a date for the appeal has not yet been set. We announced plans to expand our New York City research and development site. This investment will enhance our immuno oncology capabilities as well as facilitate academic collaborations. And finally, in the Q3, we repurchased $61,000,000 of stock leaving $3,200,000,000 remaining on our $5,000,000,000 plan. In addition, during the Q3, we distributed over $500,000,000 to shareholders via our dividend.
We remain committed to providing a robust dividend and to returning excess cash to shareholders via share repurchase. 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. Before I discuss our Q3 results, it may be helpful to review key features of our presentation of GAAP results and non GAAP measures. When interpreting our GAAP results and the growth rates versus 2014, keep in mind that 2014 does not include Novartis Animal Health, while 2015 includes the operating results of this business as well as all the costs associated with the acquisition. For our non GAAP measures, we now exclude amortization of intangibles.
And to provide you a better idea of the underlying trends in our business, we've adjusted our non GAAP measures for 2014 to exclude the expense associated with amortization of intangibles and to include Novartis Animal Health as if we'd closed the transaction on January 1, 2014. This should place 2014 on the exact same basis upon which we are reporting our financials this year. Now let's look at our results for the quarter. Slide 9 provides a summary of our GAAP results. I'll focus my comments on our underlying non GAAP measures to provide insights into the trends So please refer to today's earnings press release for a detailed description of the year on year changes in our Q3 reported or GAAP results.
Moving to slide 10, you can see that Q3 revenue was just under $5,000,000,000 The decrease of 4 percent compared to Q3 2014 reflects significant FX headwinds. Excluding FX, our Q3 revenue increased 5% on a non GAAP basis. As we discussed on prior calls, this year we're still feeling a negative effect from the loss of U. S. Exclusivity for Cymbalta and Avista.
As I move through 2015, however, this effect is diminishing. This quarter, U. S. Cymbalta and Avista trimmed about 150 basis points off of our worldwide revenue growth rate. Gross margin as a rate.
Gross margin as a percent of revenue increased 3 percentage points going from 74.8 percent to 77.8%. This increase was driven by the favorable impact of foreign exchange rates on international inventories sold, which increased cost of sales in Q3 last year, but decreased cost of sales in Q3 this year. Excluding this FX effect, our gross margin percent increased by 30 basis points, going from 74 0.9% in last year's quarter to 75.2% this quarter. As on prior calls, you'll find a supplementary slide We continue to drive productivity improvements across our business. Total operating expense, defined as the sum of R and D and SG and A, declined by 7% or over $200,000,000 compared to Q3 of 2014.
Breaking this into its component parts, marketing, selling and administrative expenses declined 5%, while R and D declined 10%. The reduction in marketing, selling and administrative expenses was due to the favorable impact of foreign exchange rates and continued expense control, partially offset by expenses to support recent product launches. The reduction in R and D expense was driven primarily by the 20 14 charge associated with the termination of tibalumab development and to a lesser extent by the favorable impact of foreign exchange rates. Other income and expense was income of $87,000,000 this quarter and included a gain on liquidation of our Receptos holdings that was partially offset by other investment losses and write downs. Our tax rate was 24.9%, an increase of 1.6 percentage points compared to the same quarter last year.
This increase is due to a catch up for the 1st 9 months of this year reflect an increased percentage of forecasted earnings in higher tax jurisdictions. Also, our tax rate in both periods did not include the benefit of certain U. S. Tax provisions, including the R and D tax credit as those provisions had lapsed. At the bottom line, net income and earnings per share both increased 22%.
Slide 11 contains non GAAP adjusted information for the 1st 9 months of the year. I would point out that year to date, our non GAAP operating expenses, again the sum of SG and A and R and D is 54.7 percent of revenue. This is more than 140 basis points lower than the same period last year and reflects clear progress toward our goal of 50% or lower in 2018. Slide 12 provides a reconciliation between reported and non GAAP EPS and you'll find additional details on these adjustments on Slide 22. Now let's take a look at the effect of price rate and volume on revenue.
On Slide 13 in the yellow box at the bottom of
the page, will see the
total revenue decline of 4% on a non GAAP basis that I mentioned earlier. The significant strengthening of the U. S. Dollar against many foreign currencies drove this decline as you see the 8% negative effect from FX this quarter. On a performance basis, our worldwide revenue grew percent with volume driving 7 percentage points of growth, partially offset by a negative price effect of 2%.
By geography, you'll notice that U. S. Pharma revenue increased 13% driven by volume, partially offset by price. Late lifecycle revenue for Avista and Cymbalta did influence individual components of U. S.
Growth, but not the overall increase. In fact, excluding Avista and Cymbalta, the rest of our U. S. Revenue grew 17% with 9% from price and 8% from volume, with new products like Trulicity and Cyramza making significant contributions. Moving to our international operations, we're now reporting Australia and New Zealand along with our emerging markets.
So Australia, Canada and Europe or ACE in the past is now UCAN, which stands for Europe and Canada. The decline in UCan revenue of 17% was almost entirely driven by the negative effect of FX, while on a constant currency or performance basis, UCAN revenue decreased 3%. This decrease was driven by a substantial reduction in the European Cymbalta sales resulting from the loss of data package exclusivity. Excluding Cymbalta, UCAN sales increased 3% in constant currency terms. In Japan, pharma revenue decreased 4% in total, driven by adverse While on a constant currency or performance basis, Japan revenue increased 14%.
This performance growth was attributable to many products, cheap among them Cymbalta and Cyramza. Turning to emerging markets, we saw revenue decline of 18% driven primarily by negative FX effect of 14%. On a performance basis, emerging market sales declined 4%. This 4% performance decline was driven almost entirely by the negative effect of the Brazil Humulin tender that we had last year, but not this year. Also this quarter, our pharma revenue in China declined 2% with 1% driven by FX and the other percent driven by lower volume.
On a non GAAP basis, which adjust 2014 as if we completed the Novartis Animal Health acquisition on January 1 last year, Elanco Animal Health revenue declined 9%. Excluding the negative effect of FX, Elanco revenue decreased 2%. This performance decrease was primarily driven by OUS companion animal products and to a lesser extent by U. S. Companion animal products, partially offset by growth in U.
S. Food Animal Products. Moving to Slide 15, you'll see the effect changes in foreign exchange rates on our Q3 2015 results. This quarter, FX was a significant top line headwind, reducing revenue in U. S.
Dollars by 8 percentage points. In terms of cost of goods sold, however, FX provided a substantial benefit as non GAAP cost of goods sold decreased 15% including FX, but increased 5% excluding FX. With both revenue and cost of sales increasing 5% in performance terms, we saw similar growth in gross margin. Our continued expense discipline is evident in our operating expense results as even when backing out the favorable effect of FX on our expenses, OpEx still declined 3%. This allowed us to leverage mid single digit growth in revenue and gross margin into 27% performance growth in operating income and 25% performance in net income and EPS.
These are outstanding results. Moving to our pipeline update on slide 16. Changes since our last earnings call are highlighted with green arrows showing progression, red arrows showing attrition and stars showing additions. In terms of advancement, you'll see that we began Phase 3 testing of oloratumumab in soft tissue sarcoma as well as of our tau imaging agent for Alzheimer's disease and through our recent agreement with Locemia Solutions, we added the intranasal glucagon molecule. You'll see that we began Phase 2 testing for an ultra rapid acting insulin in collaboration with the Docea and we began Phase 1 testing of 2 molecules, 1 for cancer and the other for diabetes.
Since our last update, we've also terminated development of a number of molecules, including evacetrapib in Phase 3, 2 molecules in Phase 2 as well as 5 in Phase 1. The early phase terminations you've seen in recent quarters reflect a concerted effort to raise the bar for taking molecules forward and to focus our efforts on the highest priority opportunities. Now, let me turn the call over to Derica.
Thanks, Phil. As on prior calls, I'll recap the progress we've made on the key events we projected for 20 15 and then review our 2015 financial guidance. Turning to Slide 17, we're pleased with the positive progress we've made on the key events we laid out for the year. This progress is represented by the large number of green check marks that you see. We've highlighted in yellow the key events that have occurred since our last earnings call.
They include initiation of Phase 3 trials for oloratumumab in soft tissue sarcoma, ramucirumab in second line liver cancer and along with Pfizer for tanezumab in both osteoarthritis pain and chronic lower back pain. As mentioned earlier, we issued a top line press release and presented detailed data at EASD for the Jardiance InfraReg outcome trial. We also issued top line press releases for 2 positive Phase 3 studies of baricitinib and rheumatoid arthritis, RA began in September and RA BEAM earlier this month. And we terminated the Phase 3 EXCELLERATE trial with evacetrapib. You also see that we've updated the regulatory submissions category to reflect Japanese submission of bixekizumab for both psoriasis and psoriatic arthritis.
Separately, you'll now see on clinicaltrials dot gov that we are running a new psoriasis trial comparing it's ekizumab head to head with STELARA. In the other section, you'll see green check marks for the positive OLYMPTA ruling from the US District Court on the issue of infringement and for the similar ruling received in Japan. Key events remaining this year include regulatory submission of baricitinib for RA, initiation of a rolling submission for a laratumumab for soft tissue sarcoma with the completion of the submission expected during the first half of next year, FDA action on nesotumumab for first line squamous non small cell lung cancer and legal rulings on Olympta litigation in Europe. The progress we've made in the past few years and again this year in executing our innovation based strategy solidifies our near to medium term growth prospects and it gives us confidence that our strategy is the right one for Lilly to create value for our various stakeholders, including our shareholders. Turning to our 20 15 financial guidance, let me start with the punch line.
We raised and narrowed our non GAAP EPS guidance to reflect solid underlying performance for the 1st 9 months of the year as well as higher other income. Looking by line item, you'll see that our revenue and gross margin percent guidance is unchanged. We've reduced our guidance for both marketing, selling and administrative expense and R and D and development expense. This is driven by our continued focus on expense management. I would note that this lower R and D range includes an anticipated Q4 charge of up to $90,000,000 related to stopping the evocetropib clinical trials.
We've increased the expected range for other income, largely due to the gain on the sale of our Recepto stock holdings. To reflect an increased percentage of earnings in higher tax jurisdictions, we've increased our non GAAP tax rate to 21.5% and our GAAP tax rate to 16.5%. Please note that both tax rates assumes the R and D tax credit and other international tax provisions you'll see we've raised and narrowed our non GAAP EPS range and now forecast full year non GAAP EPS to be in the range of 3 $0.40 to 3 $0.45 per share. Our new GAAP EPS range of 2 $0.40 to 2 0.45 upward adjustment. Finally, we've lowered our estimate for full year capital expenditures to 1 $100,000,000 In summary, we again posted solid underlying business performance in the Q3 and for the 1st 9 months of the year.
Excluding the negative effect of FX, we drove mid single digit revenue growth with strong contributions coming from recently launched products. Our continued focus on productivity and cost controls drove strong leverage at the bottom line. And the current pace of margin expansion puts us on track to meet our midterm margin expansion goals. While we did experience a setback with evacetropeb, news from our pipeline has on balance been exceedingly positive. The string of positive results we've had over the last couple of years represents tangible results from our innovation based strategy and we still have an exciting period ahead of us.
We expect FDA action on 2 molecules presently under regulatory review, nesotumab before the end of this year and ixekizumab in the first half of next year. And over the next 18 months, we could submit 6 additional new molecular entities for regulatory review. Baricitinib, alaratumumab, abemaciclib, intranasal glucagon, our CGRP monoclonal antibody and solanizumab. The success of our pipeline positions us to drive revenue growth and expand margins throughout the balance of this decade. So as it has been our stated intent, we have returned to revenue growth on a performance basis.
We are reducing OpEx as a percent of revenue, helping to expand our operating margins. We are advancing our pipeline with positive results. And we have built a sustainable R and D engine that can to moderate the Q and A session.
Thanks, Derica. Linda, if you can please provide the instructions for the Q and A session and then go to the first caller on the line, please.
We'll begin with the line of Mark Schoenbaum with Evercore ISI. Please go ahead. Hey, guys. Can you hear me?
We sure can, Mark.
Well, thanks so much for letting me have the first question. I really appreciate it.
John, I have two questions for you, please, if I may, and I hope you're well.
Last quarter, you said in the 2Q call that you thought SmidCap Biotech stocks in general were in a bit of a valuation bubble. You have proven to be a better stock analyst than me and my competitors. Now that we're 25% lower than your comments, I'd just love to hear kind of what you think. And of course, from a Lilly perspective, are you asking your BD folks to kind of speed up the pace of their calls? Or do you want to let this settle out for a while?
Or do you want to see it go lower? Number 2, I know you're very involved in Washington and what goes on there with the bio and the pharma lobbying groups and industry. I'd love to hear your thoughts on drug pricing, but more specific, obviously, given the Hillary Clinton tweet, the Marco Rubio comments. But more specifically, I'd love to know when do
you think the industry is just going
to begin defending itself to the public more aggressively, which is going to cost some money. There were only 10% of overall health care spending and the other 90% these drugs are cost etcetera. What are we going to begin to when is the industry going to begin to spend the money to try to change the image and teach Americans that it's probably worth it? And I'll leave my questions at that. Thanks, Phil, for calling on me.
You're welcome, Mark. John? Okay, Mark. Thanks a lot. Well, I did make the comment about the bubble, I guess, at the last call.
Although I think the hit that the industry has taken may have come from sort of another direction with the noise around pricing. I think there's no question that valuations are lower. Does that change our fundamental posture with respect to business development? It doesn't. I mean, I think we've said all along that we're really not interested in sort of large scale M and A, but we're going to continue to look at opportunities particularly earlier in development even at the preclinical stage to acquire assets or acquire companies as the case may be.
We're very excited about the opportunity we have with Locemia, this intranasal glucagon that we announced just a few days ago. I don't know how good of a I don't think I want to change jobs with you right now though, Mark. I think you do what you do well and I'll continue to try
to do what
okay, good. Now on drug pricing, I think if you go back through successive presidential campaigns with some bit of variability, drug pricing tends to rear its head because I think it's something that politicians have found resonates with voters. Having said that, I think the facts tell a different story. Someone showed me some information the other day in the Q2 of this year, the net effective price increase for the market basket of medicines in this country rose 0.7%. Well, I mean that reflects not necessarily these things that get called out in the media, these individual huge drug price increases.
It reflects the fact that many of our medicines are going generic. Still, I'm talking about the industry here, Lilly's sort of been through its own situation with that. It reflects the deep discount that were mandated by the government to provide, but increasingly must provide to commercial insurers and payers in order to get on to formularies and to be able to compete for the business. I think with respect to telling the story, I think you can expect to see more coming from the industry. I think we've got to be careful and thoughtful here.
I don't think there's a way you can spend enough money to sort of all of a sudden change people's minds because so much of the criticism comes in the form of earned media. No one is out there spending money per se, they're just picking up quotes and amplifying those. We've got a great story to tell. We've got medicines and if you look at the hepatitis space, if you look at cancer, if you look at diabetes, I mean huge advances in recent years. Obviously, lots of risks.
Our evocetrapib trial called that out. At the same time, I've never been as optimistic as I am about the chances we have as an industry to really make a difference for patients. We've got to keep telling the story, reminding people that the medicines as a percentage of total healthcare spend have remained remarkably constant for a long period of time, which suggests that our medicines are helping to hold the line or even reduce other costs in the system that none of us want to incur hospital stays, being off work, disability, etcetera. So we're not tone deaf, Mark, in terms of the criticism that's being leveled at us. At the same time, I think that we've got more work to do here and I think you can expect to see more.
Great. Thank you, John.
Linda, if we can go to the next caller, please.
Yes. Next, we'll go to the line of Chris Schott with JPMorgan. Please go ahead.
Great. Thanks very much for the questions. First one is on expense management. You guys obviously doing a great job on that front. But just a qualitative question as I look out to 2016, you've had a lot of incremental product flows.
We think about next year into 'seventeen between Jardiance expanded label, the IL-seventeen, baricitinib, etcetera. Should we think about 2016 as an investment year for the company where we could see SG and A growth kind of resume here? Or do you still have enough flexibility with some of your initiatives to absorb some of these launches in the existing infrastructure? The second question was on baricitinib. Just wanted to get some of your perspective on how you see the superiority data versus HUMIRA playing out in the commercial RA market.
I guess, is this an area that you think you could take share quickly? Or is this going to be a much more gradual story just given how entrenched some of these TNFs are with the long term safety, etcetera? Thanks very much.
Great, Chris. Thank you for the questions. Derek, we'll go to you for the first question on expenses and particularly some of the pushes and pulls as we head into 2016. And then Dave for your comments on baricitinib.
Good morning, Chris. It's too early to give specific guidance on 2016. As it relates to our expense management. We'll provide that on our January call, the 1st week of 2016. But what I can say is that we expect to be consistent with what we stated all along, which is that we believe we can expand margins throughout the balance of this decade and that's also including revenue growth.
And clearly to expand margins that means we either we're growing our top line faster than we're growing our expense base. And what ultimately happens to our expense base, we will share the specifics around that in that 1st week in 2016. Great. Thanks, Derica. Dave?
Yes. Thanks for the question, Chris, on Barry. We're very excited now that we have the full set of data in hand. Recall, we have 4 separate Phase 3 programs, which really span the whole spectrum of rheumatoid arthritis from refractory patients to biologics. Recall, that was the first study we read out and our study has, I think a unique feature and it's a very real world assessment.
Many patients had failed on 2 or 3 or more biologics before entering that study and still baricitinib showed very strong robust efficacy. We then read out a study in conventional DMARD refractory patients. Again, baricitinib really helped patients who had been refractory to methotrexate and other conventional DMARDs. We then demonstrated superiority to the really the established standard of care for disease modification, which is methotrexate in the RA BEGN study and most recently a superiority to adalimumab in CDMARD refractory patients, sort of as first line biologic space. So I think we've gotten what we wanted when we started the program.
And to your question on safety, so far through a clinical trial observations, we're very reassured by the safety profile we see. So we're now on to submission. In terms of what to expect in the market, I think the RA market has some features where one would say this will not be sort of an overnight phenomena of share gain. You mentioned 1, which is a natural
through our clinical trials, but understandably
physicians like to see that play out through our clinical trials. But understandably, physicians like to see that play out over time. And I think that's been sort of the normal pattern in this market as more reassuring safety data from a real world setting is produced, doctors become more comfortable. It's also a very competitive space. We understand that and we're prepared to compete in that.
On the other hand, baricitinib, I think offers a new choice, which is when I'm failing on inexpensive generic conventional DMARDs rather than step 2 a TNF. I have another alternative now and that alternative appears to be superior to the standard of care in that setting. And there are a number of patients in that situation have not made that step 2 anti TNFs for all kinds of reasons, and we'll be competing aggressively in that space. And so we like our hand. We obviously will have baricitinib for a while to come.
We're stepping into a new market for Lilly. We want to do it right.
And my view is, I
think we'll see good uptake. It won't be some overnight phenomena, but on the other hand, we do expect to make incremental gains as we enter the market.
Great. Thank you, Dave. Linda, if we can go to the next caller, please.
Next we'll go to the line of Tim Anderson with Bernstein. Please go ahead.
Thank you. I have three questions. On EMPA REG outcome, is it possible that those results will actually trigger price competition as J and J tries to hold on to its market leading formulary positioning with Invacana? And Lilly, like most other sellers of SGLT2s, also sells with DPP-four. What's your messaging to physicians on how they should think about those 2 different classes of drugs?
On Alinta, U. S. Performance was down year on year. You mentioned competitive pressures. I'm assuming that is the PD-1s.
So is that the trajectory we should think about going forward? And then lastly, on evocetrapib, knowing what you do about the data at this point, do you think your drug failed because of the way you ran your particular clinical trial? Or do you think it failed because CETP inhibition is just not a viable mechanism? I realize full results have not yet been presented.
And thank you for the questions. Enrique, if we can go to you for the first couple of questions on EMPA REG outcome and messaging around DPP-four Trajenta. Sue, do you then for the OLYMPTA U. S. Dynamics that we're seeing?
And then Dave on evisetropib, Jan, also feel free to chime in if you would like as well. Enrique?
Sure. Tim, thank you for your question. It's difficult really to speculate when it comes to price competition. If anything, the Empire Rec outcome results create differentiation in the marketplace. So from that perspective, we feel very confident in the value proposition that Jardiance offers today, which is I think very significant.
I would point out that the access that we already have with Jardiance for 2016 is indeed very strong. We will have over 85% commercial access and over 55% Part D access. Could those numbers improve a bit with some of these results? It is likely, but as you know that takes time and there's a process when it comes to formularies. We at this point in time, it's there's no promotion of this data.
We are clearly seeing an uptick when it comes to new to brand prescriptions. Just to frame, we were before the top line when we look at EMPA including both Jardiance and Glixambi, our new to branch share was 15%. That creeped up to 17% by the time at EASD and now we are at 21%. Probably most relevant is the shared shift that we've seen post EASD with endocrinology is going from 21% to 31% new to brand share despite the fact that there's no promotion. As John shared in his prepared remarks, we are planning to have the submission before the end of the year.
Now in terms of our positioning, in terms of promotion, that's something that we do not discuss prior to basically launching our promotion campaign and our messages in this particular case for EMPA. Okay. And any thoughts at all on, Trajenta
moving forward now that we have SGLT-two data and how we'll be competing with that drug?
Yes. Nothing really changes when it comes to Tradjenta. We have, I think, unique product that is uniquely differentiated in the DPP-four class. Tradjenta, I think it's important to note is the fastest grower in that class. So growth is very, very strong.
We are planning no changes at this stage. Sue?
Yes, sure. Tim, with regards to Alimta, we saw a couple of things this quarter. Firstly, we saw a buying pattern where we had a buy in this time last year that we didn't see this year. And secondly, we have seen some softening on Alimta in later lines of therapy in second line and beyond, which we had anticipated. I mean, we've just launched Cyramter in the second line setting and clearly the IO agents are also in second line.
So we are seeing some softening there and in areas that we're not promoting. Where we are promoting, I. E, the first line setting and continuation maintenance, we continue to see good usage and continue to believe that we will continue to see good usage in those areas. As you know, we are also doing combination studies with IO agents. We anticipate getting some data next year on that.
So I wouldn't read too much into this quarter's trend.
Dave? Yes. As
it relates to, obacitrapib, Tim, obviously, we're disappointing the outcome, but I guess your question is did we run the right experiment? And our answer is yes. We sought to test the hypothesis whether a robust CTP inhibition, which dramatically raised HDL and reduced LDL would lead to in major cardiovascular events. We ran that experiment I think exceedingly well in a population of interest, which was high risk vascular disease. And after 3 years of observation, the answer is robust CDP inhibition does not change major cardiovascular events with evicetrapib.
We really can't say whether that would apply to other CTP inhibitors, but I think we're confident that the experiment we ran was a good one and we have a definitive answer thus the discontinuation of development.
One thing this is Phil real quick. We had a number of questions as you would imagine after the announcement that we're stopping the development of evocetrapib. Just to clarify the kinds of robust increases we saw in HDL and decreases in LDL. If you look at the Phase 2 study, you'll notice that we essentially had 2 main doses, a 100 milligram dose and a 500 milligram dose. It's very clear that the 500 milligram dose produced both greater increases in HDL and greater decreases in LDL than the 100 milligram dose.
The 130 milligram dose we took into Phase 3 have been reformulated to be more bioavailable and give a fact that would be more potent than the prior formulation. And in fact, what we saw from the initial data we've seen in our Phase 3 study would have been as we had expected and talked about in the past, Additional HDL raising of roughly 120 plus 130 percent kind of numbers and greater than a 30% reduction on top of statins on LDL. So very robust changes that for whatever reasons and unfortunately did not translate into a reduction in MACE events in this particular trial. So more to come on that likely next year as Dave mentioned. Linda, if we can go to the next caller please.
Next, we'll go to the line of Vamil Divan with Credit Suisse. Please go ahead.
Great. Thanks so much for taking the questions. So, I just had two questions, Vivek. So one just around the pricing discussion from before. I just found it interesting on Slide 13 when you break down the pushes and pulls on the revenues.
I think this was the Q1 in a few that we've seen the impact on price in the U. S. B. And so I was wondering if you maybe just could provide a little more color, if I'm correct, on what exactly drove that result relative to the last several quarters? And then second one is just we've received a few questions around you've got obviously a lot of news positive and negative from the pipeline and you've kind of generally endorsed sort of the margin expansion story you've talked about before.
You gave a pretty specific comment in the past around the ranges you expect for SG and A and R and D, sort of in that 20 eighteen-twenty 19 timeframe in terms of percentage of sales. Can you just talk, I guess, do you still feel comfortable with those numbers you gave before? And maybe more broadly, just how much are you factoring in from drugs that are still in the pipeline in terms of delivering ReVecta revenues in that 2018, 2019 timeframe as you think about hitting the margin targets that you've outlined before? Thanks.
Great. Thank you, Val, for the questions. On your first question, this is the Q1 in a while that we had a negative price effect for our U. S. Pharma business.
If you do go back to some prior years, I think there's some similar effects as we've gone through loss of exclusivity for products, particularly when we have engaged in helping to supply the market with, generic forms of our product. And that's what happened essentially this quarter in particular with Avista where we had, higher volumes and in last year's quarter for shipments of generic Avista or eloxifene and that influenced the price calculation. Again, this is something that is particular to late life cycle. As John mentioned at the very beginning, this is one of the benefits essentially that the the industry provides with our innovation is that eventually you do lose patent protection and patients and payers benefit from significantly reduced prices on those innovations. Derek, on the forward looking ranges for SG and A and R and D?
Sure.
What we said is we will get our operating expenses and that's defined as the sum of R and D and SG and A combined to a level of 50% of revenue or less in 2018. And we feel that we're very given the results that we've seen here in the quarter and really thus far through the 1st 9 months of this year, we're very much on track to achieve that goal. And we've also stated that, we believe we can achieve that goal regardless of the pipeline output scenario that we're in. So we've never known exactly which molecules would succeed and which ones would fail. But whatever the mix were, we were confident that we could still achieve that margin expansion goal.
And we believe that with the payout that we've seen thus far over the last couple of years, we're even more confident that we will achieve that and also that we will be able to expand margins throughout the remainder of this decade.
Great. Thanks, Derica. If we can go to the next caller, please.
Next, we'll go to the line of Greg Gilbert with Deutsche Bank. Please go ahead.
Thanks. Enrique, going back to diabetes, not asking you to show your future sort of strategic cards here, but what is Lilly doing to help shape the diabetes treatment guidelines post the EMPHA results? Perhaps you could share what you think a realistic sort of responsible goal would be for Lilly as a company in terms of how to frame the importance of that outcomes benefit for treating physicians? And then my second question is on the Alzheimer's front. Is Lilly exploring compounds that treat the symptoms of the disease?
Or are you focused only on disease modification as a goal? Sort of a policy question as you
could
Great, Greg. Thank you for the question. So Enrique on the first question and then Dave if you'd like to take the other one. Jan obviously feel free to chime in as well if you'd like.
Enrique? Well, we have the great fortune that we count within our ranks a number of people that have either participated in developing and writing some of these guidelines in the past, both in Europe and in the U. S. Or people that have actually called for some of those committees. We have to understand that those committees act in an independent manner.
For us, I think our role is to ensure that these bodies, whether it's the ADA or others, basically have full access to all of our data and we believe that the data speaks by itself. I think it's very compelling and when it comes to the overall benefit, we do expect that it is such that it would trigger some of these reviews. I'm not going to speculate on the outcome of that.
Thanks Enrique. Dave?
Yes. We're going to I'll just give a quick commercial on December 8th.
I have a chance to talk a
lot about our Alzheimer's strategy, Greg, so you're welcome to join us then. But in brief, we believe Lilly is very well positioned to capitalize on the emerging science in Alzheimer's that is primarily focused right now on disease modifying agents, but not exclusively. And as you know, we have disease modifying agents at every stage of development, But we also have important preclinical efforts on symptomatic agents because people, even with the best scenario on disease modification will live with this disease for a long time. They will suffer from the symptoms of Alzheimer's and we believe there is a space there. We have some expertise there and we'll exploit it.
Our main focus is disease modification, but we're interested in agents that could also help patients just live more comfortably or more safely with the disease.
Thank you.
And I can add that we have a compound in Phase I, which is said Parkinson's as the heading, but that's also a potential symptomatic treatment for Alzheimer's disease. And in the preclinical space, we also have some efforts that actually builds on Lilly's very long experience in the field of psychiatry. So I think we are well positioned, realizing though that it is kind of an uphill battle to understand exactly what could work then for novel symptomatic treatments in Alzheimer's. But we are also very much involved in new ideas then to learn how the brain is functioning in psychiatry.
Great. Thank you, Jan. Linda, if we can go to the next caller, please.
Next, we'll go to the line of Seamus Fernandez with Leerink. Please go ahead.
Thanks very much for taking the question. So just a couple of quick questions. First off, for Enrique. Enrique, can you talk to us a little bit about the importance of Basaglar and the decision to settle on this? Was this settlement specifically applied only to the device or does it apply more broadly such that other competitors seeking to enter the market would have to go through the same legal process that Lilly would?
And then in terms of, again more of a guidelines follow-up question, as we think about the maybe the guidelines and timing of guidelines around empareg, can you just update us on which guidelines are the most important? As we've talked to payers and surveyed payers, the feedback that they have provided is that guidelines could be what really changes their willingness to kind of place Jardiance in a preferred position on to formularies. And then just as a final question, the performance of the insulin business particularly looks really challenged internationally. Can you talk in a little bit more detail about that trend and how you see that going forward? Thanks a lot.
Great. Thanks, Seamus. Enrique, it's all yours.
Very good. Let me start with the last question on insulin overall. There is a trend that have not been discussed much. But one of the impacts that we see broadly when we look at the macro diabetes market is that insulin growth has basically slowed down. We see that of course for mill time insulins.
We believe that both SGLT2 growth and GLP-one growth is partly the cost of that. Now having said that, when we look at our own performance, we grew Humalog 6%, 6% in the U. S. And also 6 percent outside of the U. S, different regions with different growth, emerging markets of course much higher than that.
When we look at our human insulin, Humulin, we were basically flat, we
were at minus 1%.
The U. S. Did have positive growth driven by Humulin U500, but we did have a decline in emerging markets as a result of not no longer participated in the Brazil tender. So all in all, not big changes when it comes to our overall performance, but we do see a slow a slowdown when it comes to the overall insulin market. You asked about Basaglar.
Clearly this is a very important product for us. I'm pleased to report that so far our launch I think are going well. We are uptick is very good, maybe slightly ahead of our expectations, whether it's Japan or Slovakia or the Czech Republic, which are the first three markets where we launched the product. We looked when we look at our performance with Basaglar, we look at the entire Basal market. We don't only look at Lantus.
And in Japan, when we look at the entire basal analog market, we are now at 5.5% 2 months post launch. So very pleased in particular with our performance in a very important market. Now clearly, the settlement we have with Sanofi gives us certainty, which we value very highly. What the settlement cost for is for us to we won't be able to sell product until December 15, 2016. That means basically placing our product with a 3rd party from a commercial perspective.
But in the meantime, we can indeed contract and we are of course submitting to in order to be able to get final approval for this. You asked specifically about the settlement and yes, the settlement allows us to basically market and commercialize the base egglar in the QuickPen on a global basis. Just to remind you that QuickPen is the product that we utilize for Humalog as well and there is a royalty bearing license specific to the U. S. When comes to base regular cells in this particular device.
At this point in time, we've said also that's what are under the bridge and we are now have a certainty when it comes to the launch date and we're preparing for that. You asked about the guidelines and how important we how important this would be and which bodies could issue guidelines. Of course, the American Diabetes Association is a key organization and is one that has issued this type of guidelines. ACE, AACE, which is comprised of endocrinologists also issues guidelines. I'm not going to comment on the most important guidelines other than just to say that we expect that a number of different bodies will be conducting some of these reviews.
There is no question that a change in the guidance will have a huge impact on the overall performance of Jardiance. Great.
Thank you, Enrique. Linda, if we can go to the next caller, please.
Next, we'll go to the line of Colin Bristol with Bank of America. Please go
So in light of the breakthrough designation received for abemaciclib, could you just talk about the key points of differentiation in the clinical profile of this asset versus palvaciclib? And any anticipated timing for the data readouts would be helpful? And then another question on Basaglar. Could you just comment on the pricing relative to Lantus in the launch territories? And acknowledging that it is early, are you seeing any switching from Lantus patients or is this purely new patient acquisition?
And then just lastly on your PCSK9, can you talk about potential points of differentiation versus the competition and when we should expect any updates on Phase III progression? Thanks.
Great, Colin. Thank you for the questions. So we'll go to Sue for the breakthrough designation question on abemaciclib differentiation versus the other marketed drug in the class and also timing for data readouts. Enrique, what we're seeing in terms of relative pricing to Lantus? And then Dave and Jan, if you'll provide the answer on the PCSK9 that would be great.
Sue?
Yes, sure. Clearly, we're very excited to have our 2nd breakthrough therapy designation now. For abemaciclib, this designation was based on the Phase Ib cohort expansion that we presented at San Antonio Brest last year. And this showed single agent activity, robust response rate, acceptable safety profile, durability. So we have a Phase 2 study that's ongoing.
We hope to replicate that data in that study. We should hear next year and see data on that and hope to present that data at a scientific meeting next year. We also have, as you're aware, 2 Phase 3 studies in breast cancer ongoing. Again, we hope to have data readout on those in 2017, although we do have some interims. And we have a lung cancer study specifically in KRAS.
With regards to our CDK4 and 6 inhibitor, we do believe we have a potential to have a best in class inhibitor. As I said, we had single agent activity. We are also able to continuously dose this agent, which we believe is important given that the whole point of it is to inhibit the cell cycle. So you'd want to continuously do that. So we believe that could be an important differentiator for us.
So we look forward to seeing the data and to seeing, as I say, the single agent data next year and the Phase 3 data readouts after that.
Thank you, Sue. Enrique?
So on abesaglar or besaglar, in the three countries where we've launched and I'll briefly just highlight what our share is when we look at the entire market. In Japan, as I mentioned, we are at 5.5 percent, in the Czech Republic at 3 percent and in Slovakia, it's a small market, but I bring it up because we are at 11%. We've also launched in Germany, the UK, Sweden, Poland. So we are really in full launch mode. I think it's fair to say that the dynamics when it comes to pricing, they vary from country to country.
In some cases, we there is a very formula like path in terms of what's going to be the pricing that we receive as a result of launching a biosimilar and that determines the price. In some cases we have discretion in terms of where we price. It is too early to basically say that where these patients are coming from. It is likely that in Slovakia some of these patients are switches because the reimbursement level in Slovakia was lowered when we launched. And in this particular case patients that are on Lantus, my understanding is that they have to pay the out of pocket on some of the difference relative to the Lantus price.
We have to see the story evolve, but I think it's fair to say that so far we are pleased with our launch.
Great. Thank you, Enrique. And Dave on the PCSK9? Yes. I think we've
talked about this on prior calls, so I'll be brief. We have our Phase 2 program complete. We believe there are key elements of differentiation for the molecule. But as we've evaluated our options as a company, we've said we're looking at our strategic options for further development of the product. We haven't completed that review and so there's no real update on progression or other alternatives at this point.
Great. Thank you, Dave. Yes. And the addition I can make then is this antibody has a longer durability of the LDL lowering effect than compared to competitors. Thank
you, Ian.
Linda, Ian.
Linda, if we can go to the next caller please.
Next we'll go to the line of Steve Scala with Cowen. Please go ahead.
Thank you. When in 2016 are the interim looks for abemaciclib's Phase 3 trials? Maybe you can narrow it down to the half, first half, second half. Secondly, what is going on with PEGLISPRO and potential further studies? It seems as though we are on a path toward Lilly dropping the drug, but maybe you can tell us why that is not the case?
And then thirdly, on evacetrapib's Accelerate trial, what is the explanation for in July the study being deemed not futile and in October the study stated to have no chance of success. Were the analyses done using different criteria or did something bad happen in those 3 months? Thank you.
Thanks for
the question, Steve. So we'll start off with Youssou for the bemaciclib interim timing question, to you Enrique on the PEGLYSE question and then over to Dave on the evocetrapib question from Steve. So Sue?
Yes Steve, these are all event driven, so things can change. But as we look at the Phase II data, we'd anticipate that we get the interim data, the first half of the year. And then for the Phase 3, probably the second half of the year.
Thank you, Sue. Enrique? Sure. So just to remind everyone, we had of course unprecedented efficacy when it comes to basal insulin PEGLIFO, but we had some risks that we felt needed to be discharged with additional clinical trials prior to us being able to make a submission. What we have shared is that we were engaged in discussion with regulatory authorities as well as our advisors.
Those discussions are ongoing. We've had some of those discussions and with both the FDA and EMEA and are still having some of the discussions with our advisors. So it is something that I cannot make a comment on right now.
Okay. Thanks, Enrique. Dave? Yes. As it
relates to evocetrapib and the accelerated study and how we were monitoring that in the interim futility,
as we said before,
the study called for single interim futility analysis. That was instructions we gave the independent data mining committee. They conducted that analysis in July and for their charter instructed us to continue the study as planned. We don't know what their analysis or conclusions were in July other than what they instructed us to do. A few weeks prior to October, 1st week in October, they informed us they planning to meet again.
And then shortly thereafter, they communicated a new recommendation, which was to stop the study for lack of drug effect. We then looked at their analysis, and we to indicate that. The independent data monitoring committee's job is to monitor the study on behalf of the patients for safety and making sure we're not subjecting people to study burden when it's unnecessary. It was their judgment to continue during those two periods and we respect their judgment. And they need to keep the company blinded to their analysis, which they did very well in July.
So that's really all we know. And as we look at the data now, we agree with their recommendation. So I think the positive thing is we did call for the interim look, and we got to that answer, albeit a few months after we originally specified it.
Thank you, Dave. Linda, if we can go to the next caller, please.
Next,
Two brief questions. One again to Sue, it's on remucirumab. And the question really is around much like Alimta, What has been the primary focus of sales today? Where are you getting traction? Is it does it continue to be in gastric?
What's occurring in colorectal cancer? And the second question is, silently Lilly has put together a number of assets outside of TGF beta in the immuno oncology space, be it bispecifics, etcetera. I'd be interested if you perhaps Jan could frame the overall strategy for what you think you're going to be doing in this space? Thanks very much.
Great. Thank you, Tony for the questions. Sue, we'll start off with you for the first question for sure. If you want to comment on the second as well and then we'll go over to Jan for additional commentary.
Sure. Yes. So Tony, with regards to the Cyramza launch, as you know, we've now launched in gastric, lung and colorectal in the U. S. And in gastric in Europe and in in Japan.
In the U. S, we're seeing a use actually in all areas, with gastric gastric use in about 40% of patients actually are getting treated now with Cyramza in second line and beyond. Our opportunity, we believe, is to continue to grow that in the second line, but also we're getting third line usage and we want to move that up to the 2nd line. We're seeing about 40% now of the patients that are treated in the U. S.
With Cyramza being in lung cancer in both squamous and in non squamous. Clearly, lung cancer is getting much more competitive in the 2nd line setting. We're continuing to see a use and believe and hear that there is a good place for Cyramza in lung cancer going forward. And we are seeing some usage in colorectal cancer, although that isn't our focus. Our focus is on lung and gastric.
We are seeing some uptake in the U. S. Though in colorectal cancer. In Europe, we have launched in the what we call the Wave 1 countries, the ones that you get access to. And again, cancer, we're getting good feedback and good uptake there.
And we continue to work through a succession of launches in gastric cancer in Europe. And in Japan, we launched the end of June and feel very good about the uptake in our Q1 in this market. It is a big opportunity and an unmet need in Japan at 2 to 3 times the incidence of gastric cancer there versus the U. S. And the feedback so far is very good.
Clearly, we have a succession of other hopeful approvals and launches in both lung and colorectal around the world to look forward to, too.
Thank you, Sue.
See, with regards to IO, Jan, do you want to
comment on that? Yes. No, it's a very exciting area. And I think the situation today is that it can still be improved. I think we have seen the beginning here with the response rates up to 20% or somewhat higher.
But many patients don't really respond very well still. But what we are doing in this space is to combine our expertise then in cell signaling and microenvironment together with other companies, PD-one axis agent. And there are numerous clinical trials ongoing, which actually you don't see on our pipeline chart, but I know Sue and others have been communicated from the oncology business unit. So I think it's very important to see also then other novel agents, how can they interact then with the checkpoint axis. In relation to check points, we are also very interested in our doing then bispecific antibodies since there are several other checkpoints that haven't been tested yet and having then the PD-one as one anchor, and you have seen a recent communication around that.
We also want to change the microenvironment with oral agents, and TGF beta is one of them and which is very interesting, both potentially as a monotherapy, but also then in combination with PD-1s. We also want to test other microenvironment oral agents, which we have in the preclinical space. And finally, it's not only important to activate T cells in the tumor, but you need to direct the T cells to the tumor because if you don't have them there, checkpoint inhibitors are unlikely to respond. So we have new activities as we also have communicated with key partners such as ImmunoCore to actively direct T cells then to tumor specific antigens, which I think represents also a new avenue in immune oncology treatments. Great.
Thank you, Jan.
Linda, if we can go the next caller, please.
Next, we'll go to the line of David Risinger with Morgan Stanley. Please go ahead.
Thanks very much. So I have a number of questions. I guess first is on solar, please. So with respect to the DSMB looks at SOLA, do they assess futility or is it impossible for the study to be halted early on futility? The second question is, with respect to the U.
S. Price slide, Slide 13, I was just hoping that you could explain a few points on it in a little more detail. First, how it's calculated? And then second, since the negative impact of generics started at the beginning of the year, it wasn't quite clear why the year to date pricing is up 3%, yet the Q3 pricing is down 4% for the U. S.
Business. I just didn't understand what the inflection was in the Q3 when the negative impact from generics started to be felt quarters ago? And then 3rd, with respect to the base Phase 3 decision, it seems like you'll be rolling that into Phase 3. But if you could just discuss the variables and timing of that decision that would be helpful. Thank you.
Great, Dave. Thank you for the questions. And Dave Ricks, actually since you've got vocetrapib and base and also the product that has the dynamic with the shipping to authorized generics. If you want to take a lead on answering all 3 of them, then we can complement that would be great.
Okay. So, let me start with the SOLA question. Okay. That was the first one.
So,
and make sure I hit all these Phil as we go through it. So, on SOLA, we have a more standard data safety and monitoring board like we do with many large studies. Their mission is really one of monitoring safety. We have, I think, communicated on prior calls, we have not chosen to go for an option to have an interim look specified by the company, and we would not instruct them to conduct such a review. I will say that data Safety Monitoring Boards as we set them up they are independent.
Their mission is to look at study data on behalf of the patients and it's not unprecedented that they may call us and say, well, we think you should stop the study. But we have not asked them to do that and we're under no obligation to follow their recommendation. Based on our observations from Expedition 12, and you would note that it took till about 40 weeks to see a drug effect and based on the enrollment curve we have for this, we don't see a lot of value in looking at an interim look because we enrolled the study very rapidly and most of the benefit will come in the final months if the study behaves like expedition 12. So unfortunately we will be waiting until late next year, the latest part of next year before we have the answer and I would expect the study to run until that time. On U.
S. Pricing, you correctly point out our year to date is 3%. I think that's more indicative of the underlying trend we see, which is list price gains net of gross to net reductions for all the various mandated and commercial reasons. The one time event in Q3, which Bill tried to answer earlier was a shipment to our authorized generic partner, of a it's a large shipment. The way that deal is set up is we book revenue under the terms of that deal for the bulk product that they then distribute, creating another option for patients, a low cost option for generic riloxifene.
There's clearly demand for that in the market and we're happy to supply Lilly made riloxifene with our authorized generic partner. The way that deal set up those shipments happen periodically. It just happened 1 occurred in Q3 and it was subsidized enough to shift down the Q3 reported price below our ongoing trend. But I think the year to date numbers are more indicative of our trend. I think your next question was on the base inhibitor and what would trigger that into Phase 3.
We've previously communicated that as well with our partner AstraZeneca. We designed this as a Phase 2, 3 program. We're actively enrolling into the Phase 2 components. The primary objective of the first interim analysis, which we expect to happen in Q1 of 2016, will be a look at safety. Base inhibitors, while very promising in terms of genetic validation and their pharmacokinetics and dynamics, many have gone down on off target safety.
And so this is the first look at sustained dosing in a reasonably large cohort of people with Alzheimer's and that will then trigger expansion of that study and perhaps triggering another study and movement into the Phase 3 component of Lilly's pipeline and advancing to patients. Was there another question?
Thank you. Okay, great. Okay. Yes. Well done.
Thanks, Dave. Linda, if we can go to the next caller, please.
Next, we'll go to the line of Andrew Bohn with Citi. Please go ahead.
Good afternoon. Two questions. Firstly, give me a
Hey, Andrew, we're having a hard time hearing. I'm not sure if you can do anything on your end to
improve audio quality. Yes, sorry about that. Is any better?
Yes, it is.
Terrific. So number 1, what was the baseline for the LDL within Accelerate? Apologies if you already disclosed it. 2nd, I noted that you recently lost your fairly recently appointed of Immuno Oncology. In terms of replacements and how you're thinking about that, I would be interested.
And then finally, do you view your CSF1R monoclonal as competitive with others? In particular, does it actually block dimerization and how relevant is that in terms of potential efficacy?
Andrew, thank you for the questions. At this point in time, we have not disclosed well, actually maybe we have, Dave. In the paper that was recently published. Did we have the baseline? The design paper.
I do not believe we did. I think we have commented, that the study design for EXCELLERATE was to have people come in on a variety of statins that they may have already been on, on the maximum tolerated dose. I'll just qualitatively say that patients who entered the study had LDLs in line with guidelines and that was really already on best standard of care statin. We further reduced LDL, as Phil mentioned, in the mid-30s on top of that. That's quite surprising to us and I'm sure the field lack of MACE effect.
We'll be disclosing more data about Accelerate, everything we've learned and probably more data disclosures after that sometime in 2016 in a major cardiovascular meeting.
Great. Thanks, Dave. And then Sue on the question on IO staffing and then the CSF1R molecule?
Yes. The you'll have to remind me on the CSF1R question. With regards to iosapent, we actually have a really good team of people in New York and in New Jersey who are focused on IO. Michael Kalos heads our research group there. He came from UPenn.
We've also recently brought in some IO experience in the medical and the development area. And we have in our IO hub that we announced in New York and New Jersey, recently moved one of our very experienced drug developers from Lilly. So we feel very good about the expertise we've got there. We're going to continue to build that internal expertise as well as do the partnerships. I think we announced over the last year 9 different partnerships related to IO.
So our view is that we will use the external expertise and the internal expertise to continue to drive our IO experience.
And then on Andrew on your question for CSF, one argued to ask that we're competitive with other agents. And if we down regulate something that I did not catch when you said it.
So my question was whether your monoclonal prevents dimerization of the 2 receptors and to what extent is that an important competitive element versus other CSF1R7 development?
Jan, I don't know if you can comment on that. I can't comment on that. From a timing perspective, we have completed our Phase 1 dose study and now have a dose with CSF1R. We've just announced actually a collaboration with AstraZeneca to do a combination of their PD L1 with our CSF1R. So we think from a timing and from a development perspective, we're as competitive, if not more competitive than other companies.
The specifics around the dimerization, we're going to have to get back to you on, okay?
That's okay.
Thank you, Andy.
Thank you.
I think we have time for at least one more question. Linda, if you can go to the next caller, please.
Next, we'll go to the line of Mark Goodman with UBS. Please go ahead.
Good morning. I was wondering if you could give us an update on the CGRP program. And I
was curious your thoughts about oral therapy given that there was a trade there and a company actually acquired one and is considering moving forward with that. And then, if you could just look give us a
little more detail on the diabetes product that moved in the pipeline there, the URI? Thanks.
Thank you for the questions, Mark. So Dave, if you can comment on the CGRP update and then Dave and or Jan on the oral approaches for modifying CGRP as well and then to Enrique on the diabetes compound.
Sure. Yes. We're excited about our CGRP antibody for 2 different conditions we're
studying we're
going to study it. 1st, for cluster headache, we announced earlier in the year. We proceeded into Phase III, and those studies are enrolling as we speak for both chronic and episodic cluster. And then on migraine, we finished our Phase IIb study in the first half of the year and actually read out the results in June. We saw robust reduction in headache days, etcetera.
And we will be proceeding into Phase 3 imminently. We're excited about this program. We think you have a very competitive molecule in a largely underserved space. In terms of the oral products, there's been a long history of researching and attempting to create an oral CGRP inhibitor. That's proved to be difficult, I think, for many of our competitors.
We are in the list of people who are also have our own program in this area. We don't have anything to say about that today. We observed the trade that happened and, of course wish them all the luck in the world. But right now all the data in terms of what looks like druggable CGRP inhibition or antibodies, those are the late stage projects and of course we have one of those. Thanks Dave.
Enrique?
You are right that is listed on the pipeline is the Biochaperone that we Adocea. So far I think the program is progressing extremely well. We're very pleased with the results and as we continue to get results we'll be sharing that.
Great. Thank you, Enrique. Linda, let's try to squeeze in one more question if we can before John closes the call for us.
Sure. And there was only one more question. So that's perfect. It's from the line of Jeff Holford with Jefferies. Please go ahead.
Hi, thanks very much for squeezing me in. I know we're ahead of guidance in January, but previously you have talked about this gross margin line and how there can be some reversal of the benefit we have this year if we see FX going forward.
So I wonder if, Derek, if you could just give us a little bit of
a hint there. If we saw FX rates, the major rates stay flat going forwards into next year. Just how we might think about that gross margin into next year just so we don't get any big surprises early next year? Thank you.
Yes. If you notice on each of our quarterly calls, we provide the absolute gross margin, but then we also provide a slide in the packet where we illustrate what our gross margin would be without the effect of FX. And if you're trying to get a sense of what the underlying run rate is, we're our gross margins are really running in that mid-70s range. And so once all the FX noise is cleared out, which we expect to exhaust that once we move into 2016, you should expect that that's we're going to be somewhere around that natural run rate of mid-70s.
That's great. Thanks very much.
And
Eric. And I also like the fact that Ira team doesn't have any homework assignments out of the call. So great we got through the queue this time. John, if you'd like to close the call for us, please.
Okay. Thanks, Phil. We appreciate everyone's participation in today's call and your continuing interest in our company. We hope you'll take part in our call on November 11 to discuss the baricitinib data that will be presented at ACR as well as our investor event in Boston on Tuesday, December 8, where we'll discuss in detail our Animal Health business and provide a comprehensive overview of our efforts in Alzheimer's disease. We hope these updates allow you to more fully appreciate the myriad opportunities before us and why we're bullish on our future.
Finally, if you have questions we didn't discuss during today's call, please contact our IR team. They will be standing by. Thank you and have a great day.
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