Okay, let's kick off the afternoon session here. I hope everyone enjoyed the lunchtime discussion and has had a positive and productive morning so far. My name is Chris Shibutani. I'm a member of the research team. We are thrilled to be able to present Lilly at our conference here, Anat Ashkenazi, the CFO, and also really appreciative of the entire team that's out here, the stellar IR team, Joe Fletcher, Lauren Zierke, and James Gilroy is also here, for those of you lucky enough to get into conversations, talking about market access, which is obviously extremely topical. Many inbound questions. Obviously, the center of gravity of our conversation is very clear. One of the things that I like to do personally, however, is that since this is a conversation as well between you and me, is to make sure that we understand who you are.
We spent a little bit of time on the road last month. You have this unmistakable kind of quiet poise about you that seems kind of lethal. I'm just kind of interested to sort of see if you could share with us a little bit about your background, about how you got into this role, your journey through Lilly, and kind of, like, maybe share anything that kind of gets you triggered.
Yeah, sure. Well, thanks, everyone, for joining today and having an interest in Eli Lilly. Anat Ashkenazi, the CFO. For those of you who don't know me, I've been in the CFO role for a little over about two and a half years or so, but with Lilly for 22 years and have had a diverse career with Lilly. Had the CFO roles for almost every part of our value chain, almost every business area across Lilly, and actually started on the venture capital side within Lilly.
Hmm.
Prior to that was in financial services. This is just kind of in a nutshell, what I've done. Prior to this role, I also had the role of the chief strategy officer at Lilly for, you know, the investors I talk to, they know that I love to talk about strategy and what the direction that Lilly is heading and what our goals are and what we want to do over the coming years and achieve as an organization.
Yeah, no, I think that's incredibly valuable, and particularly given the sweet spot where the company is, with just so many bountiful opportunities, decisions that have to be made. A lot of high-class problems, but nonetheless, big challenges that are very involved. I think it's always very interesting, kind of akin to a GE model, where people sort of rotate through, people come through. The investor relations group has experience, operating roles in Europe, et cetera. I think that kind of insight, when we think about the depth of experience, is really valuable, so. Let's get to it. Demand, very clear kind of picture in terms of, you know, the kind of transformational opportunity that the GLPs have had in terms of thinking about diabetes. Of course, this goes back over a decade, and there's been a clear evolution.
We're at this very distinctive, kind of almost societally engaging transformation, where the demand is such that you have to figure out how to tackle the task of meeting that demand. Manufacturing, very much in your wheelhouse in terms of strategy, very much the role that you play in terms of deciding how to allocate capital, invest. The company's going through just incredible amounts of effort on that regard. Tell us about how your progress is for manufacturing, supply. What's going on?
You're right, it's a strategic question, although people think about it across other industries as more operational in nature, right?
Mm-hmm.
You start a manufacturing site to produce a product that you're going to be selling, et cetera. For us, it's a strategy and operation, which means you have to think about these questions well ahead of a launch of a product. In fact, when we started our newest facility that's going to come online next year in North Carolina, in Research Triangle Park, it was before we had the full data on tirzepatide, before we saw what the market demand was going to be. To some extent, you're making a strategic bet and you're taking some risks. These investments are not cheap necessarily. At RTP, we're going to be investing $1.7 billion in starting up that, and completing that site. We look at what would be the demand, what our projection is for demand over the next
Actually, we do a 10-year horizon, and then walk back from that and say, what, what capacity do we need to have in-house across the value chain, from API through the fill finish of the product, depending on what product that is? Our strategy had been to operate with our own manufacturing facilities across start to finish, and then supplement with CMOs where needed or for specific elements of the supply chain. That's kind of the anchor of our strategy. The other piece of strategy that's important for us is we operate in networks. What does that mean? We have an autoinjector network, and for those of you who've had any one-on-one conversations with me, I tend to carry these autoinjectors with me. You've seen that our tirzepatide autoinjector is the exact same autoinjector as Trulicity, different color buttons, so patients can recognize it.
Obviously, a very different label. It's the same components of the Emgality autoinjector and the same component of the Taltz autoinjector, different sizes because of the API. Operating in these networks allows us to have more flexibility. If we project a product revenue or demand, and it doesn't materialize, probably there's going to be something else that's going to come behind it. The ability to have that portfolio allows us to better balance products and capacity. In 2020, we broke ground on a large facility in North Carolina, parental facility, that will be supporting the tirzepatide commercialization. That facility is progressing well, and we should be launching out of that facility, or not launching, selling out of that facility this year. It's on track to what we said previously.
We knew this was probably not going to be sufficient. It's a very large site with multiple lines. We broke ground last year, mid-last year, on a second site in North Carolina, in Concord, a couple of hours drive from the first site. Equally large site as well, another over a $1 billion investment. We knew that's not going to be sufficient. We have three more sites we're starting. One is an API site in Ireland, which we just broke ground on, and I think you already know we have large presence in Ireland. Two new sites in Indianapolis, not all of them for the incretin portfolio, but we looked at the broader portfolio that we have, and we felt that we needed that capacity to be available.
Almost $4 billion of investment in just north of Indianapolis for additional manufacturing capacity. We reevaluate on a regular basis what our needs are and what do we need to do to meet those needs, and what do we do within our existing manufacturing footprint to expand capacity, to increase throughput, to increase the level of automation that increases the number of products you get out of the line on a daily basis. We're progressing well. We're pleased with where we are, and hopefully RTP will come online here soon.
Two things. To a certain extent, I think, you and your, competitor with the leading GLP-1, Novo, were confronted with a situation where the magnitude of demand was beyond whatever planning actually happened. For instance, we're approved, for tirzepatide diabetes over in Europe, and you guys have been very explicit about making sure that you weigh the pros and cons of introducing a product, recognizing the importance of being able to meet that demand for patients, for clinicians, et cetera. There's some decisions, and we're playing, a little bit of a catch-up in terms of being able to supply the magnitude of that demand.
If you had that opportunity to think back a couple of years earlier when you were doing the forecasting of that, what was the element that sort of, I don't want to say missed the mark, because it didn't, because this is kind of like a, an upside opportunity situation, but like, where did things go beyond the forecast at that time? Because now we're just leaning in with these five global facilities, et cetera, footages to the
Yeah
You know, pedals to the ground.
A couple of things happened. One is when you predict, forecast, or demand for a product-
Yeah
You assume that you also look at competitors, and we predict or we forecast what the competitor products will do as well.
Mm-hmm.
You look at total demand, global demand, what will we sell, what will the competitors sell, et cetera, so that we can back into what the capacity needs are. What we didn't forecast is that a competitor will be out of the market, which puts additional pressure, obviously, on our own demand. We saw it primarily outside the U.S.
Mm
Where we actually had to instruct physicians to not start new patients on Trulicity because of that huge demand we had for the product. That's a new element. When we started the journey, before we even had the data for tirzepatide, you know, you can, you predict, and you have algorithm that you try to figure out what the data will tell you, but it was very good data.
Mm.
It was great data for the type two diabetes indication that's proven on the marketplace, and it was great data for the obesity indication as well. I mean, we set a new bar for efficacy when it comes to obesity and certainly with type two diabetes as well, getting patients to normal A1C levels. Good data is great. We always assume that when we start a phase III , but seeing, a good balance of strong efficacy, very manageable safety profile helped us in the marketplace.
I think a lot of these things tend to be a little bit less directly familiar to most people in the investment community, and we've talked kind of broad strokes about your efforts here. I'm just going to try to peg you down to a little bit more in terms of specifics in relation to things that management has said in terms of how can we gauge where you are with this progress. One of the points that have been made in terms of thinking about being able to double incretin supply by the end of this year. Didn't even get the question out, and you're already nodding.
Yeah
Things are good.
We said it. I said it multiple times. This was kind of if you think about what the anchor point is.
Mm-hmm
I t was around probably Q3 of last year when we said that.
Mm-hmm.
Doubling from that point, and there are a few, several efforts. We're, first, I would say, cutting to the bottom line, we're heading towards that. Nothing that would say that we're not.
Mm-hmm.
The way we're getting there is we're getting there through a new site that's going to come online, as well as additional changes we've made with our own existing facilities to, as I said, introduce automation and increase throughput, and where we can, partner with external suppliers or CMOs to bolster that capacity as well.
Okay.
We're progressing towards that goal.
I'm going to be reading your face as I ask you this question as well. Assuming the potential approval of the obesity indication, 2024, how are you feeling about being able to supply that U.S. launch?
Let me just change one thing you just said. You said 2024. Obesity, as you recall on the Q1 call, we said with the data, with the SURMOUNT-2 data that.
Mm-hmm
S hared, our plan was to move rapidly to complete the rolling submission we started for the obesity indication.
Mm-hmm.
I can share, we have completed our submission for obesity.
Mm-hmm.
We have a PRV as well in place, Priority Review Voucher. With that, you count to six months, we're hopefully launching this year.
Okay.
We're already thinking about that. What does that mean? Now, we've always planned, and you plan for multiple scenario. We can't just plan for one. What you will see us do in terms of launches is when we launch in a market, and we're confident in our ability to support the U.S. market for an obesity launch, or we would not have used the PRV to ensure that we have an accelerated timeline here. Every market after the US will only launch if we have high level of confidence that we can supply that market for a long period of time. We do not want to be in a position where we launch into a market, and then we have to pull back. That's not good experience for patients.
Whenever we see us launch in a market, you should feel confident we're going to be able to support that market. We did launch in Japan in April.
Mm-hmm.
Early days, but first early days are good.
Mm-hmm.
We're excited with what we're seeing there, and we're going to continue to launch in markets once we have the regulatory approval, we get the right pricing for the product, and that we feel good about the supply situation.
Okay, terrific. We're very much on track to make the donuts, Donuts is probably absolutely the wrong metaphor for the indication. Moving on to the revenues, it's been kind of fascinating and difficult to sort of figure out what the net reported revenues, because the inputs we have are a lot of the scripts, as well as just recognition of the incredible demand there. Calculating that growth-
Yeah.
To net has been one of these sort of like, you know, AP Calculus and then some exercises for most of the people, and I'm sure Lauren and Joe have had many headaches going through the reiteration of these discussions with folks. As we sit here, mid-June, the end of this June marks kind of like a defined endpoint based upon changes that you've made in your patient assistance program, broadly speaking, in terms of people who have insurance, but perhaps not covered.
Yeah.
Walk us through kind of like the core elements of what this change at the end of June is, and what we should think about in terms of how that's going to impact this transitioning from end of June into, you know, the next forward phase.
What you're referring to is when we launched tirzepatide late last year, or mid last year, we launched with a copay card with an assist, patient assistance program. It was $25. It was a good program. We saw a huge surge of demand
What a deal. Mm-hmm.
As a result of it, yes. The terms and conditions on the card were such that that card is set to expire at the end of June of this year for those patients with commercial insurance, but where their with product is not covered under their insurance.
Mm-hmm.
What we have just recently announced is we're changing that program when we get to that point of June 30th.
Mm-hmm.
That copay card amount is going to change. It's not $25, and it's giving out patients benefit of $500, so what they're paying out of pocket approximately is $450. Again, those are for patients who are insured but don't have coverage for Mounjaro. Those that have coverage will go through their insurance, and we still have patient assistance program. What's going to happen at the end of June? There's still a large pool of patients that came last year through that $25 card, and they were on that card. They're still on the card. Some have insurance or their insurance started covering Mounjaro during that period, moved out of that card and into their insurance program, but there are still many patients who are on that $25 card.
At the end of that period, which is two weeks away, if a patient still does not have Mounjaro covered under their insurance, they will have really two choices. One is they stay on the new card, which means they're paying more out of pocket as opposed to the $25, or they decide to not continue with the drug.
Mm-hmm.
It's very similar to the change we saw late last year. We made a change to our copay card in November. We increased the amount of out-of-pocket.
Mm-hmm.
We did so, show a slowdown in new prescriptions. We expected that. We did see a higher monetization for the script.
Mm-hmm.
Given the gross net dynamic.
Mm-hmm.
Fewer starts. It will depend on where access is at the, at the beginning of July. To the extent, and we haven't shared yet since the Q1 call, where our access situation is, but to the extent access continues to improve, the last number we shared was around 60% access in the U.S.
Right.
To the extent it continues to improve, that means more patients can then transition to their insurance coverage and not drop out of, out of the program. Some will elect to stay, and some will not. We'll see that dynamic occurring, as well here in the H2 .
I, to the extent that all of us tend to watch prescription trends on a neurotic basis, weekly and whatnot, and as we navigate kind of this transition point at the end of June, what I'm hearing from you is that, to a certain extent, what happened at the previous time that we had an inflection here should rhyme somewhat with what you're going to happen in June.
Yeah.
We're also going to have a similar event of transitioning another six months from now at year-end as well, right?
Only to the extent that we don't gain an, significant coverage.
Okay.
If you, if we gain significant coverage, then no, the dynamic will be slightly different. The second event you mentioned is for covered patients
Mm-hmm.
At the end of the year.
Right.
Where they're moving to a, again, a slightly different card, but I think that's less of an event that you will see in terms of the script demand.
Mm-hmm.
You're right, it's always for new products that launches with patient assistance program, it is hard to make that direct correlation between script data and revenue, dollar revenue amount because of that dynamic.
Right. Let's circle the obesity opportunity in particular to think about on the forward and the coverage outlook there. Because for the most part, what we've been talking about, obviously, is the coverage for the diabetes indication. For obesity, what would the cadence of that look like? We'll talk about, obviously, the commercial insurance side when that comes on. Do you expect, again, we're always cross-trial comparison and looking for competitive comparisons, but what we saw Novo go through with Wegovy, to what extent does that represent some sort of a template for how you expect coverage to progress in obesity for tirzepatide?
It was encouraging to see the access they gained, which means that payers are seeing the value and the benefit of having this drug available for members. We have not started the actual negotiation for obesity, obviously, because we don't have the approval.
Mm-hmm.
We're engaged in conversations, we are allowed to engage in terms of strategy, medical information, et cetera. Hopefully, Once we get the approval, we'll start gaining access. We'll do it very much like what we did with tirzepatide in the sense of having a disciplined approach.
Mm-hmm.
to gaining access. This is a drug that brings differentiated value to patients. Just, you know, just look at the efficacy and the data there, and we believe when we bring value to patients, then we should be rewarded for that. You'll see, again, we don't talk about what these numbers are. Obviously, it's pre-launch, and it's
Mm-hmm
Price sensitive, but you'll see that same disciplined approach, when we, when we start contracting for tirzepatide in obesity as well.
And
How will this you know, evolve?
Uh-huh.
Let's see.
Mm-hmm.
We'll work, you know, one step at a time, and we'll try to get as broad access as we can for patients with obesity.
The reiteration of the disciplined approach is very much within expectations in terms of the vocabulary I was expecting you to use. You also make reference to the fact there's some unique aspects to this opportunity, particularly this product for obesity. Can you help us a little bit further with any specific considerations that are unique?
It's a large market with many patients. We know there is a significant demand out there. We always balance when we price a drug. You see the list price. What we don't see is the net price, which is critical, because that's what patients will experience, or to some extent, closer to what patients will experience. We always balance getting value for the medication we're bringing to the marketplace, the years of investments we've made in it, with being able to ensure that patients can actually access it. If patients can't access it, that's an issue.
Mm-hmm.
That's what we're going to try to balance in this marketplace. I'm sure you will ask a question about Medicare and TRO.
Mm-hmm, right.
How we're gonna ensure patients there will gain access to the obesity medications as well. It would be great if TRO were passed. It would be a huge benefit, obviously, to patients, but we don't have a CBO score yet for that.
Mm-hmm.
We're waiting for that to come through. Even with that, I view this, it's a legislative change. Those are never easy or fast, this will take some time.
Mm.
I think, for us to see. You know, we're heading into an election year next year.
Mm-hmm.
It might not be here in the very near future, but hopefully, this will come down the road. Today, government federal employees have coverage
Right.
F or anti-obesity medications, so hopefully, this will be open as well for patients on Medicare.
Right. I mean, it's not fast. TRO is bipartisan legislation that was proposed now a decade ago, so, the journey continues to be on. Clearly, the other aspect that everyone in the investment community is paying attention to is the impact of the results from outcomes related trials.
Yep.
Broadly across the space. Obviously, the next and the nearest that could read out over the summer is from Novo's SELECT trial.
Mm-hmm.
Cardiovascular outcome trial there. A lot of debate in terms of sort of what the outcome would be, what is the kind of magnitude of outcome, that would both keep the Street happy, which tends to actually have a little bit of a distinct discussion over, what we think the impact will be on, insurance companies and coverage, folks who are kind of like firm grip on the pen and are maybe perhaps reluctant to think about, you know, writing checks and paying for things. What is the Lilly house view in terms of the impact of the readout of this first of these outcomes trials?
Mm-hmm.
Talk to us about how your own kind of, program of outcome
Yeah
Studies are designed to meet your needs.
I know a lot of people ask me about this SELECT trial as though it's a critical binary event, and I don't see it that way. First, I look at these medications, just to talk about tirzepatide, I don't, you know, we don't talk about competitors' medications, but look at tirzepatide, and we see the cardiometabolic indicators all heading in the right direction with the data. It tells me it's probably gonna be a positive study, but we'll see. Who knows? I look at the totality of outcome that we're gonna be providing with the obesity indication and the additional outcome studies that we're gonna have read out next year. You probably recall that we've started multiple additional studies with tirzepatide in obstructive sleep apnea-
Mm-hmm
In heart failure, in kidney, et cetera, to show the impact beyond just the weight loss, which we know is very critical, and it's not a number on a scale necessarily. It's truly healthcare and wellbeing for these patients. These studies are gonna start reading out next year, and hopefully, we'll continue to build on that body of evidence we already have through the SURMOUNT and the SURPASS program, demonstrating the benefit of the, of this drug to patients. We talked about coverage and access before.
Mm-hmm.
All these indications that I've just mentioned are already paid for and reimbursed, both in the U.S. and outside the U.S.
Right.
If you think about just, let's take obstructive sleep apnea as an example, there are about 80 million patients in the U.S. with not an insignificant overlap with patients with obesity. Those patients, when they're treated, their insurance covers the treatment and pay for it. If we show that tirzepatide can provide additional benefits to these patients, again, when you think about it from a payer perspective, and you think about, I'm already paying for these indications, here is a medication that can help us there. I think this could be even more pronounced outside the U.S., where you have a government-
Mm
Kind of single-payer type system.
Sure.
They truly have a holistic view of their population because they are paying for hospitalization, they're paying for absenteeism, they're paying for procedures, et cetera. They have a whole system view, and a patient view.
Mm-hmm
That bringing additional data will be helpful as well. I don't think it's just a single study, necessarily.
Sure. Yeah. No, we tend to be, anchoring and adjusting.
Yes
What comes right beneath the nose next? A couple of the classic questions, which I know historically you guys haven't answered too much, but, one brand name or two?
Mm.
You can just blink once or blink twice.
Yes, obviously I get this question, and we're very hopefully near an approval on the launch, so you'll see that once we launch the product. I will say in Lilly's history, we've had examples for both. We had products, same molecule, two indications, two brands, same molecule, two indications, two different brands or same brand.
Mm-hmm.
We had Cialis.
Mm-hmm
W as for example
Right
One product.
Right.
Prozac for depression, PMDD had two brands. You want to understand the customer, the patient population, and what their needs are.
Mm-hmm.
Launching with a single brand, it allows us to build a very large brand, great brand recognition, efficiencies in marketing efforts. You can have, for example, one marketing campaign, some efficiencies in supply chain as well, in one product.
Mm.
On the other hand, with two brands, there's benefit of being able to tailor the message to the very specific needs of that customer population. Even marketing campaigns will target it as well. Payers, I know I get questions about payer dynamic and would payer want two brands to better manage the class? They can manage the class, I assume, today, but certainly it will be a little easier. There are pros and cons to each of these.
Mm-hmm.
Each of these choices.
Okay. We will certainly.
Didn't blink once or twice.
Okay, fine. I'll tell people later what I saw. Obviously we have the American Diabetes Association meeting coming up, we'll look forward to the continued robust R&D development efforts here. In nature of time and talking to you, let's make sure we cover a couple more topics. Transition over to Alzheimer's disease and donanemab. As we sit here, June twelfth, we just had, like, the end of last week.
Yeah
F olks, at the FDA getting together, giving a very pronounced thumbs up in terms of the opportunity there for lecanemab. Talk about what you see as potential read-across or implications for donanemab's outlook from a regulatory standpoint?
Good day for patients to have that, unanimous support. That's good.
Mm-hmm.
Recognizing the meaningful effects that a drug can have for Alzheimer's patients. Good for donanemab as well, obviously.
Mm-hmm.
Donanemab will, as we said, we're gonna be finalizing the submission hopefully soon, and then potentially get approval by the end of this year or early next year, and then progress forward. I think the, what we need to address and solve still is the coverage for these drugs.
Mm-hmm
Under the CMS.
Right
Rule for requiring a registry or Coverage with Evidence Determination. Obviously, this could slow down adoption for these drugs. We'll have to see what that means from a registry standpoint. CMS did say, with a high level of evidence, that they will reconsider.
Mm-hmm
T hat decision. That could come with the full approval for lecanemab, or it could come with the full approval of donanemab, or both.
Mm-hmm.
Hopefully, that would start. I mean, I think we're already seeing the pushback from patient advocacy groups wanting to see coverage for these medications. Certainly, when you have two drugs on, fully approved by the FDA, hopefully we'll see that as well.
You know, where would Lilly be in terms of. Help us understand the timing of the interaction. Have you had an engagement either at the staff level with CMS? Thinking about now that you have some data out, is that something that we would typically think more about as being once the full data is out, which is coming up next month? Help us understand what your level of interaction and what that dance is like with CMS for you guys.
While we can't comment on specifics, I will say that we have been engaged with CMS and provided data and addressed answers, as needed, as engaged with them to ensure that they have all the right information to make these decisions. We can obviously try to work to trigger a reconsideration upon our full approval, but we haven't said yet what we're gonna be doing there. Certainly, we're providing all the information and having the conversations needed.
Okay, that seems fair. The IRA
Yes
As long as we're going through all our different agencies and all the treachery that they're, you know, trying to generate and create here. During the earnings call, you guys made a comment how you described your preference and rationale for potential third-party administration of IRA negotiated pricing versus via a reduction in the wholesale acquisition costs. Particularly based on any exchanges that your team may have had with the staff here, can you talk about what you see as the potential likelihood that this is actually reflected in some implementation-type guidance coming this summer? Where are we with that?
Yeah
Some of the nuances?
I would say first, from a clarification standpoint, it's not initially a third party to administer the negotiation
Mm-hmm
B ut it's more to verify that when a script comes in.
Mm-hmm
It's actually a script that's eligible for that level of discount, very much like what happened with the coverage gap. We need to make sure that that exists, and we thought a third party would be a good administrator of that process. You know, you've mentioned where we are with the negotiation. Obviously, we'll see the next, the first list of 10 products to be negotiated soon, and then we'll see where things are heading from there. I think the word negotiation is the key word here because I don't view it necessarily as real negotiation. The way I define negotiation, we do this outside the U.S. all the time.
Mm-hmm
I s we negotiate with the other party, whether it's a government or a district, et cetera.
Mm-hmm.
If we can't get to the right terms, we may not launch in a country. This is not the case here. The case here is that you're actually, you enter a contract before the actual negotiation, so there's no option to pull back and decide we're not continuing to market. You have to arrive at a negotiated price. The word negotiation is probably not necessarily the right word for this.
Mm-hmm
B ecause it's not, there's no way to, for the manufacturing to step back from this. If we do, the penalties are quite hefty. I mean,
Mm-hmm
19 times sales, et cetera, on a daily basis, so it's not even a possible
Mm-hmm
It's not a possible scenario. That presents a challenge. We have to see again what the first one, the first cohort looks like. We just saw a first lawsuit in this area.
Mm-hmm
We'll see how that progresses, and I understand the direction they're heading, and I agree with their, with their kind of overall view of this. It's a bit of a challenge. It's more of a price setting as opposed to a real negotiation to get to the right price.
I think there was also another legal challenge. I think the perception is that actually, legal teams have been, you know, watching closely and kind of waiting and thinking about pacing their timing there. Is there anything in particular that Lilly is involved with? I know that Dave, for instance, had his recent tenure as the head of PhRMA. Just curious to know about potentially Lilly's view, and then also Lilly's view of participation in groups like PhRMA, which has seemed to have been somewhat weakened in terms of their
Mm.
Their potency, the, you know, the shadow that they could possibly
Mm.
Cast over Washington. specific to Lilly, and then thinking
Yeah
About joining forces with other groups. We don't-
We're still part of PhRMA, and we still view it as very valuable. A couple of companies pulled out of PhRMA.
Right.
That's not our view. Our view is that it's important that we continue to have that organization and
Mm-hmm
Continue to advocate. You know, I can't comment on whether or not we're going to be engaging on the lawsuit. I think our options are open there, and we'll make a decision where we're progressing there. You know, on the IRA, what we're hearing is from multiple groups, challenges. The bill was passed quickly, and certainly it's one where you look at the devil's in the details, right? How do you actually execute this, is really going to be critical, which is more to be seen. There was a period for comments. We provided comments into that process.
Mm-hmm.
We'll wait and see.
Which we haven't been able to see thus far, right?
The what?
Which we haven't been able to see the full load of the comments.
Yeah
That came in thus far, which is interesting.
Yeah. We've provided comments into that process.
Mm-hmm.
Hopefully, the process will be more transparent. I know right now there is a gag order on the negotiation process, hopefully the process will be more of a real negotiation.
Mm-hmm.
We'll take it from there to make sure. We'll do our part, and obviously, we'll comply with any rules.
Okay. Let's put on the CFO hat more, obviously, and talk about financial results and margin progression, particularly as we think over the coming years and whatnot. You guys hosted a terrific analyst meeting in December of
Mm
2021, and you kind of outlined at that point a framework for thinking about the PNL and thinking about what gross margins.
Right
Could be and kind of where the level of R&D spending has been. I actually always think of you guys as being particularly, you know, in the last decade, leaning into the notion of investing sufficient sort of percentage of revenues into the R&D component, and you're enjoying the fruits of that labor clearly right now. That framework that you provided, gross margins, 80%.
Mm-hmm
R&D, 25%, margin expansion, primarily coming from SG&A leverage, and clearly you're going to be, you know, led up through this revenue trajectory with the opportunity that we're anticipating for the lead assets in obesity and Alzheimer's. How well does that framework that you provided in December of 2021 still apply?
Yeah. When we provided this a year and a half ago, and our confidence in that, you know, midterm guidance probably only increased.
Mm-hmm
Has not decreased by any means. The way we think about gross margin, around 80%, it's certainly not going to be precise. There could be.
Mm-hmm
Quarters with 81 or 79 or 82.
Mm-hmm. Mm-hmm.
I would say that kind of the pushes and pulls are, on the one hand, we're going to see pricing pressures, not just in the U.S. with IRA and continued pricing pressure, but also outside the U.S. Those will continue. Coupled with our heavy investments in manufacturing, we're going to start to see that coming through the COPS line.
Right.
On the other side, we're going to have the scale of large products coming through and continued productivity within our manufacturing organization. That's going to yield approximately 80%, as we said, through the end of the decade. Within the middle of the income statement, OpEx, where we expect to see leverage is in the SG&A line. In R&D, that number, we expect to be heavy investor in R&D as a % of revenue. The specific number really moves with late-stage investments. When we launch a phase III , typically about a year into it, you start peaking in terms of investment. The more Phase 3s we have, the more you see it. If the program ends at some point, you know, that margin may look a little different.
That's not the line to see margin expansion coming from, because that's our strategy is investment in R&D. Whether it's through our own internal R&D program or through business development and acquisition of primarily earlier stage assets and molecules. SG&A is where we should start seeing expansion come from as we have larger products that are within the existing therapeutic areas we're in.
Mm-hmm.
Now, having said that, we're launching into new, two new areas.
Right
Which are obesity and Alzheimer's disease. I think everyone sitting in this room, if you're an investor, you want to make sure we do this the right way because these are great opportunities for patients and for the company. We're going to invest appropriately to make sure they're very successful launches.
Mm-hmm.
We're going to try to do that in a way that continuously allows us to continuously improve margin over time. We said we're probably going to be at mid to high thirties.
Mm-hmm.
It doesn't mean we can't go above it, but it's our strategy to invest that cash flow back into the business that's going to drive where we're going to be.
Okay, I think that makes sense. Anat Ashkenazi, thank you very much for joining us.
Thank you.
Compelling opportunities. Appreciate your thoughtful responses.
That's okay.
Thank you very much.
Thank you.