Eli Lilly and Co

NYSE:LLY

Earnings Call Transcript 2020-Q3

[Operator]

[00:00:00] Ladies and gentlemen, thank you for standing by and welcome to Cuz we twenty twenty earnings call at this time, all participants are in a listen only mode. Later we will conduct a question and answer session. Introductions will be given at that time. If you should require assistance during the call, please. Press starts in zero and as a reminder, your performance is recorded the of the conference. Over to Mr. Kevin Hern. Please go ahead.

[Kevin Hern, Vice President of Investor Relations]

[00:00:29] Good morning. Thank you for joining us for Eli Lilly and Company's Q3 Twenty twenty earnings call. I'm Kevin Hearn, vice president of Investor Relations. Joining me on today's call are Dietrich's really chairman and CEO, John Smiley, Chief Financial Officer, Dr Vance Kerensky, Chief Scientific Officer and Vice President of Lilly Oncology. Patrick Johnson, president of Lilly USA. Mike Mason, president of Lilly Diabetes and the president of Lilly Biomedicine. We're also joined by Sara Smith and Mike CEPA of the Investor Relations Team. During this conference call, we anticipate making projections and forward looking statements based on our current expectations. Our actual results could differ materially due to a number of factors, including those noted on slide. Three additional information concerning factors that can cause actual results to differ materially is contained in Lilly's latest form, 10k and subsequent forms into an account. 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 as we transition to our prepared remarks, a reminder that our commentary will focus on nonconfidential financial measures which exclude the financial contribution from Elanco during 2019 and present earnings per share, as are the full disposition via the exchange offer was complete on January 1st, 2019. Now I'll turn the call over to Dave for some opening comments.

[David Ricks, Chairman and Chief Executive Officer]

[00:01:55] By seven to three was another important quarter for Lilly and the pharmaceutical industry. Progress in developing new medicines to treat covid-19 very proud of Lilly's work, and we'll go into detail of the promising advancements made this quarter. However, I'd like to start by summarizing our overall business performance. Clearly, this quarter's financial results came in below sell side analysts projections. Well, we don't provide quarterly guidance. I'll make a few high level comments on several factors that did impact our Q3 results. And then Josh will go into more detail later. First, because we've seen, as we've discussed in the past, the impact of price on revenue can be volatile in the U.S. as we make estimates for rebates and discounts obligations during the coverage gap of Medicare Part D patient assistance programs and other liabilities during Q3, the magnitude of adjustments was meaningful, predominantly related to our assumptions regarding our obligation during the coverage gap in Medicare Part D for Telecity. Well, the impact was notable in Q3. This source of volatility normalizes when analyzing results over the first nine months, as well as for the full year. In addition, while we are encouraged by new prescriptions are trending toward recovery levels, the recovery varies by price. We do this important, this impact is transient, remain confident in the underlying business and continue to manage our operations to deliver success over the long term.

[00:03:32] From an operating expense standpoint, we made significant investments in R&D to develop covid-19 treatments, but we've spoken before about our efforts to develop covid-19 treatments. We've not quantified that investment level. In Q3, we were fortunate to see positive clinical data from multiple trials, and this activity had an impact of about 12 cents on Q3 earnings per share. Finally, after taking a pause on active promotion in Q2 to respect the impact of covid-19 head on medical practices, we increased our investments in customer facing activity and direct to consumer marketing in Q3 in order to accelerate our growth. While this did create a step up compared to our investment level in Q2, Twenty twenty and versus Q3 and 2019. We believe our progress in Q3 sets us up for a strong finish to the year and to provide meaningful momentum into Twenty twenty one. We have a number of opportunities to drive this growth through these investments in our existing commercial portfolio. These include our unique city indication for Telecity and the recently launched higher doses, pulling through access wins for talks and launching the recently approved non radiographic Zibi Indication. And driving increased uptake of Virginia through our differentiated data package just to highlight a few.

[00:05:02] Looking at the underlying trends, in Q3, we delivered revenue growth of five percent or four percent, excluding the impact of foreign exchange. Despite disruptions, a new patient starts from the global pandemic, volume growth was slowly increasing by nine percent versus Q3 2019. Arteaga of products continue to be the catalyst for our business performance and made up over half of our revenues during the quarter. International performance in Europe and in China was particularly strong as constant currency revenue grew nine percent and 10 percent respectively, driven by our newest products. For the first nine months of the year, our revenue grew by six percent, by 12 percent volume growth. This growth was delivered during a period of significant disruption. The ways we launch new medicines, execute clinical trials and manufacture our products have all been meaningfully changed during the pandemic, with some adjustments likely to remain as our business continues to evolve. We are proud of our efforts to ensure patients have access to medicines by maintaining our manufacturing plants in continuous operation and by developing potential new treatments for covid-19 operating margin as a percent of revenue is twenty six point two percent for the third quarter. This is a decline of 230 basis points versus Q3 2019, but was depressed by 125 million that we invested in carbon 19 therapies during the quarter. Excluding these exceptional activities, operating margin was twenty eight point four percent. We have confidence in our outlook and expect to deliver financial results within our updated guidance range with all lines at or above our original Twenty twenty guidance. And to achieve our operating margin expansion plans, excluding our investments in covid-19 treatments.

[00:06:54] The fundamentals of our business are strong and we remain well-positioned for a period of sustained growth and margin expansion. Turning to the pipeline in Q3, we made meaningful progress in advancing our late stage pipeline and developing potential covid-19 treatments, including FDA approval of additional doses for Telecity, for the treatment of Type two diabetes and important data readout for Hrytsenko in early breast cancer approval in Europe for Aluminite in adults with moderate to severe economic dermatitis. Positive phase three results from the two trial there, seductive in combination with them, disappear in housewives, covid-19 patients, positive results of our covid-19 neutralizing antibody monotherapy and combination therapies. And we presented new data on a potential new indication for Jardines in collaboration with Verrier Ingelheim. I'm encouraged by our company's efforts to develop potential new therapies to treat covid-19 and working at unprecedented speed. This work would not have been possible without the tireless efforts of many employees of Lilly and the collaborative efforts across the industry, regulators and government. We continue to utilize external innovation and collaboration to augment our internal capabilities. This quarter, we signed a number of business development transactions, including the global expansion of our private collaboration with Innervate. At the same time, we utilize our strong cash flow to return nearly 700 million dollars to shareholders via the dividend. Moving to size five or six, you'll see the full list of key events since our last earnings call. I would like to welcome you both to our executive team as he assumes leadership for a biomedicine business unit, a 25 year veteran with a tremendous breadth of experience across our organization, from finance, business development and sales to Six Sigma ethics and compliance and general management, Helio has consistently delivered impressive results in successful, larger roles that successfully larger roles which are preparing him well to lead Lilly biomedicine.

[00:09:02] After serving as general manager of Italy since 2018, he has been leading the largest franchise diabetes, where he played a critical role in the continued success of the market leading medicine's Felicity as well as Jardines in the two fastest growing classes in diabetes. It is great to have you on our leadership team. I'd also like to thank Patrick for his energy, focus and execution that he brought to his time as president of the Biomedicine Division has a strong record of successfully managing Lilly businesses in complex markets around the world. He is the right enterprise leader to lead the USA and our global customer focused functions during this exciting period of opportunity and growth as we look to continue to deliver new medicines to patients. Before I turn the call over to Josh to review our Q3 results and provide an update on a financial guidance for Twenty twenty, I want to discuss briefly certain events and one of our manufacturing facilities located in Bransford, New Jersey. Late last year, our Bransford plant underwent a routine FDA general surveillance inspection. The inspectors identified findings related to data handling and we received an official action indicated notice as well as a follow up inspection this year. We have not received a warning letter or other enforcement letter from the FDA at this time.

[00:10:25] Given that this plant is among several worldwide that produces family mad or the sars-cov-2 by five, one of our covid-19 neutralizing antibodies, I want to share more information about our response to these inspections. First, we are confident the issues raised during the inspections did not impact product quality or patient safety for beamline of them or for any other product manufactured at the Braunsberg plant. Having said that, we and I take remediation of these data handling issues and our commitment to quality and safety very seriously. We engaged an external firm to conduct a comprehensive, independent review of systems of the Branzburg site, and we were working diligently to incorporate suggestions for improvement through our procedures. We have also had this firm perform independent reviews of our manufacturing of beamline YNAB at Transfer to examine our manufacturing base records and quality documentation to corroborate our own bashfulness decisions as we submit for supply of family riverman from Braunsberg for the emergency use authorization we requested. We are confident in the material at this facility and frankly at all of our sites. Finally, for a neutralizing antibodies, we have a robust global supply chain in place with five active ingredient manufacturing sites worldwide, in addition to five additional drug product sites worldwide, Braunsberg is one of the active ingredient sites. Once we are approved to do so, our resilient global network is well-positioned to begin to supply as we help battle this global pandemic. Now let me turn over to John.

[Joshua Smiley]

[00:12:12] Thanks, Dave. And good morning, everyone. Moving to slide seven and eight, you will see our nongay. The initial performance in Q3 and during the first nine months of Twenty twenty, as Dave mentioned, revenue increased five percent this quarter compared to Q3 2019 as key growth products growth, volume growth. Gross margin as a percent of revenue in Q3 was seventy nine point one percent, a decline of 50 basis points versus Q3 2019, driven primarily by the unfavorable effect of foreign exchange rates on international inventory, sold and lower realized prices partially offset by favorable manufacturing efficiencies and product mix. Moving down the canal, selling general and administrative expenses increased 11 percent this quarter compared to Q3 2019, as we invested meaningfully in direct to consumer marketing to augment our virtual tactics, increasing promotion to physicians and consumers in connection with increases in health care utilization around the world. As I'll discuss our guidance in a few minutes, we see the absolute level of third quarter expenses as indicative of our fourth quarter expenditures as well, which keeps us on track for our full year ranges and modest full year growth. Research and development expenses increased by six percent in the quarter, driven primarily by our efforts to develop covid-19 neutralizing antibodies and very system for hospitalise covid-19 patients partially offset by lower development expenses for late stage assets. In total, operating income decreased four percent compared to Q3 2019, as increased investments, including covid-19 related R&D expenses, exceeded revenue growth during the quarter.

[00:13:50] We expect the increased marketing activity and customer activity activation to drive additional revenue growth going forward. During the first nine months of Twenty twenty, operating income increased by seven percent as revenue growth outpaced operating expense growth, operating income as a percent of revenue was twenty six point two percent during the third quarter and twenty eight point one percent for the first nine months of twenty twenty. As Dave mentioned earlier, our investment in covid-19 therapies represent an investment outside of our normal business operations. So excluding R&D expenses of 180 million dollars associated with these important programs, our operating margin during the first nine months of twenty twenty would have been twenty nine point two percent. And consistent with our guidance, we expect continued improvement in Q4. We continue to allocate resources efficiently in an environment where covid-19 is likely to have an impact for a sustained period of time. We've made the transition to a hybrid, virtual and in-person commercial model to support executing our strategy. And we're committed to margin expansion in 2020 and beyond. Other income and expense with income of one hundred and fifty nine million dollars this quarter compared to expense of twenty five dollars million in Q3 2019, this quarter quarter's other income was primarily driven by investment gains across our portfolio of public and private biopharma company investments as part of our external innovation strategy. As we regularly highlight, this line can be volatile as public and private equity valuations fluctuate.

[00:15:21] We've received quite a bit of investor feedback on this item, so beginning in Twenty twenty one, we will exclude the gains or losses due to equity investments from our non gap measures. We believe this will better align our long gap results with our core business operations, allow for easier comparisons with our peer group, and remove unpredictable volatility. This quarter, our tax rate was fifteen point five percent, an increase of 380 basis points compared with the same quarter last year, driven by the mix of earnings in higher tax jurisdictions and lower net discrete tax benefit this quarter versus the same quarter last year. Well, we expect some quarterly variability, we remain comfortable with long term expectations of roughly 14 to 15 percent tax rate under the current US corporate tax structure. At the bottom line, earnings per share increased four percent during the first nine months of Twenty twenty earnings per share increase 20 percent. On Slide nine and 10, we described the effect of price rates and volume on revenue. Worldwide revenue increased five percent during Q3 and volume growth of nine percent would partially offset by price for an exchange rate had a one percent positive impact on revenue growth. During the first nine months of Twenty twenty, revenue grew six percent, driven by volume growth of 12 percent. Price was a six percent drive on worldwide growth, or four percent if you exclude the impact of Olympic in Tibet, in China.

[00:16:48] U.S. revenue grew three percent compared to the third quarter of 2013, volume growth of seven percent was led by soliciting calls in Brazil, partially offset by increased competition for Forteo and the impact on Tregenza from the restructuring of the VI alliance. In line with our expectations, price was a four percent drag on U.S. revenue growth, three percentage points were due to changes to estimates for rebates and discounts, most notably impacting Felicity. One percentage point was due to the net impact of increased rebates across the portfolio to maintain our strong commercial access, partially offset by modest list price increases. Well, typically, we do not discuss detailed pricing dynamics for individual products. I will provide some additional commentary on the impact of price on quality performance in Q3. In prior quarters, we assumed our Part D coverage gap liability would shift to later in the year due to short term deferral of health care utilization caused by the impacts of covid-19 and the increased threshold for entry into the coverage gap. However, informed by recent invoices from our party customers, we now anticipate similar patterns to prior years. So this resulted in updated estimates that led to a meaningful impact on Q3 results and a double digit drag on truly trilogy's growth rate. Our estimated coverage got impact for the full year, though, is largely unchanged, excluding the impact of the one time adjustments to these price declines by high single digits in the third quarter versus Q3 2019 and low double digits for the first nine months of twenty twenty.

[00:18:25] We expect a high single digit price decline for Travelocity for the full year. Last year, we guided toward a mid single digit price decline for SolarCity. We expected this to be driven by increasing rebate rates to maintain our excellent access, partially offset by modest list price increases and modest growth in more recent, more highly rebated segments. As Twenty twenty has unfolded, the negative impact of price on Tulasi growth had been higher than we expected. Primarily due to segment mix on Slide 10, we show the impact of segment mix and rate on trellising growth in 2019 and Twenty twenty. While rate with a pricing headwind, the net impact of modest list price increases and increased rebate rates has mid single digits lower, which is consistent with our expectations. Moving to segment mix, while the commercial segment continues to deliver robust growth, lower net price segments have grown significantly faster. This depressed Felicity's reported growth by approximately seven percentage points in twenty nineteen and six percentage points through the first nine months of Twenty twenty. This continued growth in Twenty twenty exceeded our expectations and was primarily driven by Medicaid and to a lesser extent, Medicare and other segments within Medicaid REEXPERIENCE formulary changes in key states faster than anticipated, pull through access wins and expansion of total Medicaid live this year. Listen currently has a 45 percent share of market across all segments and continues to be the market leading GOP one, we exited Q3 with a similar share of market in the commercial segment.

[00:20:04] However, consistent with volume growth, we gained four point five percentage points of share in Medicaid and other segments since 2000, since Q1 2013 and finished the quarter at a 38 percent share of market. It's worth noting that utilization of Zielke, one of the clerks, is still immature and low market penetration suggests a significant opportunity for additional growth across all segments. GOP ones are use less in Medicaid and Medicare, and we expect disproportionate volume growth in these segments to continue. Although these volume gains have a lower realized price than our commercial business, they do represent profitable business and able to realistically help more people living with diabetes. So as we project into Twenty twenty one, we expect continued strong Telecity access and performance across all segments with modest unit price declines and continued faster growth in lower price segments to result in high single digit total net price declines in Twenty twenty one. However, I would note that this segment growth, which contributes to the net price decline, also shows up as higher overall prescription growth for GLP one as well. Our outlook for total U.S. pricing trends remains unchanged, and we continue to expect mid single digit price declines for the full year in Twenty twenty as well as moving into Twenty twenty one. This mid single digit price decline outlook includes, as we noted last quarter, a modest impact in Twenty twenty from the effect of increased U.S.

[00:21:32] unemployment on segment mix, as well as approximately 100 million to 200 million dollars of impact in Twenty twenty one. OK, moving to your revenue grew nine percent in constant currency as volume grew by 10 percent, partially offset by price volume growth that positively impacted by Olympio in Germany due to our NATO victory and a court ordered injunction against generics that had entered the market, as well as through listening to Salumi and Virginia. In Japan, revenue grew one percent in constant currency as five percent volume growth was partially offset by government mandated price increases. The effective March Twenty twenty Japan revenue benefited from a one time sale of Cialis, as well as good volume growth from resentence and Felicity, partially offset by increased competition for Forteo. In China, revenue grew 10 percent in constant currency driven by 51 percent volume growth, partially offset by pricing concessions from the inclusion of private and Alimta in government sponsored programs. The program helped drive China's significant volume growth, which substantially increased access for patients to these important cancer medicines. We're excited about the momentum of our China oncology business and look forward to receiving regulatory action on Virginio in the coming months. Outside of our oncology portfolio in China recently launched products through Felicity, Tulse, Guardians and Alluvium continue to have strong public. Revenue in the rest of the world increased three percent in constant currency, driven by increased volume from our key growth products.

[00:23:05] Strong performance from Felicity Guardians illuminate with partially offset by decreased Humalog Forteo, Keolis and Humulin volume. Has shown on slide 11 or Seagrove products continue to drive impressive worldwide volume growth. These new medicines delivered nearly 13 percentage points of volume growth this quarter. The strong volume trend in our key products was partially offset by a mix of competition and lower utilisation of post élodie product for Forteo, as well as reduced Presenta royalties from the restructuring of our alliance with Berengar Englehorn announced last year. We had the first nine months of twenty twenty pleased that our secret products have contributed approximately 15 percent year to date volume growth. Flights will highlight the contributions of our key growth products in total, these brands generated nearly three billion dollars in revenue this quarter, making up 52 percent of revenue. So our key products are well positioned to drive strong performance over the long term, we continue to see an impact from reduced patient starts due to covid-19 in Q3. We were encouraged to see new patient start to recover off the Trotz experience in Q2 as the health system reopened around the world. While different classes have recorded different rates, most classes remain 10 to 20 percent below Grekov and baseline. On slide 13, we provide an update on capital allocation during the first nine months of Twenty twenty, we invested nearly six billion dollars to drive our future growth through a combination of business development, capital expenditures and after tax investment in R&D, including the addition of liberalism in a number of early stage agreements.

[00:24:42] In addition, we return over two point five dollars billion to shareholders via share repurchase and the dividend. We remain well capitalized and have the ability to access that market that is attractive rates, we expect to continue to enhance our long term growth by acquiring first or best in class pipeline assets. And we do not anticipate the impacts regarding travel or market uncertainty to affect our efforts. Moving to slide 14, you'll find our updated Twenty twenty financial guidance based on our best estimate at this time. Key assumptions supporting the guidance include health care actually will continue the positive trends in Q3 returning to historical levels as doctors utilize telehealth or in-person visits. Despite additional covid-19 outbreaks, new patient prescriptions will continue to improve in the US. Pricing headwinds from increased utilization of patient affordability programs and changes in segment mix due to increased U.S. unemployment will continue to be modest, and promotional spend will constitute a mix of in-person customer interactions direct to consumer advertising and investment in digital promotion. Well, uncertainty remains regarding resurgent waves of covid-19 and any resulting impact on the pace of economic recovery around the world. We do believe health care activity will continue to be a priority and that most patients will find ways to access health care. So based on these assumptions, we're maintaining our current full year revenue range at the low end of the range.

[00:26:08] Year over year sales growth in Q4 would be eight to nine percent, which, while a step up from our third quarter growth rate, is supported by current volume trends and our expectations of more limited price impacts in the U.S.. Achieving the higher end of the range likely requires to moderate sales from our covid antibody, which we believe is possible, but of course not certain at this point. Moving down the income statement, our gross margin as a percent of revenue is unchanged on a gap. And on that basis, we are narrowing our range for marketing, selling and administrative expenses to six point zero two point one dollars billion. We are narrowing our range for research and development centers to five point eight to five point nine dollars billion, with investment in covid-19 treatment of approximately four hundred million dollars for the full year likely to push us to the high end of our range as Lilly continues to help fund these programs. We believe these investments are critical to help combat the global pandemic. We were noting that our nonstop operating income as a percent of revenue goal of 31 percent excludes our substantial investments in covid-19 treatments and and any associated revenue with them inclusive of these costs, we expect an operating margin of approximately twenty nine percent. While these investments put near-term pressure on our operating margin, they continue to be the right decision for our company and for society and post launch.

[00:27:27] We do expect the service to be accretive to our operating income. We're taking the range of other income and expense to four hundred and fifty million to 600 million of income, reflecting additional gains in our equity portfolio seen in the third quarter. As previously mentioned, this number is subject to volatility of the capital markets. Turning to taxes, we're maintaining our gas and on gas, effective tax rate guidance at approximately 14 percent. Earnings per share are unchanged on an ongoing basis are gadzooks is expected to be in the range of six dollars and 20 cents to six dollars and 40 cents. As I noted with the revenue range totals in Q4 will be highly dependent on covid sales, which is why we're maintaining a pretty broad 20 cent range as we head into the fourth quarter. We have the country well positioned to continue delivering revenue growth and productivity despite the impact of the covid-19 pandemic. We're proud of the investments we are making to help pay back. Over 19 percent are confident in the underlying strength of our business and our ability to overcome challenges based on our current outlook for Q4, we believe will exit the year with strong underlying momentum for Twenty twenty one. So now turn the call over to Dan to provide an update on our ongoing efforts to develop treatments for covid-19, a summary of key data disclosures in Q3 and an overall pipeline update.

[Daniel Skovronsky]

[00:28:46] Thanks, Jeff. Since our last call, we've made meaningful progress developing potential treatments for covid-19, advancing key assets in our pipeline and presenting practice changing clinical trial data about your medical needs. I'll begin with updates to our covid-19 viral neutralizing antibody program, then I'll provide an update on the full pipeline and I'll finish by highlighting key events since the last quarter. Moving to slide 15, Lilly is testing a single antibody therapy, as well as combinations of antibodies in several trials across two different patient populations. First, in the treatment of recently diagnosed ambulatory patients and second, in the prophylactic or preventative setting amongst nursing home residents and staff. Third, more severely ill population of hospitalized patients has been studied in the active three trial, only this clinical trials being run by the NIH and is the only study evaluating the efficacy of family. Never that. Also notice Ally outlined five by five in hospitals covid-19 patients based on an updated data set from the trial reviewed yesterday by the Independent Data Safety Monitoring Board. No additional care with 19 patients in this hospital say will receive money from. The board's recommendation was based on trial data suggesting that the addition of beamline of a map to severe and other treatments used in the hospital setting is unlikely to further help hospitalized covid-19 patients recover from this advanced stage of their disease. In this updated data set, differences in safety outcomes between the family, even the placebo groups were not significant. Importantly, all other studies have been even that remain ongoing, including active to the NIH sponsored study and recently diagnosed mild to moderate covid-19 patients, Bleys one lillie's ongoing phase two trial and people recently diagnosed with covid-19 in the ambulatory setting, which is studying Vimla movement as monotherapy and in combination with a seven have also known as Aliko the 016.

[00:30:55] And place to really space to study family and map for the prevention of covid-19 in residences that are long term care facilities. While there was insufficient evidence for McAffrey, the ban would never have improved clinical outcomes related to other treatments and hospitalized patients with covid-19 remain confident. Based on data from the Phase one study, the pain reliever monotherapy may prevent progression of disease for those earlier in the course of covid-19. The results in hospitalized patients were disappointing. We don't expect this to affect our chances of success in prophylaxis or an early treatment, and we think the patients, physicians and staff participating in all clinical trials are neutralizing antibodies, including active threat regarding the Lilly sponsored covid-19 neutralizing antibody program. We made key advances in the third quarter, which include we initiated Bleys to the Phase three trial setting post exposure prophylaxis for residents and staff in nursing homes. We reported proof of concept data for family event out of monotherapy in place, one devastating reduction in hospitalizations and E.R. visits in the outpatient setting. We reported that the combination therapy of family even having to seven have met the primary and secondary endpoints that an interim analysis of Bleys, one significantly reducing viral load and symptoms, as well as meaningfully reducing hospitalizations and E.R. visits in the outpatient setting.

[00:32:24] And we submitted a request for emergency use authorization to the FDA for beamline, even that monotherapy in higher risk patients who have been recently diagnosed with mild to moderate probability.

[00:32:37] We were particularly encouraged to show that neutralizing antibodies can help people clear virus more quickly, improve symptoms and most importantly, prevent serious medical outcomes like hospitalizations into our visits. Notably, the pooled data of monotherapy and combination therapy showed a reduction of hospitalizations and E.R. visits with greater than 75 percent across all patients, in addition to monotherapy and combination therapy had an even larger effect size in high risk patients defined by body mass index, which we've now dosed approximately one thousand trial participants within one even alone or in combination with that, to seven. And we've said safety and tolerability data for more than four hundred patients in the monotherapy and combination therapy. Arms of flays. One on our call earlier this month where we noted that monotherapy in combination therapy were both generally well tolerated with no significant safety concerns, no clinically meaningful differences in treatment. Emergent adverse events were observed across the treatment groups and the majority of treatment emergent adverse events from mild to moderate and severe. And there have been no drug related, serious adverse events reported thus far. We continue to recruit patients and place one. While the FDA is still reviewing our request for EOWA for monotherapy, we will soon be ready to request emergency use authorization for combination therapy, and we intend to submit that request to the FDA as early as November. Another achievement this quarter as part of our efforts to develop potential treatments for covid-19 was the positive outcome of their sit in the NIH sponsored Act two trials of Hospira covid-19 patients. They're sitting in combination with them, disappear significantly, reduce time to recovery and improved clinical outcomes.

[00:34:32] The numerical decrease in mortality compared to death of year alone was also demonstrated these results were most pronounced in patients receiving oxygen. Based on these data, we submitted a request for emergency use, authorization for sitting up to the FDA and global regulatory discussions are ongoing. The two submissions to the FDA this month for requests for emergency use authorizations and without neutralizing antibody combination therapy, providing the potential for a third in November. I'm particularly proud of the progress we've made over such a short period of time to rapidly develop potentially new solutions to physicians and patients in the battle against this pandemic. Moving to slide 16, you can see our select pipeline opportunities as of October 20th movement, since our last earnings call includes approval for Telecity, alternative dose approval for Beristain in moderate to severe atopic dermatitis. The previously mentioned initiation of the blaze to phase three trial. The advancement of two immunology programs into phase two, the initiation of two phase one programs and the termination of a Phase one diabetes asset and termination of our injured two antibodies. Phase two, proof of concept study in covid-19 due to futility. We also saw results from the Phase two trial of Megadeal and our D. One positive Alistaire modulator in patients with Lewy body disease. While we were disappointed that the study did not meet its primary cognitive endpoint as we 12th nevertheless did show encouraging motor and non motor benefits, that we are evaluating the next steps for this program at this time.

[00:36:23] In addition, Pfizer and Lilly have been informed by the US FDA that the agency intends to hold an advisory committee meeting likely in the March twenty twenty one time frame to discuss the application. As a result, the FDA review will obviously extend beyond the current December Twenty twenty producer date. However, the FDA has not provided an actual date. The agency communicated that its review of the application is ongoing and it has not requested any new clinical studies to be completed at this time. It really will continue to work with the FDA as a completes its review of the application. Moving to Slide 17, we provide an update on our twenty twenty key events. The first nine months of twenty twenty have been incredibly productive, as highlighted by a significant number of positive key milestones. With only a few exceptions, we've delivered on the key events that we outlined back in December twenty nineteen and we've added several more, most notably since the last earnings call. We've had regulatory approvals for important new indications in line extensions for of the city, Tulsa and illumined. In collaboration with Berengar Englehorn, we also presented results from Emperor Reduce trials in patients with heart failure with reduced ejection fraction or fresh jargons, demonstrated a twenty five percent reduction in cardiovascular death or heart failure. Hospitalization and reducing charges had a positive effect in key secondary endpoints, including first hospitalization for heart failure and an exploratory standpoint, however reduced, including patients with and without diabetes. These data are encouraging to expand the use of charges in patients with IFRS.

[00:38:09] They also add to the existing body of evidence showing that cardiovascular renal benefits, such as first demonstrated in the. Practice with these data to regulators later this year and look forward to the emperor preserved trial in about half past in twenty twenty one. We also presented important data for Virginio in early breast cancer at the virtual ESMA reading this quarter, confirming that Virginia is the only CDK four six inhibitor to demonstrate a benefit in this population and the first advancement for these patients in almost two decades. Presenting research to twenty five percent reduction in risk of cancer recurrence at a two year landmark analysis. Was Ênio also reduce the risk of distant metastases by 20 percent, an essential objective for any novel therapy in HIV positive or negative early breast cancer? Persistent recurrence is currently an incurable event. This is an important observation that bodes well for overall survival, since, according to published literature, improvements in distant relapse free survival have been shown to be a leading indicator for improved overall survival. The monarchy study is ongoing. Study participants will remain on trial and continue to be followed, and additional results will be presented in the future. As we stated previously, we intend to submit for regulatory review by the end of the year. We anticipate the standard review timeline with the FDA. Well, there have been many positive pipeline events already this year, we still have two important areas to come yet this year and a number of updates that will occur during the first half of twenty twenty one.

[00:39:53] Before year end will present additional data from the phase one to and study for a loss of three or five hour BTK inhibitor. We'll also have topline results from surpass one, the first phase three trial to read out from the team's appetizers Type two diabetes program. Surpassed one as a placebo controlled monotherapy trial. We look forward to sharing these data in the coming months for this important program that we believe will raise the bar for treatment expectations for patients with Type two diabetes. We have a lot of momentum in R&D, obviously, which will carry into twenty twenty one where we have a number of additional data readouts, including the remainder of the registrational phase three terms, appetite, type two diabetes trials, phase three data from Kismaayo and ulcerative colitis. They see data from laboratories about in atopic dermatitis, these three Jardins have test data, phase two data from two Alzheimer's trials, including an important readout from our placatory antibody and Intermap expected early in Q1 Twenty twenty one. We remain excited about the potential of this molecule to make a real difference for patients with Alzheimer's disease. Finally, we look forward to multiple potential proof of concept studies from our early stage portfolios in immunology, neuroscience, diabetes and ecology. We've risen to the challenge this year as we engaged in the fight against covid-19, we showed our adaptability and commitment to developing medicines through innovative ways, inspired by the indefatigable effort by our teams in their pursuit of new medicines for patients. Back to you for some closing remarks.

[David Ricks, Chairman and Chief Executive Officer]

[00:41:37] Twenty twenty has been a difficult, yet remarkable year, despite challenges and the resulting choppiness of our quarterly results, we've delivered volume driven growth of six percent through the first three quarters of this year. Excluding investments and covid-19 therapies, we've expanded our operating margin by one hundred and sixty basis points compared to the first three quarters of 2019. We've made meaningful progress this year on our innovation based strategy, launching three new medicines and a number of Nylex, delivering important data readouts for key pipeline molecules and developing and submitting ideas for potential treatment for a virus unknown to the world at this time last year. And over the next few months, we have several highly anticipated pipeline readouts on that, we continue to look for opportunities to augment the future growth of our company through business development and then return excess capital to shareholders. Well, the covid-19 pandemic will continue to challenge us, the growth products in our commercial portfolio, limited time necessary in the next five years and margin expansion opportunity for us, as well as upcoming data readouts in the pipeline. I like our prospects and I thank my teammates for persevering and performing amidst the year of challenges to continue to deliver meaningful innovation for the patients we serve. This concludes our prepared remarks, and then I'll turn the call over to Kevin Moderate's Akunin.

[Kevin Hern, Vice President of Investor Relations]

[00:43:09] Thanks, Dave. We'd like to take questions from as many callers as possible. So we ask that you limit your questions to super callers, mostly provide instructions for the Q&A session, and then we're ready for the first caller.

[Operator]

[00:43:22] Thank you. Ladies and gentlemen, if you wish to ask a question, please press one on your telephone keypad. You may recall your question at any time by repeating the one zero claim. If you're using a speaker phone, please. The number once again, if you have a question, please press in London, zero in. Our first question is from Louise Chen. Please go ahead.

[Louise Chen, Cantor]

[00:43:50] Hi, thanks for taking my question here. So my first question for you is, why didn't you lower or tighten your twenty twenty guidance and leave the antibody sales as upside? Are you having a high degree of conviction behind this emergency use authorization or are you seeing some positive trends that shape up for the fourth quarter? And then my follow up question is, what are your thoughts on the upcoming FDA adcom meeting to review this at Katab? Do you think this will close the door on Alzheimer's drug development or heralds a new beginning? Thank you.

[Kevin Hern, Vice President of Investor Relations]

[00:44:21] And so these are going to just for the first question on guidance and then then to the question on the adcom.

[Joshua Smiley]

[00:44:27] Thanks, Louise. Yeah, I think if we look at sales guidance, any of the implied Q4 absolute numbers, you know, we've seen the trends now. We're at the end of October and we feel good about the lower end of the range for sure, based on, you know, just commercial performance of our products around the world.

[00:44:47] We have submitted anyway and talked about the data behind that. So I think it's reasonable to include a potential upside associated with, you know, some some sales of that antibody to governments around the world in Q4. Of course, it is uncertain. That is why we kept the range.

[Kevin Hern, Vice President of Investor Relations]

[00:45:07] They Justin.

[Daniel Skovronsky]

[00:45:09] Thanks for the question on the Abu AdCom, of course, like everyone else, will be watching it with great interest. But, you know, I don't think I can handicap it one way or the other. The way I see it, the important observation here is around the evidence that lowering plaques can lead to cognitive benefits in Alzheimer's disease. I think we've seen it across a couple of data presentations now, and that's what gives us confidence in our own Dementieva and antibody that's currently in phase two. Just as a reminder, this is a pretty large phase, too. We've designed it with special care, enrolling a very homogenous group of patients so that it could be powered to show us efficacy signal if present. And we look forward to seeing that data early next year.

[Kevin Hern, Vice President of Investor Relations]

[00:46:11] Thanks, Dan Louise, thanks for your questions. Next caller, please.

[Operator]

[00:46:13] The next question is Tim Anderson, from Wolf Research.

[Tim Anderson, Wolfe Research]

[00:46:20] Hi. I have a question on first advertised important event coming up. Your first read out of phase three. Can you characterize your level of confidence that Facer results will wow investors kind of like the phase two results did. It's notable that analysts are to carry a five billion dollar number for this, which is a high number. And I'm wondering if you can talk about both efficacy and tolerability and safety relative to phase two in terms of what to expect. I know that asking you to predict how these readouts go, but it's what we have to do as investors. So it'd be great to get your best guess on that. And related to that question, how much data can we realistically expect that you'll provide in the topline press release?

[Kevin Hern, Vice President of Investor Relations]

[00:47:12] Thanks, Tim. We'll go to Mike Mason for those questions.

[Michael Mason]

[00:47:15] Yeah, thanks for the question. We appreciate it. We've never been more excited about our first episode program in our face to Type two diabetes studies. Forty three percent of people under appetite had reached a final agency of five point seven percent, which is normally agency versus only two percent for the market leader, Felicity. Thirty four percent of people on his appetite lost more than 15 percent of their body weight versus two percent for Telecity.

[00:47:44] Intercepted will be delivered in the same patient friendly devices. Felicity Elizabeth. That has the opportunity to become a foundational treatment for someone living with Type two diabetes and not only need one to see control, but could benefit from significant weight loss, which brings additional metabolic health benefits further. We're very excited about the appetite to do in obesity. And Nash, as you take a look at the at the results from our past one later this year, we'll get the results, will issue a press release and likely the topline results.

[00:48:20] We won't have full data be able to do a full analysis that'll come later at medical meetings in twenty twenty one.

[Kevin Hern, Vice President of Investor Relations]

[00:48:29] Thanks, Mike. Tim, thanks for your questions. Next caller, please.

[Operator]

[00:48:33] Thank you. And that will come from in there with us from Evercore ISI. Please go ahead.

[Umer Raffat, Evercore]

[00:48:40] Hi, thanks so much for taking my question. I have one for Dan and one for Dave, if I may, perhaps maybe starting with you, Dave, on the Alzheimer's A4 trial, you've previously expressed openness to possibly taking an interim analysis. I know you have two years to follow by now, already maybe three or the follow by next year. Is that something you're still open to? Just wanted to hear your thoughts. And then there's a little bit of confusion on ters appetite, perhaps in part because both the current trial as well as the slide suggest the trial had a primary completion in October. But when I map out when the last patient entered, which was first week of February and add in the 40 weeks, which is the primary endpoint, it doesn't look like the trials about the primary endpoint yet and all the patients, and it will probably be in November and then sometimes analysis. Can you confirm if I'm off track there? Thank you very much.

[Kevin Hern, Vice President of Investor Relations]

[00:49:33] Thanks. Thanks, Nima.

[David Ricks, Chairman and Chief Executive Officer]

[00:49:34] Well, I think you do it day for me, but probably dance yet able to answer that better than for questions, you know.

[Daniel Skovronsky]

[00:49:45] Good, thanks. Thanks for both of those questions. Of course, for us, it is an ongoing trial in patients who are pretty symptomatic. They don't yet have the symptoms, Alzheimer's disease, but they have amyloid plaques, imaging, and we're testing a solanezumab and now a higher dose of solemnizing that can have a benefit in those patients. We haven't commented on whether or not there could be opportunities for an interim look here. And right now, we're just focused on the final analysis in that trial with respect to the timing of the appetite for trial and the details on clinical trials. I can just reconfirm what we said earlier on the call, which is that we expect to have that data and top line it in coming months. It's obviously a major event for us. And you can assume that when we get that data, we're going to turn it around quite quickly.

[Kevin Hern, Vice President of Investor Relations]

[00:50:44] Thanks, gentlemen. Thanks for your questions, next caller, please.

[Operator]

[00:50:50] The next question is from the line of break for us. Please go ahead.

[Gregg Gilbert, Truist]

[00:50:56] Thanks. I'm going to start with another one on Alzheimer's. And I'm not sure to what degree you can comment on this, but I'm curious how interrelated your studies are and the agency's view of how to maybe another way. Do you think the agency can act on their application without seeing your data, which is coming pretty soon? It seems to me that what you're bringing to the table is pretty important in the field. And then secondly, I know it's a little early. I was hoping you could talk to your growing confidence from the aisle to approach since you signed that collaboration a few years ago. Looks like there's some additional data coming here as well. Thanks.

[Kevin Hern, Vice President of Investor Relations]

[00:51:34] Thanks. We're good again for those questions.

[Daniel Skovronsky]

[00:51:37] Yeah, thanks. Thanks, Greg, to two interesting questions, I think, on on Alzheimer's disease. Your question is how will the FDA think about sort of a class effect of multiple tagalong antibodies, show the same result, or if they show different results? I don't know. I mean, I can't speculate on agency actions, but I but I can say that it wouldn't surprise me if regulators around the world did take sort of the totality of evidence approach in Alzheimer's disease, which could be across multiple molecules and in different trials to give confidence about a particular mechanism. In this case, of course, like lowering. Having said that, though, each molecule will still have to pass a certain bar of evidence for for benefit versus risk in the intended use of population. I do think, though, that if somebody is deemed to have a positive effect in our drug, ultimately has a positive effect, the convergence of those two events could go well for both of us. But there's a lot that has happened before. Before we get there, with respect to aisle two. Yes. You know, as this molecule progressively clinical trials, we're growing more confident in the hypothesis that underlies this effort. This is a low dose pegylated aisle two that's meant to stimulate t regulatory cells without stimulating effect for T cells. And we've now presented data from phase one that we had exactly that effect, not a dose dependent way. We can boost t rex. And we hope that that will have a modulatory effect on auto immune disease based on our confidence in the biomarker here and the mechanism of action which we've committed to starting a number of phase two trials here in parallel to understand how these changes in regulatory t cells translates could translate to clinical benefits for patients in diseases like like lupus or IBD or dermatologic diseases. And so those trials are starting and we look forward to getting data from.

[Kevin Hern, Vice President of Investor Relations]

[00:53:55] Thanks, Dan, Greg, thanks for your questions. Next caller, please.

[Operator]

[00:53:59] The next question is from Chris. That sounds like Morgan. Please go ahead.

[Chris Schott, JPMorgan]

[00:54:05] Great. Thanks so much for the questions. Just like my question to Felicity, seems like there's two issues kind of impacting the quarter. The first was the timing of the final impact, and the second was this channel mix issue. If I saw you correctly focused on channel mix. Is that the net of the unfavorable price? I guess balanced against the higher volumes, a net neutral versus your original expectations or volume only partially offsetting this this kind of mix issue that that you're you're dealing with, I guess, on that product specifically. And then my second question was on margin evolution going forward, should we be thinking about the thirty one percent operating margin x the covid investments as your baseline to grow off of? As we think about twenty, twenty one and beyond which we still think about. Some have lingering Turbit investments that could impact margins as we move through next year. Thanks so much.

[Kevin Hern, Vice President of Investor Relations]

[00:54:58] Thanks, Chris, we'll go to Mike Mason to the question on Sure this evening just for the question on margin evolution.

[Michael Mason]

[00:55:04] Thanks for your question. Overall, we're very concerned about the growth potential of the GOP class. And Felicity, the GOP class is performing strong with IRS growth of twenty three percent for the quarter during the pandemic. If he continues to hold market share leadership in the face of some blue tide with the forty five percent share market overall. Felicity Greer volume twenty six percent in the US at a time when patient office visits for Type two diabetes remains 20 percent lower than last year due to covered pandemic. If you take a look at second mix, what we're seeing is that Felicity performed well in commercial and Part D, holding market share leadership and growing gross sales year to date at twenty nine percent in commercial and forty four percent in part D.

[00:55:50] Felicie second mix was really driven by stronger than expected performance, both share and volume and growing lower place segments like Medicaid, even at the lower prices, Medicaid growth and profitable business for Lilly and helps people living with diabetes.

[00:56:08] I'll highlight one decision that we made during the early stages of the war pandemic. We were concerned about people in commercial insurers losing their jobs, moving to Medicaid and having to stop take philosophy because we had more access in Medicaid. We didn't think this dynamic would be best for people living with diabetes during the pandemic. Thus we prioritize improving our access and Medicaid to help people living with diabetes. For example, we were uprated on California Medicaid early in Q2 and we see Felicity volumes help with Medicaid nearly double this year, which is really great for everyone. I remain very excited and confident and.

[00:56:46] Thanks so much.

[Joshua Smiley]

[00:56:48] Thanks. Thanks, Chris. On margin, so yes, so we've tried to separate out the covid investments this year, which we've mentioned will be expense will be in the range of four hundred million dollars for the year. As you know, we've been focused on 31 percent operating margin as a as a goal for Twenty twenty. And given the guidance that we presented, not including anything from covid, we're confident we'll achieve that 31 percent. I think that's the right baseline to think about going forward on an overall basis. Now, we will have covered investments that move into Twenty twenty one as we continue the trials that we've already put up and running again that we are expecting. You know, given the submission of the U.K. and the data that we have, that there will be, you know, at some point sales associated with those investments.

[00:57:41] I think if we look at, you know, just isolating the expense and the sales will have to come back on that. You know, we haven't you know, we don't have prices or volumes or anything around the world. So I think that is the cold piece in Twenty twenty one, we will have some expense.

[00:57:58] But realistically, I think the way to think about our business is thirty one percent operating margin, excluding the extraordinary covid impact and margin expansion in twenty, twenty one and really through twenty, twenty five as we talked about. So I think covid to help us. I think from an overall economic perspective in that period, if the product is your product or products are successful. But really I think the focus on long term margin expansion sort of cuts through anything that we see in the near term on Unkovic. And we're committed to those margin expansion plans that we talk about. Pre pandemic's just.

[Kevin Hern, Vice President of Investor Relations]

[00:58:38] Chris, thanks for your question. Next caller, please.

[Operator]

[00:58:42] The next caller is from Steve Scala. Please go ahead.

[Steve Scala, Cowen]

[00:58:47] Thank you. A couple of questions first, then, in the past, when you have referred to very low dropout rates in surpassed one, were you referring to analysis on an intent to treat basis? I hear Lillie's preparing us for solid data on an efficacy estimate basis, but less compelling on an intent to treat basis. And then the second question is, it was said earlier in the call that Lilly has never been more excited about ters appetite. I thought that was an interesting choice of words. Given the importance of the event and the lack of clarity on the status of the trial. At this point, it implies that you're more excited than you were in Q2 or Q1 or any time in between. So can you tell us if any member of management has any knowledge whatsoever of the results of success? One, thank you.

[Kevin Hern, Vice President of Investor Relations]

[00:59:45] Thanks, Steve. We'll go to Dan for the question on dropout rates and then Mike can talk about his question, terms of the.

[Daniel Skovronsky]

[00:59:55] Sure, thanks, Steve. What we said with respect to people dropping out of our clinical trials was that we hadn't seen an effect from covid-19. We were quite worried about that in the early days of the pandemic, when the Zapotec trials had become fully enrolled and some of the most important and largest trials that we've ever conducted, whether this new pandemic would cause people to stop producing clinical trials. And we did see a bump up in dropout rates. I think, though, what you're really interested in is people discontinuation therapy, which could be different than some dropout rates. And we wouldn't know that until we get the data from the trial. With respect to two different analyses that you commented on, the efficacy estimate versus the real intent to treat analysis, you're you're pointing out, I think, that in phase two there was a pretty big difference between these two analyses with the efficacy estimate and showing better results from the maturity, because a number of patients at the highest dose of the 50 milligram dropped out to do that. Like I said, we don't know what's happening in her past one yet. But when those data come, it'll be important to look at those two analyses are hope. The way we design this trial with a slower dose titration is to avoid discontinuations with adverse events, which would show that a smaller gap between the demand and the effect that we saw in phase two.

[Kevin Hern, Vice President of Investor Relations]

[01:01:29] Thanks to Mike.

[Michael Mason]

[01:01:32] Yes, I can assure you that no one in any one at Liley have seen the results were passed one yet. My confidence intercepted tried. Something new that we've seen is obviously there's been a lot of attention on the dose titration scheme that we used in our phase two into dose titration study, as well as phase three. We use a more gradual titration approach in our Phase three trials. And as we've seen the readout of a word level, as well as some of the novels set programs to use similar gradual titration. We saw that those schemes did work and that they did and that we're able to produce GI profiles that were acceptable. So that's the new data that we've seen and we're very confident suppertime.

[Kevin Hern, Vice President of Investor Relations]

[01:02:20] Thanks, Mike. Steve, thanks for your questions. Next caller, please.

[Operator]

[01:02:23] The next question is from Geoff Meacham from Bank of America Merrill Lynch. Hey, guys, thanks for the question.

[Geoff Meacham, Bank of America Merrill Lynch]

[01:02:33] I just had a few jobs, I'm sure, if I'm hearing you correctly, for Twenty twenty one, you guys have gone from mid single to high single digit price declines. But for the rest of the broader diabetes portfolio and really overall, is it is it still mid single as an assumption? And if you have formulary wins for Catholicity in Medicare or Medicaid, but at a lower price, what's your capacity to raise price down the road? And then second question was, you know, just a quick one to ask if you're seeing any sort of halo effect in the marketplace for metastatic breast cancer or monarchy currently, or do you think that's going to happen? Looking for Twenty twenty one? Thank you.

[Kevin Hern, Vice President of Investor Relations]

[01:03:14] Thanks, Jeff. We'll go to Josh for the questions about the overall U.S. pricing and then answer the question on Virginio based on Felicity.

[Joshua Smiley]

[01:03:24] I think as we think about Twenty twenty one, we are looking at two separate pieces. I think the first is just the underlying unit price where we feel things haven't changed. We really see underlying unit pricing, you know, holding segments constant as being in that low to mid single digit impact. I think what we've seen now over two years is we're underestimating how fast segments like Medicaid can grow. And that's what Mike talked about. So I think I think given the fact that we continue to see good growth in Medicaid, that, you know, the share performance and utilization is still lower than what we see in commercial. And, you know, our our strong performance in that in that segment as well. As, you know, as we talked in prior calls, we expect some Medicaid expansion. We're seeing a little bit of that now is that we expect that to persist in the 20 21 that move us from that. That means single digit felicity price, the high single digits. So it really is the fact that we do continue to expect faster segment growth in areas like Medicaid. And all that being said, I think we will continue to look at pricing as we have in the past. We don't we price for, you know, the set of the system we have today, which is modest, you know, price list price increases and giving back a little bit more than that in rebates over the last few years. I don't anticipate that, you know, that approach changing unless we have something that changes on the on the legislative side that can get us, you know, the industry more toward a net price environment as opposed to, you know, high gross rebates and net. But for Twenty twenty one, we're sort of planning that those things that we saw at the beginning of the year won't change things just.

[Anne White]

[01:05:10] And yeah, thanks for the question, Jeff, on Virginia. So you have had notable positive momentum right now in the currently approved metastatic breast cancer setting. And you can see that it's steadily gaining market share. We have monthly contracts approaching 14 percent now and directive approaching twenty three percent. And then you saw some of the sales being posted basically roll by of forty nine percent. And we're now market leader in indirects in Japan at over 50 percent. So definitely momentum and we continue to do is really grown. And our physicians who tried Bienvenu and they continue to adopt with really a positive experience and incorporate it more broadly into the practice. This, I think is is primarily to capitalize on the positive overall survival data from one or two in combination for vestment. But we do believe that the positive results from Onaka are really providing them another strong example that Virginio is differentiated from other CDK four six inhibitors. And even prior to those results, there is a steadily growing body of evidence that is differentiated with the higher CDK for selectivity differentiated continuous dosing about their application. And then obviously this data not just in the overall population, but in the primary in the resistance. So we do think we're seeing a shift in people's perception that this is a best in class opportunity, both in the metastatic setting and then potentially in the future as we bring it forward for a treatment option for patients in the early breast cancer setting. So we look forward to more work there.

[Kevin Hern, Vice President of Investor Relations]

[01:06:47] Thanks, Jeff. Thanks for your questions. Next caller, please.

[Operator]

[01:06:51] The next question is from Seamus Fernandez from being had place for.

[Seamus Fernandez, Guggenheim]

[01:06:57] Oh, thanks very much for the question. So one question for Dave and then a question for Josh. So, James, can you talk about key post election policy priorities for the industry and what specifically Liley hopes to achieve with the challenges to three B? And then a question for Josh is, if implemented as written, what would be the biggest impact on Lillie's corporate tax rate under the Biden tax plan? And is there a concern that this would have a significant relative impact on U.S. corporations like Lilly versus other U.S. corporations banks?

[Kevin Hern, Vice President of Investor Relations]

[01:07:49] Facing the state

[Stephen Fry]

[01:07:50] Yeah, face shame is, of course, the landscape restoration is not defined, so we'll need to wait for that to land before we get into too many speculations about the future environment. But I think we can say that as an industry, as we sit around the table and certainly here it Lily, there's two basic problems in the U.S. drug market that need to be untangled. One is the pay out of pocket cost problem, where we're really the only country on the planet that indexes fish out of pocket costs, the lowest prices that still happens, highly, highly prevalent way. And actually, the rate of growth in high deductible plans, including those on exchanges in ACA, is growing. So this problem is getting bigger, not smaller. Of course, we think the answer there is to have carsharing at least be based on some discounted number, much closer to actual price and perhaps all the discounts being passed through. There's other solutions, regulatory ones, other ideas we have, you know, capping deductibles, reducing the amount a copay can be for any given transaction through regulation. Or other Arab states have done that. And I think we do see good impact on affordability and persistence when that's done. So that's the highest priority for the industry.

[01:09:16] The second priority, and it's something positive, is just reducing the amount of distortions in the system which create artificial winners and losers and shift money around health care based on drug sales, which is inappropriate way to fund things in our mind. We'd like to see that disentangled and that kind of services as relates to dispensing or formulary management are based on something to do with the value of those services versus something to do with the drugs that are being dispensed 340 vs one example that were high priced drugs move through private entities as huge margin increases. And, you know, those monies go to other purposes not related to the drugs. Patients pay more and lose in that equation and we certainly lose in that equation. So as relates to three or four of these actions and other channel actions, you know, we're interested in going to decompress, defying that and making the system work a little bit better for not just patients, but for the sustainability of the pharmaceutical industry. So anyway, we'll focus on those things as we have then, and we'll have to see what the tactics look like based on electoral outcomes here just a week away.

[Kevin Hern, Vice President of Investor Relations]

[01:10:35] They say they say.

[Joshua Smiley]

[01:10:38] the tax system that we have in the U.S. now does help help us compete on a global basis for innovation. I think that's the biggest positive that we've seen. It is a complex system, but having a race and underlying race is more competitive with our European competitors, allows us to attract innovation and keep it in the U.S.. And they've seen that in some of the acquisitions we've done, including companies like Wasso, were more competitive when we're competing against U.S. companies and companies that have a low corporate tax rate in their in their countries. So we like that. I think as we look, though, to potential changes, I think the first thing I would say is there's having been through the last round here, there's a huge difference between what a high level plan is and how it gets implemented and the details in that implementation or what actually drives the big movements. I don't know that we could have, you know, sitting in 2017 predicted, you know, we have a 15 percent rate, for example, as our long term rate here. So so there's a lot of work to be done if there is any kind of future tax reform coming. Obviously, the underlying U.S. rate looks like it will go up. But I think we have a couple of advantages. No matter what happens, we invest heavily in R&D among the most heavily of any of our Big Pharma peers. So we would hope and and work to ensure that innovation is is rewarded in any tax system going forward. And we have a pretty balanced manufacturing network. We make, you know, about half of our plants in the U.S. and half outside the U.S. So I think we're we're probably poised to take, you know, to take advantage of any changes that happen in the in the tax structure going forward. But there's no doubt that having a competitive sort of base rate for for the U.S. relative to our U.S. peers is something that's, I think, really important for our industry.

[Kevin Hern, Vice President of Investor Relations]

[01:12:45] Thanks, just Seamus, thanks for your questions. Next caller, please.

[Operator]

[01:12:49] The next caller is Terence Flynn with Goldman Sachs. Please go ahead.

[Terence Flynn, Goldman Sachs]

[01:12:54] And the question just regarding Luxo three, 05, can you share any perspective on the registration path for the drug yourself and if a head to head trauma versus IMBRUVICA is still on the table? Thank you.

[Kevin Hern, Vice President of Investor Relations]

[01:13:08] Thanks, Terrence, Daniel McGinty, for that question.

[Daniel Skovronsky]

[01:13:11] Yeah, I think at this moment it's premature to talk about registrational past, but I can say that we look forward to releasing more data later this year. And I think as we release that data, that's an opportunity to update on our current thinking on the development plan.

[Kevin Hern, Vice President of Investor Relations]

[01:13:33] Thanks, Sam. Thanks for your question. Next caller, please.

[Operator]

[01:13:36] The next question comes from David Risinger from Morgan Stanley. Please go ahead.

[David Risinger, Morgan Stanley]

[01:13:44] Yes, thanks very much. I just wanted to clarify, so with respect to Traverse City, I believe you said that the volume growth was twenty six percent in the quarter. Obviously, the reported U.S. sales growth was five percent, which suggests a twenty one percentage point difference. So either way, if that's right, if you could just confirm it, if not, just give us the correct figures, but then could you for the difference, explain the components. So obviously, last year in the third quarter, the company admits to revisiting city sales expectations due to higher than expected rebates. So the company had a very easy comparison versus the third quarter of nineteen for for Travelocity. Yet, obviously, the sales disappointed this quarter. So if you could explain that 20 percent plus percentage point difference in terms of how much was due to rebates versus mix shift, et cetera. And then also help us understand why the mix shift was a surprise given the Medicaid winds that you articulated and then. Well, actually, I'll just leave it at that. So so if you could address those, that would be great. Thank you.

[Kevin Hern, Vice President of Investor Relations]

[01:15:14] Thanks, Dave. We'll go to Mike Mason for that.

[Michael Mason]

[01:15:17] Thanks for the question. As we take a look at the pricing performance for Felicity in Q3, we take a look at the net impact of increased rebates to maintain access in this price. That was a two percent of Mottershead when in Q3 of this year, second next was six percent. And then the remaining of that was due to one time events due to coverage, gap estimates, rebates and discounts. So that's the breakdown of performance for for Felicity and Q3, as you you may not have been on earlier.

[01:15:56] As we take a look at Medicaid performance, we're performing quite well in the higher price segments of commercial and Part D. We grew gross sales in commercial by twenty nine percent year to date and Part D by forty four percent. When we take a look at that second mix was really driven by higher than expected Medicaid. We really have kind of a triple whammy going there where, as you say, it is driving more people into Medicaid. We're also seeing that Medicaid in general is growing for publicity. Philosophy share is lower. And then we did make a conscious decision to win access and Medicaid because we felt that we're going to see people going from commercial to Medicaid and we have a lower access to Medicaid than we did in commercial. So we thought was the right thing to do for patients in order to increase Medicaid. So someone didn't have for electricity city. They lost their job during during a pandemic. So that's the break down. We're very confident in both pricing and volume going forward.

[Kevin Hern, Vice President of Investor Relations]

[01:17:02] Thanks, Mary Jane. Thanks for your question. Next caller, please

[Operator]

[01:17:04] Welcome from the Vamil Divan. Please go ahead.

[Vamil Divan, Mizuho]

[01:17:12] Thanks for taking my questions. Just to please one on stage, you never know. Eventually the outcome. I believe that the change coming forward, we have to say that they were not going to get any insights you can share just on what may have changed to led them to do the advisory committee meeting for second on be going back to the Alzheimer's discussion from the core to a lot of focus on early next year. I know you also going to phase one development. I'm just curious if you can maybe talk about sort of how that was different from the one you have in place to room to give us a sense of what you're trying to change. Absolutely.

[Kevin Hern, Vice President of Investor Relations]

[01:17:54] Thanks to a little bit of work for the questions about the news now and then again with the question on A.G. in phase one.

[Patrik Jonsson]

[01:18:03] But thank you very much for the questions. We were just updated by the FDA about the properties, it is no longer valid and that they are most likely planning to have an advisory board in the month of March. And actually, we don't believe this is necessarily negative, taking into account the results of days on Sunday and whether thirty nine clinical trials and more than 18000 patients treated. So we think even in that book could be beneficial.

[Kevin Hern, Vice President of Investor Relations]

[01:18:33] Thanks, Counselor Ken.

[Daniel Skovronsky]

[01:18:35] Sure, and thanks for the question on 9/11, the follow on insufficient article, which you noted is in phase one. One of the things that we saw with an attempt was that we had a great effect with a clear clash quite deeply and quickly. But we also had anti-drug antibodies. The antibodies weren't at a level that they affected the peak of the drug because we're giving pretty high doses of the drug. Still, it's not optimal to have a.D.A against your drug. So we created a next gen and three p.g that we hypothesized we had the same plectrum effect but not have anti-drug antibodies. So that's the next one that you see there in phase one. If that turns out to be a success, it could be useful to have a follow on molecule that doesn't have a.D.A. I also point out that in addition to that, venom have been thrown into every molecule.

[01:19:35] The other Alzheimer's molecule we're really quite excited about it is that the temperatures are aggregated to specific antibody and that'll be reading out later next year.

[Kevin Hern, Vice President of Investor Relations]

[01:19:48] Thanks, Suzanne Malveaux, thanks for your questions and we'll go back to our days for the close.

[David Ricks, Chairman and Chief Executive Officer]

[01:19:51] Great Thanksgiving. Well, we appreciate everyone's participation in today's earnings call and your ongoing interest in Eli Lilly and Co. Please follow up with the IR team if you have questions that were not addressed today. And I hope everyone stays well during this difficult time. Take care and we'll be in touch.

[Operator]

[01:20:10] Thank you, ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T conferencing services. You may now disconnect.