Eli Lilly and Co

NYSE:LLY

Earnings Call Transcript 2021-Q3

[Operator]

Ladies and gentlemen, thank you for standing by and welcome to the Lilly 2021 Guidance Call. At this time, all lines are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] And as a reminder, today’s conference call is being recorded. I would now like to turn the conference over to Sara Smith. Please go ahead.

[Sara Smith, Director of Investor Relations]

Good morning. Thank you for joining us for Eli Lilly and Company’s 2021 Financial Guidance Call. I’m Sara Smith, Director of Investor Relations. Joining me on today’s call are Dave Ricks, Lilly’s Chairman and CEO; Josh Smiley, Chief Financial Officer; Dr. Dan Skovronsky, President of Lilly Research Laboratories; Anne White, President of Lilly Oncology; Ilya Yuffa, President of Lilly Bio-Medicines; Mike Mason, President of Lilly Diabetes; and Jake Van Naarden, Chief Operating Officer Loxo Oncology at Lilly. We're also joined by Lauren Zierke 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 3. Additional information concerning factors that could cause actual results to differ materially is contained in our latest form 10-K and subsequent Forms 10-Q and 8-Ks filed with the Securities and Exchange Commission. The information we provide about our products and pipeline is for the benefit of the investment community. It was not intended to be promotional and is not sufficient for prescribing decisions. As we transition to our prepared remarks, I’ll reminder that our commentary will focus on non-GAAP financial measures. Now, I’ll turn the call over to Dave for some introductory comments.

[Dave Ricks, Chairman and CEO]

Thanks, Sara. 2020 has been a strong year for Eli Lilly and Company, but perhaps for different reasons than we would have imagined in 2019. At this time last year, we shared our financial guidance for 2020, unaware as you were of the coming pandemic that would grip the globe and challenge us in unprecedented ways. Our scientists were in the lab working towards the next discovery, sales reps in the field selling their products. Our corporate headquarters was filled with employees and our manufacturing plants were producing the medicines that over 40 million patients depend on each year. But within months, that all changed, how we worked, where we worked, even in some cases what we were working on. But what never changed and what hasn't changed for the past 144 years is Eli Lilly and Company's unwavering commitment to combining caring with scientific and medical expertise to deliver innovation that makes life better for people around the world. A year later, we've seen that purpose continue to play out in new ways as we stepped up and responded by investing our time and our resources at risk to repurpose existing medicines and develop new ones that can make a difference in the effort to combat the COVID-19 pandemic. We work tirelessly, and we were privileged to deliver the first design for COVID treatment for patients to address this global pandemic. While we were doing all this to fight the virus, and despite the many challenges brought on by the COVID-19 pandemic, we continue to do what we do. Progress our pipeline and deliver innovation that makes a difference for patients. Our business and our people prove responsive and resilient in 2020. As you can see on Slide 4, we exit the year with increased confidence in our long-term outlook. Thanks to a number of positive, high-quality pipeline events throughout the year. Trulicity and Jardiance, market leaders in the two fastest-growing classes in diabetes, delivered catalysts for future growth with the addition of the REWIND cardiovascular outcome study to the Trulicity label, approval of additional doses for Trulicity and a positive readout and submission of Jardiance for heart failure in the HFrEF population, its first indication outside of diabetes. Verzenio affirmed its differentiation from the rest of the class with a positive readout in high-risk, HR-positive HER2-negative early breast cancer and exits 2020 with significant momentum, having increased its new-to-brand share market by more than 10 points to over 30%. Taltz, Cyramza, Olumiant, all had positive NILEX approvals as well this year. We received approvals for and then launched Retevmo, our first-in-class RET inhibitor, and Lyumjev, an ultra rapid insulin continuing a sustained period of R&D productivity that have seen Lilly launch 15 medicines since 2014. This year also provided positive Phase 3 readouts from mirikizumab in psoriasis, and we look forward to the upcoming readout in ulcerative colitis in 2021. In addition, we shared exciting data readouts this month for LOXO-305 and tirzepatide, which Dan will cover further in his R&D update. In 2020, we also added lebrikizumab to our Phase 3 portfolio from our acquisition of Dermira. On top of all this, we received emergency use authorizations for bamlanivimab and baricitinib to address the COVID-19 pandemic. We worked hard together and fulfilled our purpose as a company in what has been among our finest hours in many ways. We are particularly proud of the tremendous pipeline progress we made this year amidst the many obstacles in our path, underscoring our ability to maintain a prolonged period of productivity and growth by launching new medicines. Now I'll turn the call over to Josh to provide the details of our 2021 financial guidance.

[Josh Smiley, Chief Financial Officer]

Thanks, Dave, and good morning, everyone. As we walk through our 2021 guidance, we will provide a line of sight for the impact of our COVID-19 therapies. We recognize that unlike a typical new product for Lilly, there is a much broader range of potential near-term revenue outcomes for these therapies. And as we move through 2021, we'll be clear on their impact on the income statement each quarter and provide investors with insight into the performance of our underlying business. So moving to Slide 5, you'll see a high level summary of our 2021 guidance utilizing our strategic deliverables framework. Despite continued global pricing headwinds and challenges from the COVID-19 pandemic, we expect strong double-digit revenue growth in 2021, driven by volume growth of our key growth products, which we expect will make up over 60% of our worldwide revenue. We also plan to further expand margins in our base business, delivering non-GAAP operating margin of approximately 32% in 2021. We expect strong top line growth, combined with disciplined SG&A management, to generate roughly 200 basis point improvement over 2020. As we continue to speed life-changing medicines to patients, potential pipeline highlights for the year include: regulatory action for Verzenio for high-risk, HR-positive, HER2-negative early breast cancer; Jardiance for heart failure with reduced ejection fraction in collaboration with Boehringer Ingelheim; and tanezumab from moderate to severe osteoarthritis pain in collaboration with Pfizer. Additional readouts from and potential submission for Tirzepatide's Phase 3 SURPASS Type 2 diabetes program; Phase 3 readouts in immunology for baricitinib, lebrikizumab and mirikizumab; Phase 2 data from Alzheimer's trials for donanemab and zagotenemab and multiple potential proof-of-concept studies from our early-stage portfolios in immunology, neuroscience, diabetes and oncology. Our robust outlook will deliver strong cash flow, which we will continue to deploy thoughtfully across our capital allocation priorities. We remain focused on funding our existing marketed products, new launches, lifecycle opportunities and replenishing our pipeline. We will continue to leverage bolt-on acquisitions and licensing opportunities to augment our future growth prospects with external innovation as demonstrated this morning with our announced acquisition of Prevail Therapeutics. We will increase the dividend by 15% for a third consecutive year, reflecting our strong performance in 2020 and our conviction and our growth outlook in the years ahead. This dividend increase still leaves ample capacity for business development opportunities. In addition to investing in business development opportunities to enhance our pipeline and long-term growth prospects and funding the dividend, we expect to continue to return excess cash to shareholders via share repurchases, while maintaining strong investment grade ratings. In total, we expect 2021 to be another exciting year characterized by robust top line growth and margin expansion, while we continue to progress and enhance our pipeline amidst strong operating and financial performance. Moving to Slide 6. You can see a number of factors, which may impact our 2021 financial results. While we experienced suppressed demand due to the pandemic in 2020, and expect the impacts from the recent surges in COVID-19 cases to persist into the first-half of 2021, we do expect the authorization of COVID vaccines to help spur the return to near normalcy of health care systems in the second-half of 2021. And new therapy starts could achieve their pre-COVID baseline in those therapeutic classes, which have not reverted to those pre-COVID levels already. With that context, we expect business performance to strengthen through the year in 2021. Against that backdrop, the successful commercial execution of key growth drivers is expected to deliver significant revenue growth as our new products continue to scale, including Trulicity, Taltz, Verzenio, Jardiance, Olumiant, Cyramza, Emgality, Tyvyt, and Retevmo. We're also pleased that maintained or improved access in the U.S across all of these growth products. For Trulicity, we began the year with injectable GLP-1 class growth in the U.S near 30%. But the pandemic has muted new patients starts resulting in class growth slowing to the high teens as we close 2020. We've seen acceleration of new patient starts though in recent weeks. While they remain mildly below pre-COVID baselines, we expect the momentum to continue and translate to a reacceleration of market growth in 2021. As the class accelerates, we expect outstanding access and strong share market to be augmented by the full year impact of the REWIND cardiovascular outcomes label update and additional doses. For Taltz, we are pleased with the access win at ESI [ph] and the increased volume that will drive additional growth for this medicine beginning next year. Taltz should also benefit from the full year impact of the Non-Radiographic Axial Spondyloarthritis indication as we -- axSpA, as we continue to improve our performance in rheumatology and continue our strong performance in dermatology. New patient starts in immunology market remain about 15% below COVID -- pre COVID baselines, but have seen consistent growth over the past several weeks and we expect this growth to continue in 2021. For Verzenio, the positive high risk HR positive HER2 negative early breast cancer readout has provided further support for presenting those differentiation in the CDK4/6 inhibitor class and we are excited by the excellent momentum we are seeing in new to brand market share in the past few months, clearing 30% in the U.S and 50% in Japan. We've also seen a strong recovery in the CDK4/6 class as new patient starts have returned close to pre-COVID levels. We look for that momentum to continue in 2021, further strengthened by the potential approval and launch of Verzenio in China. Jardiance in collaboration with Boehringer Ingelheim, added over five share points in 2020 as it nears 60% share of market in a class that is delivering robust growth. New patient starts in the SGLT2 class have largely returned to pre-COVID baselines, which we expect will lead to further acceleration of the SGLT2 class in 2021. We believe there remains significant growth opportunity in Type 2 diabetes, while chronic heart failure and chronic kidney disease could introduce large populations of additional patients who could benefit from Jardiance. Emgality revenue has more than doubled through the first 9 months of 2020 with script growth outpacing the class in the U.S. This robust growth is despite the injectable CGRP class experiencing greater headwinds than many other classes during the pandemic. New patient starts in the CGRP antibody market remained approximately 10% below pre-COVID baseline. But as this impact subsides, we expect stronger class growth and continued strength from Emgality sales in 2021. All together, we expect our key growth products launched since 2014 will represent over 60% of our 2021 base business revenue, which excludes potential revenue from COVID-19 therapies. We believe the scaling of these newer products outside the U.S will be a meaningful contributor to our growth. Olumiant continues its strong growth trajectory outside the U.S and will benefit from the recent approval of the atopic dermatitis indication in Europe. Tyvyt sales in China have more than doubled for September year-to-date and we expect Tyvyt will continue to drive growth in China in 2021. In addition to the potential approval and launch of Verzenio noted earlier, we look forward to continued growth from Trulicity, Jardiance, Olumiant and Taltz in China as those products continue to scale. We expect a moderate tailwind as a result of our decision to implement a limited distribution program for 340b in the U.S. At present, we expect a benefit of roughly 2 to 3 percentage points on U.S price in 2021, primarily in our diabetes business, but we will monitor developments throughout the year and adjust accordingly. As you all know payer mix has been an area of increasing variability over the past few years and we do expect that to continue in 2021. While this is our estimate at this time, we expect overall impact of pricing across the combination of 340b, Medicaid DoD, VA and other government segments to shift throughout the year. In addition, the new year we'll see the sunset of the negative impact on year-over-year growth from the revision of our alliance with Boehringer Ingelheim with the portion of Tradjenta revenue booked by Lilly down over 40% in the first three quarters of 2020. And finally, we expect continued productivity gains as we realize efficiencies from both the utilization of our existing commercial footprint to launch new medicines and scale currently marketed ones, as well as from acceleration of digital capabilities and other learnings from navigating the pandemic. In terms of headwinds, as I mentioned, we expect continued demand impacts from the growing surges in COVID-19 cases to persist into the first half of 2021. We also expect a continuation of the pricing trends that we've experienced in recent years, with mid single-digit net price declines globally in 2021. As we break that down across the specific regions, for the U.S., we continue to expect mid single-digit net price declines as an underlying trend, driven by increased rebates to maintain excellent access as well as segment mix, and partially offset by modest list price increases. With the impact from 340b mentioned earlier, we would expect this to translate to low to mid single-digit price declines for 2021. This outlook includes as we noted on our Q3 earnings call approximately $100 million to $200 million of impact in 2021 from the effect of increased U.S unemployment on segment mix. There remains significant discussion in Washington regarding potential health care reform, and we intend to actively engage with the new administration and Congress on developing solutions, which increase patient access and reduce out of pocket costs. We're not factoring any additional health care reform into our 2021 guidance at present, and we'll update guidance on our quarterly earnings calls for any fundamental changes. Regarding specific U.S product level price items, I would note that Taltz will experience a larger pricing headwinds in our expectations for the total U.S portfolio in 2021 due to the increased access win at ESI. Over time, this price decline should be more than offset by robust volume increases. For Trulicity, we noted on our Q3 call our expectation of high single-digit price declines in the U.S moving forward. That underlying trend is driven by segment mix and increased rates to maintain excellent and open access partially offset by modest list price increases. However, in 2021, the impact of 340b on price trends will likely moderate Trulicity's underlying high single-digit decline in the U.S to low single digits. Moving to Japan, we expect a low single-digit price decline driven by the impact of price cuts in the first half of 2021 for older legacy products. We expect a mid single-digit price decline in Europe in line with historical trends. In China, we expect a double-digit price decline, although lower than what we've experienced this year, which was driven by Tyvyt's placement on the NRDL. We do anticipate the inclusion of multiple new products to the 2021 NRDL in China. However, we expect volume gains to more than offset the price decline. While we continue to see price competition in our therapeutic areas, we expect to maintain good access for our portfolio at reasonable prices in 2021, and we'll continue to focus on volume driven revenue growth. Regarding loss of patent exclusivity, we expect generic competition as [indiscernible] patent in Europe and Japan, as well as for Cymbalta in Japan. Since Forteo loss global exclusivity in 2019, we've seen continued erosion from competitive pressure and increasing generic competition this year, and we expect that trend to continue in 2021. In total, we expect a collect -- a collective loss of exclusivity headwind of approximately $700 million next year. This compares to an average annual headwind from LOEs of approximately $1 billion between 2018 and 2020. Finally, we will see increased R&D expense driven by investments in key late stage assets including LAXO-305, with the initiation of a large Phase 3 program tirzepatide with additional Phase 3 trials starting up for the SURMOUNT obesity program and the full year impact of the Type 2 diabetes cardiovascular outcomes study, and lebrikizumab as we continue to scale up Phase 3 atopic dermatitis program. Okay with that background, we'll move to Slide 7 where we provided an updated view of 2020 guidance. For 2020, we've increased the revenue range to $24.2 billion to $24.7 billion, driven by the expectation of increased bamlanivimab sales due to an additional purchase agreement with the U.S government announced in early December. While we believe we're likely to be in the low to middle part of that range, that will depend on bamlanivimab shipment in late December. As we discussed in October, our business -- our base business continues to experience some impacts from COVID, and in recent weeks year-over-year, U.S total pharmaceutical script growth has eroded again, as we see emerging impact from the growing surge in COVID-19 cases. While we see recovery in new to brand and total prescriptions in key markets around the world, we still haven't achieved steady state growth in key segments like GLP-1s, migraine, dermatology or rheumatology. Moving down the income statement we expect bamlanivimab sales to have a slightly dilutive impact of roughly 100 basis points on non-GAAP gross margin percent and a slightly accretive impact of roughly 100 basis points on non-GAAP operating margin, keeping in mind that we'd already provided $400 million of COVID therapy R&D expense in our prior 2020 guidance. Our GAAP margins remain unchanged. For R&D expense, while our range remains unchanged, we are seeing accelerating COVID-19 therapy development spend that is likely to drive us to the high end of that range. [Indiscernible] we've increased the range to reflect our projection of further equity investment gains in the fourth quarter. Though market valuations can fluctuate significantly between now and the end of the year, we could exceed our guidance range based on recent valuations. Those changes in total translate to an increased EPS range of $7.45 to $7.65 per share for non-GAAP and $6.28 per share to $6.48 per share for GAAP. As we announced during our third quarter earnings call, beginning in 2021, we will exclude the gains and losses on investments in equity securities from our non-GAAP measures. In anticipation of this change, we have posted a revised investor workbook to enable clear line of sight to the impact of removing this from non-GAAP for 2019 and the first 9 months of 2020. As a reminder, when we report our results for Q4 earnings in January, our 2020 non GAAP financials will still reflect earnings inclusive of equity investment gains and losses. In addition, on Friday, we reflect what our updated 2020 guidance looks like when we exclude the impact of equity investment gains from non-GAAP OID and non-GAAP EPS in order to help with an apples-to-apples comparison with our 2021 Guide. So moving to Slide 9, you will see our initial 2021 guidance and 2020 guidance with the removal of equity investment gains from OID and EPS. Okay, stepping through the various lines of our 2021 guidance, revenue is expected to be between $26.5 billion and $28 billion. Using the midpoint of the 2020 and 2021 ranges, this represents roughly 11% growth and includes a small uplift from foreign exchange. Our 2021 growth is expected to be driven entirely by volume more than compensating for price headwinds. This range includes roughly $1 billion to $2 billion of revenue from COVID therapies in 2021, which translates then to approximately 10% growth for the underlying business. Moving down the income statement, we expect gross margin as a percent of revenue to be unchanged year-over-year at roughly 79% on a non-GAAP basis, reflecting approximately 100 basis points of dilution from COVID-19 therapies to our base business, including the royalties we pay to partners. On a reported basis, we expect gross margin as a percent of revenue to be approximately 77%, with a decrease driven by increased amortization of intangibles in 2021. Marketing, selling and administrative expense is expected to be in the range of $6.2 billion to $6.4 billion, with a modest increase driven by marketing investments in key products as we realize efficiencies from the utilization of our existing commercial footprint and accelerate digital capabilities and other learnings from navigating the pandemic. Research and development expense is expected to be in the range of $6.5 billion to $6.7 billion. This includes roughly $300 million to $400 million of continued investment in COVID-19 therapies. Net of COVID-19 therapy investments in both 2020 and 2021, we do expect a double-digit increase in R&D driven by increased Phase 3 spend for tirzepatide, lebrikizumab, [indiscernible], mirikizumab and the initiation of LOXO-305 Phase 3 program. We continue to be excited about the opportunities to create meaningful value with each of these molecules and are investing accordingly. Our 2021 guidance implies an increase of about 200 basis points in non-GAAP operating margin as a percent of revenue to approximately 32%, a strong top line growth and prudent SG&A management drives continued margin expansion and the impact of COVID-19 therapies on our 2021 operating margin is largely neutral. On a reported non-GAAP basis, other income and expense is expected to be between $200 million and $300 million of expense. As a reminder non-GAAP OID will exclude the impact of equity investment gains and losses beginning in 2021,and on a reported basis, the range does not include any expectations for investment gains or losses next year. Turning to taxes, we expect our GAAP and non-GAAP effective tax rate to be approximately 15%, which assumes the current U.S tax structure is in place through all of 2021. This increase of roughly 1 percentage point from 2020 includes the impact of COVID-19 therapies. Earnings per share is expected to be in the range of $7.75 per share to $8.40 per share on a non-GAAP basis. The estimated impact for COVID-19 therapies is a broad range of $0.30 to $0.75 per share. Adjusting for that impact the expected non-GAAP EPS performance represents strong double-digit growth over 2020 and comes on top of strong performance in 2020. Our GAAP EPS is expected to be in the range of $7.25 per share to $7.90 per share. For your modeling purposes, we are currently estimating diluted weighted average shares outstanding for 2021 to be approximately 906 million, a slight reduction from the approximately 912 million for 2020. This number could change as a function of the amount of capital we deploy to external innovation investments versus share repurchases. There are two impacts on the first quarter of 2021 we would point out. First, while the access win for Taltz ESI should provide a very positive impact on volume growth, the rebates we provide will impact not only the new ESI business, but also revenue from patients who are already utilizing Taltz via prior authorizations and other exceptions. Second, given the significant impact of the COVID-19 stocking benefit we experienced in the first quarter of 2020, we expect revenue growth and operating margin expansion will be muted in the first quarter, with top line growth and margin expansion accelerating throughout the year. Slide 10 shows the impact of amortization of intangibles to arrive at our 2021 non-GAAP guidance. We're pleased with our performance in a challenging year in 2020 with our guidance for 2021 and 1-year after we outlined our high level outlook through 2025, we are increasingly confident in our ability to deliver top tier revenue growth and operating margin percent expansion in the mid to high 30s during this timeframe. Now I'll turn the call over to Dan to highlight our continued R&D progress.

[Dan Skovronsky, President of Lilly Research Laboratories]

Thanks, Josh. I'm pleased that bamlanivimab is now available for patients with more than 250,000 doses distributed throughout the United States to most hospitals and other health care facilities. Bamlanivimab is also authorized for use with growing availability in several additional countries in North America, Europe and the Middle East, and we're excited about our opportunity to potentially help people suffering from COVID-19 around the world. I'm also encouraged that this year, despite the impact of pandemic on clinical trials, and our decision to allocate significant resources to our efforts on COVID-19 therapies, we didn't waver in our commitment to all the other diseases we fight, and we didn't slow our progress. As Dave summarized, we've had an extremely productive year with many significant positive events and data disclosures. In the past weeks, we've shared exciting data on two of our key assets, LOXO-305 and tirzepatide. At ASH, we presented important data for LOXO-305, our oral highly selective, non-covalent BTK inhibitor in chronic lymphocytic leukaemia, small lymphocytic lymphoma, mantle cell lymphoma, and other Non-Hodgkin's lymphomas. As we treated more patients in the program and follow them for longer, our excitement has only grown and we think this drug has the potential to be very meaningful for patients. Our original hypothesis for LOXO-305 was deliver a drug that was focused on BTK with C481 S acquired resistance mutation. We've been delighted to see that hypothesis expand since LOXO-305 entering the clinic, generating responses in patients regardless of BTK mutation status and regardless of prior therapy, underscoring our enthusiasm for this asset to potentially impact a much broader patient population that originally envisioned. The covalent BTK inhibitors have transformed the treatment paradigms for patients with B cell leukemias and lymphomas. As a result, tens of thousands of patients currently receive these drugs. However, once patients relapsed on these agents, the therapeutic options offer either weak risk benefit or complex administration. We believe LOXO-305 may become an important new therapeutic option for these patients. As of the September 27 data cutoff date, 323 patients were enrolled in the BRUIN study, and efficacy data for 269 of these patients were evaluable. This included all patients who had at least one response assessment, as well as any patients who discontinued prior to a first response assessment. On Slide 11, you can see the efficacy data from LOXO-305 in CLL/SLL. These patients have received a median of three prior lines of therapy and LOXO-305 showed an overall response rate of 63% in 139 patients. Importantly, as has been observed with the covalent BTK inhibitors, the overall response rate increased as patients were followed longer. As BRUIN remains an actively accruing trial, our ORR point estimate and any moment in time does not reflect the potential ORR once all patients are followed for many months. Notably at this data cutoff, the ORR was 86% in patients who were followed for 10 or more months. In CLL/SLL patients, the overall response rate was consistent regardless of the reason for prior BTK discontinuation, BTK mutation status, or other classes of prior therapy received. We observed similar activity even in patients treated with all classes of available therapy, chemo immunotherapy, BTK, PI3 kinase and venetoclax. As the data cut off 94% of the responding CLL/SLL patients remained on therapy, and the longest followed responding patient continued on treatment at nearly 18 months. Moving to Slide 12. You'll see data from LOXO-305 and mantle cell lymphoma, which shows an overall response rate of 52% in 56 patients, including 14 complete responses. Enrolled patients with MCL had received a median of three prior lines of therapy and nearly all patients had received prior chemo immunotherapy and BTK inhibitor. The durable responses in BTK pretreated MCL are particularly notable in this patient population, given poor outcomes with existing therapeutic options. As of September 27, 83% of responding patients remain in response in home therapy. It is important to note that outside of the striking overall response rates observed in CLL and MCL, LOXO-305 also showed emerging efficacy in patients with Waldenström's macroglobulinemia and other non-Hodgkin's lymphoma. So far, we've been pleased with the safety profile observed for LOXO-305. Across all patients treated only 1.5% of patients have discontinued due to treatment related adverse events. We've not observed any dose limiting toxicities, and a maximum tolerated dose has not been identified. We also pay close attention to adverse events frequently associated with the covalent BTK inhibitors and to date have rarely seen them occur. Given the impressive results generated with LOXO-305, we've designed a robust Phase 3 development program to begin in 2021 as shown on Slide 13. The significant unmet medical need exists in CLL and MCL and our development plan will focus on establishing LOXO-305 as the preferred agent for patients with relapsed disease following a covalent BTK inhibitor, and we'll also include a head to head superiority trial comparing LOXO-305 to ibrutinib in first line CLL. In 2021, we plan to initiate four global clinical studies, three in CLL and one in MCL. In CLL, we're preparing to begin two clinical trials in BTK pretreated patients. One will study LOXO-305 as continuous monotherapy versus the investigators choice of idelalisib plus rituximab or bendamustine plus rituximab. The second trial with study LOXO-305 in a 2-year time limited regimen added to the [technical difficulty] regimen studied in the [indiscernible] trial. These two trials are expected to start in the first half of 2021. The first line head-to-head study of LOXO-305 in CLL is expected to start later in 2021. In MCL, we plan to initiate a head-to-head Phase 3 trial of LOXO-305 versus investigators choice of covalent BTK inhibitor in relapsed refractory patients in early 2021. While we're very encouraged by these data, and plan to discuss the potential for accelerated approval, NDA submission with the FDA in the second half of 2021, we recognize that single-arm accelerated approvals for hematologic malignancies can be quite challenging, and will require further discussion with regulators before we can commit to submission or timing. We look forward to launching our Phase 3 program and are excited about the opportunity with LOXO-305 and the potential benefits for patients across a number of indications. Moving to tirzepatide. We're delighted to continue to build on our nearly 100-year heritage of delivering innovation for people living with diabetes, with the first Phase 3 readout for our GIP/GLP-1 receptor agonist. Moving to Slide 14. As we noted in our Investor Call last month, we intentionally designed the SURPASS program to enroll a broad range of patients living with Type 2 diabetes to demonstrate the positive impact we believe tirzepatide can have in treating patients with diabetes. Given the differences in baseline characteristics across studies, it's reasonable to expect differences in the hemoglobin A1c and weight benefits observed with tirzepatide at key endpoints. As you can see, SURPASS-1 tested tirzepatide in an earlier stage diabetic population that had no oral anti-diabetic medication for the 3 months prior to the first visit, as well as for the duration of the trial, and were naive to injectable therapy. We're excited with the results from SURPASS-1. It was a great start for the SURPASS program with strong efficacy across all three doses and we look forward to seeing results in people who are later in their course of diabetes in the upcoming readouts from the SURPASS program. On Slide 15, you can see the results for change in hemoglobin A1c and body weight at 40 weeks. The study participants having a relatively short mean duration of diabetes, and over half being treatment naive, we're excited by these initial results from the SURPASS program. The strong performance by the lower doses are particularly relevant in this earlier stage patient population. In the analysis for the efficacy estimate, tirzepatide showed a statistically significant reduction in hemoglobin A1c compared to placebo across the 5, 10 and 15 milligram doses with the 15 milligram dose achieving a reduction of 2.07%. In addition to the significant improvement in hemoglobin A1c, we also saw impressive reductions in body weight. Tirzepatide demonstrated dose dependent response on weight loss with patients on the 15 milligram arm losing 9.5 kilograms or 11% of their body weight. Moving to Slide 16. Tirzepatide also enabled nearly 90% of patients across all three doses to achieve hemoglobin A1c of less than 7%, which is the American Diabetes Association recommended hemoglobin A1c target for people with Type 2 diabetes. Additionally, over 50% of patients in this 15 milligram tirzepatide arm chief hemoglobin A1c below 5.7%, a mark of glucose level seen in people without Type 2 diabetes. We believe this is an unprecedented finding on an important new measure to assess the impact of diabetes medications. The 5 and 10 milligram doses saw over 30% of patients achieve this level of HbA1c target. We're encouraged that these significant improvements in glucose levels were achieved with no events of severe hypoglycemia or hyperglycemia less than 54 milligram per deciliter. Today, Type 2 diabetes is largely a treat to fail disease. With these results, perhaps tirzepatide, if approved, could provide options for physicians treating patients who are earlier in their diabetes course, potentially helping them achieve normal glucose levels. Moving to Slide 17. The overall safety profile was similar to the well established GLP-1 receptor agonist class. And the most commonly reported adverse events were GI related and mild to moderate in severity. We are very encouraged by this initial look at the potential impact of the new stepwise dose escalation schedule, starting with a low dose of 2.5 milligram that we implemented for our Phase 3 program, and how it may have contributed to improve tolerability for patients. Treatment discontinuation due to adverse events were less than 7% in each dose arm. In addition, with the acknowledged limitations of cross trial comparisons, the rates of nausea, diarrhea and vomiting showed encouraging improvements across all three doses. With the 15 milligram treatment arm showing a meaningful improvement as compared to the Phase 2b study. We look forward to monitoring the potential impact of the new dose escalation schedule as we get further readouts from the SURPASS program. We shared in the press release also the total treatment discontinuation rates across all arms. The treatment discontinuation rates for SURPASS-1 were in line with rates we typically observed in GLP-1 trials. We noted the 15 milligram and placebo arm -- arms had more treatment discontinuation than the other arms, and that a majority of the discontinuations were due to reasons other than adverse events. There are a number of reasons that a patient may discontinue in a trial beyond adverse events. Examples of reasons why a patient may choose to withdraw can be for family or personal reasons, work related issues or concerns to the coronavirus pandemic. On Slide 18, we outline the robust set of additional data that will be generated in coming quarters. We expect top line readouts for SURPASS-3 and SURPASS-5 in the first quarter and SURPASS-2 by Q2. We also expect first half readouts for SURPASS-J mono and SURPASS-J combo or Japan monotherapy and safety add on studies. The gating factor for global submission is the completion of SURPASS-4, with a current estimate of mid 2021. But that could vary depending on event rate. A study completion is contingent on accruing a pre-specified number of cardiovascular events. We also have an ongoing cardiovascular outcome trial to support a potential CV indication. SURPASS-CVOT. The first Type 2 diabetes CV outcome trial against an active competitor with a CV benefit. While contingent on event rate, we expect the 12,500 patient trial to read out by 2025. For the broader tirzepatide development program, we look forward to initiating three new obesity studies in 2021 for the SURMOUNT Phase 3 obesity program. We note that SURMOUNT-1 is projected to read out in 2022. In addition, I'm pleased to announce that next year will also start summit HFpEF, the Phase 3 study in patients with obesity and heart failure with preserved ejection fraction, adding a potential fifth indication to the tirzepatide development program. We are excited to be closing the year with these two high profile data readouts, excellent examples of progress from internal and external innovation. We began 2020 adding lebrikizumab to our Phase 3 pipeline through the acquisition of Dermira. And we're closing the year with today's announcement of the acquisition of Prevail Therapeutics, bolstering our preclinical and early phase efforts. As we build out new modalities in our research efforts, this deal adds another promising area of drug discovery and development for Lilly by creating a gene therapy program that will be anchored by Prevail's portfolio of clinical and preclinical gene therapies across Parkinson's disease, frontotemporal dementia, ALS, Alzheimer's and other neurodegenerative disorders. In addition, we believe this acquisition will bring critical technology and highly skilled teams to augment existing expertise at Lily. We're encouraged by the pipeline progress we've made in 2020 across all of our therapeutic areas. We look forward to carrying that momentum into next year. While I won't describe each of the potential events listed on Slide 19, I'd highlight the following key 2021 events. Phase 3 initiations including abemaciclib for HR positive HER2-positive early breast cancer, LOXO-305 and MCL and CLL, and tirzepatide obesity and HFpEF. Phase 3 and other key data disclosures including baricitinib for alopecia areata and lupus, mirikizumab for ulcerative colitis and lebrikizumab for atopic dermatitis. Donanemab and zagotenemab in Alzheimer's disease, empagliflozin for HFpEF and tirzepatide SURPASS, 2, 3, 4 and 5 in Type 2 diabetes. Detailed data disclosures from the SURPASS program and Phase 1 data from our oral SERD, regulatory submissions for Sintilimab on our COVID-19 neutralizing antibody combination therapy for tirzepatide for Type 2 diabetes. And potential regulatory options for empagliflozin for HFrEF abemaciclib for high risk HR positive HER2-negative early breast cancer. They're sitting in for atopic dermatitis and tanezumab in moderate to severe osteoarthritis pain. We look forward to keeping you updated on our progress on these key events throughout the coming year. Now I'll turn the call back over to Dave for closing remarks.

[Dave Ricks, Chairman and CEO]

Thank you, Dan. Moving to Slide 20, let me sum up our outlook for 2021. We expect to deliver strong double-digit revenue growth. Net of COVID-19 therapies this translates to approximately 10% growth. As our key growth products continue to scale and deliver double-digit volume growth. We will continue to expand margins with non-GAAP operating margin projected to improve by roughly 200 basis points versus 2020. As we drive uptake of new medicines and scale existing ones within our current commercial footprint. For R&D, we have a number of meaningful data readouts throughout the year. Anticipate regulatory action on several key NILEX. We look forward to submitting our COVID-19 combination therapy and will initiate the LOXO-305 Phase 3 program. In early phase development, we have a number of potential first-in-class or best-in-class molecules with potential proof-of-concept readouts across our portfolio. Yesterday we raised the dividend by 15% for the third straight year, reinforcing our confidence and the outlook of the business and its strong cash flow generation during this remarkable sustained period of productivity and growth. We will continue to allocate capital job opportunities which drive the future growth of Lilly, while returning excess capital to our shareholders. Lilly fulfilled its purpose in 2020 in new and profound ways. We entered 2021 emboldened by the lessons we have learned from the pandemic. The agility and persistence we have displayed and the knowledge that we are supported by one of the freshest portfolios in the industry, with more exciting data readouts and innovation on the way. We have a remarkable opportunity before us. And we are privileged to work each day to deliver extraordinary value to our shareholders, our customers, our employees, and our communities. I will now turn it back over to Sara to moderate our Q&A session.

[Sara Smith, Director of Investor Relations]

Thanks, Dave. We'd like to take questions from as many callers as possible. So we ask that you limit your questions to two into a single question with two parts. Cynthia, please provide the instructions for the Q&A session and then we're ready for the first caller.

[Operator]

Certainly. [Operator Instructions] Our first question will come from the line of Chris Schott with JPMorgan, and your line is open.

[Chris Schott, JPMorgan]

Great. Thanks so much for the questions. Just two for me. I guess, first, a bit more detail on the impact from the 340B revised program you have. I guess, specifically, how large has this been as a percent of your business? I just want to make sure I was clear on the impact that limited distributions having on results. So maybe just bridge the low to mid single-digit price erosion in the U.S with the benefit you're seeing here. I just want to make sure I understood those comments. And then my second question was a product question on Taltz. This seems to be a product where we always have this kind of balance of volume growth versus pricing headwinds as you build access. So on 2021, just a little bit more clear on the magnitude of pricing headwind we need to think about here. Is this something that's meaningfully greater than the overall portfolio or just a little bit worse? And then looking long-term, we'll reach a point as we look out to 2022 and beyond where pricing becomes less of a headwind for this franchise, and we can think about volume growth as maybe a better proxy for overall sales growth? Thanks so much.

[Sara Smith, Director of Investor Relations]

Thanks, Chris. We'll go to Josh for both of those questions.

[Josh Smiley, Chief Financial Officer]

Hi, Chris, thank you, On 340B, yes, so what we've said is a 2% to 3% improvement on underlying price as a function of the change we're making in 2021. As we've talked about in other settings, this is -- it's a messy part of our segment. So that's an estimate at this point and we'll monitor that during the year. 340B, what we've said is when we look across our entire segment mix, about 10% of our business is in government-related segments other than Medicaid and 340B has been the biggest part of that and the fastest growth driver. So that's how you get at the numbers. We are seeing benefits in the fourth quarter from this change. So really, we're just projecting those forward into 2021. Of course, it is variable. I mean, the patients who are being submitted for these rebates, of course, we have to see what happens with them. As we've said in other settings as well, they don't typically get any benefit from these rebates, but we'll have to see how they sort of migrate through the system and otherwise. But I think at this point, assuming a 2% to 3% price benefit in at one-time by price benefit in 2021 is a reasonable place to start. For Taltz, yes, I think what we’ve seen over the last few years, as you know, we launched behind Cosentyx and we're at a significant disadvantage perspective, both in terms of relative to the TNFs and then on a comparative basis relative to Cosentyx. Over the last few years with upgrades, we, I think, have moved to a position where we are in a more favorable access position. So I think going forward, we should expect to see the normal dynamics play out in terms of pricing dynamics each payer will look to make decisions on an annual or every few year basis. So we'll continue, I think, to have the ups and downs that come with that. But I think we feel really good about starting 2021 in a much better position from an access perspective. So that, physicians can prescribe Taltz and patients can get it without going through nearly as many steps or prior authorizations as they have had historically.

[Josh Smiley, Chief Financial Officer]

Thanks, Josh. Next caller please.

[Operator]

Thank you. We'll go through the line of Tim Anderson with Wolfe Research, and your line is open.

[Tim Anderson, Wolfe Research]

Thank you. Question on tirzepatide. So SURPASS-1 results and getting -- patients getting to that A1c level of 5.7 or below, which is euglycemia. You gave the range for what you saw in that trial. It's surprisingly hard to find published like-for-like data with other compounds. So maybe you can talk about what you know on that front? And then, how robust was this finding? Namely, was it something that was prespecified, because you anticipated you might show a big benefit? And is it a prespecified endpoint in subsequent trials? And in those subsequent trials, I'm guessing because of the higher baseline characteristics on both weight and blood sugar, you could see this benefit moderate. I'm just trying to figure out if this is real commercial differentiation. And we're starting to see an important suggestion that this could be a very different type of product, or whether that initial finding was a little bit spurious?

[Sara Smith, Director of Investor Relations]

Okay. We'll go to Mike Mason for that question.

[Mike Mason, President of Lilly Diabetes]

Thanks, Tim, for the question. And obviously, that was a very important result for us in a endpoint that we did specify beforehand. If you look at treating diabetes - Type 2 diabetes, you -- the holy grail is can I have -- can I get people to reach normal A1c without hypoglycemia. Really haven't seen products before there be able to approach that. With insulins, with a small therapeutic window, you have the risk of hypoglycemia. And then with other Type 2 agents, we've never had a drug that's been powerful enough to really get down to normal A1c. I think the best data I've seen is from our Phase 2 tirzepatide studies, in which we did head-to-head versus dula. And with dulaglutide, we showed a 2% of people returning to the normal A1c versus in that trial over 40% for the 15 milligram dose. And so I do think this is a significant milestone in the treatment of Type 2 diabetes. But we’re excited about the opportunity that this can provide the people living with Type 2 diabetes. Typically, in this early-stage population, people do treat the failure with products they know are going to fail. We hope that this will now give us the ability to play more offence and actually treat to success. So we're excited about this. As it pertains to SURPASS-2 to 5, we're excited to see what tirzepatide can do when longer studies with people who are longer duration with diabetes, and we'll see how that measure works out for people who have later-stage diabetes. But we’re very impressed and very thrilled with the results from SURPASS-1.

[Sara Smith, Director of Investor Relations]

Thanks, Mike. Next caller please.

[Operator]

We will go to the line of Andrew Baum with Citi, and your line is open.

[Andrew Baum, Citi]

Thank you. Two questions, please. Firstly, picking up on the 340B discussion. Could you talk to and I know that pricing is confidential, and it's only restricted to non-Medicare patients. But could you give us some sense of the delta to the list price between specialist products, oncology products, for example, like CDK4/6s, and the primary care products for diabetes. I'm just trying to think about the magnitude of the benefits looking at the future outlook of Verzenio and LOXO-305 assuming it gets approved. Given the importance of those two drugs, trying to think about the [Technical Difficulty] on the business. And I apologize I'm hearing my own voice, so I'm pausing between sentences. And then second, just remind us is there’s a payer way to Redx for LOXO-305, and if so what magnitude this is? Many thanks.

[Sara Smith, Director of Investor Relations]

Thanks, Andrew. We'll go to Josh for the first question and Jake for the second question on 305.

[Josh Smiley, Chief Financial Officer]

Thanks. Thanks, Andrew. On the difference between list price and net price across our portfolio, just to remind you that, we do report at the portfolio level. In our integrated report, our total spread, and for 2019, that was – it was 43%. So we -- the difference between our list and what we actually achieved at net price of 43% was the net price number. Now, if we look across the portfolio, that spread tends to happen in a couple of different ways. First, for all of our products, so longer they – thelater they are in their lifecycle, the more spread there is, as a function of government impose penalties on price increases above inflation and competitive dynamics. The second piece, then, of course, is where the majority of the price – where the majority of the volume is. So in our products in diabetes, where the number one segment is commercial managed care. We tend to provide competitive discounts in that setting and you see a bigger spread in products that tend to be more in Part B, or in less dynamic classes, you see less. So long way of saying, I think, if you look at our oncology products, we tend to have a much closer alignment, particularly the newer products much closer alignment between list and net and a much wider variance.

[Andrew Baum, Citi]

I guess, we’ll probably get to – expressly to the 340B impact?

[Jacob Van Naarden, Chief Operating Officer Loxo Oncology at Lilly]

Well the 340b impact -- Andrew, the 340b impact is effectively Medicaid. I mean, that's what the price calculation is. So it's the same idea. If you have a long life cycle product that has significant discounts in commercial settings, you get to a big spread between less than what you get in your government settings. So you'll see that for sure in diabetes products. You don't see that in oncology products to any large degree. Sorry.

[Dave Ricks, Chairman and CEO]

There's a question for Dan I think as well.

[Sara Smith, Director of Investor Relations]

Dan, I think we'll go to Jake for LOXO-305.

[Jacob Van Naarden, Chief Operating Officer Loxo Oncology at Lilly]

Sure, Andrew. Your question, I believe is about economic residuals on the 305 program to [indiscernible] and the answer is, there are none.

[Tim Anderson, Wolfe Research]

Thank you.

[Sara Smith, Director of Investor Relations]

Thanks, Jake. Next caller please.

[Operator]

Next we will go to line of Terence Flynn with Goldman Sachs, and your line is open.

[Terence Flynn, Goldman Sachs]

… … progress this year. Two for me, I was just wondering if maybe Mike, you could share your perspective on commercial positioning of chairs tirzepatide based on the initial Phase 3 data, and any details on the power and assumptions of the head to head trial versus some? And then another question for either Dan or Jake on LOXO-305. Beyond the additional safety data, what are the key outstanding questions here for the asset? And are you seeking breakthrough therapy designation? Thank you.

[Sara Smith, Director of Investor Relations]

Thanks, Terrance. We'll go to Mike Mason for the first question on tirzepatide appetite, and then Jake on the question for LOXO-305.

[Mike Mason, President of Lilly Diabetes]

Yes, good question on tirzepatide. It's a wonderful commercial and patient focused problem to solve with the results that we saw. I think for us, it comes back to right now that Type 2 diabetes is treated to fail. And so typically, you use generic orals, and then branded orals that you know are going to not get people to normal A1c. And so I think, for -- what we see what tirzepatide is the ability to really reset expectations, and reset those back to potentially normally, when see. And so we're excited about the option, we think this is an opportunity to not only provide good AIc and weight loss, but also really, really helped the overall metabolic health of those living with Type 2 diabetes. So we're very excited about the position of that product. As it goes to the powering, I'll turn that over to Dan to answer any questions on the powering of the [indiscernible] study?

[Dan Skovronsky, President of Lilly Research Laboratories]

All right. Sure, Mike. I will just jump and naturally it's adequately powered. And what we saw in this first readout only reinforces our confidence and our ability to have a successful study in the head-to-head.

[Sara Smith, Director of Investor Relations]

I think we can go to Jake for the question on LOXO-305.

[Jacob Van Naarden, Chief Operating Officer Loxo Oncology at Lilly]

Sure. So on the first part of the question about sort of what are the key outstanding questions on the data front for the program of the asset. It turns I think, you’ve highlighted safety, that's an important one, obviously, as patients are treated longer, we will naturally accumulate more adverse events, because that's just the nature of what happens in the context of a clinical trial. I think, the nature of what those adverse events are, their grade, etcetera, I think will be important for us to follow over time. Obviously, we feel good about what we've seen so far. But the duration of follow up remain somewhat limited. To that same point, though, I would say, duration of advocacy is another outstanding question that only time will tell. Again, we feel good about where we stand today. But we're limited by simply how long we've had the ability to follow patients from when they’re enrolled. So we learn more every day in that context. I think the last piece is just the nature of where the asset, or where the drug will create the most benefit for patients. And I think, knowing what we know today, we feel very good about the drugs place in the post covalent BTK setting and obviously, we're standing up randomized trials to really prove that. But we feel good about its home there. In the long-term, I think in, let's say first line CLO, where we're going to run a head-to-head trial against the brutnib, I think that's a much riskier place to really lean into, obviously, we feel it's an important question to ask. And we think our data thus far have generated the ability to even ask that question. And, frankly, we like the idea of running, which is why we're doing it, but it's a much riskier proposition. Your second question around breakthrough therapy designation, we don't really comment publicly on the ins and outs of our regulatory conversations, so I can't really comment.

[Jacob Van Naarden, Chief Operating Officer Loxo Oncology at Lilly]

Thanks, Jake. Thanks, Terrance for your questions. Next caller please. Q -

[Operator]

Next, we will go to the line of Carter Gould with Barclays. And your line is open.

[Carter Gould, Barclays]

Good morning, guys. Thanks for taking the questions. A couple more on unlock so 305 and congrats on the data. I guess, in light of you just do commentary there. Jake. Can you maybe help characterize sort of your ambitions and building out the HemOnc franchise. I mean, there's very few sort of single asset HemOnc franchises. Plus space and minus 2 to what extend you view this as sort of a foundational piece you can build around. And then we are going to be getting, I guess the [indiscernible] head-to-head against IMBRUVICA in the not too distant future, that study took almost 6 years, I guess to complete. Is that a fair expectation as we think about that, your head to head study? Or is there something creative you can do using minimal residual disease potentially shorten that timeline? Thank you.

[Sara Smith, Director of Investor Relations]

Thanks, Carter. Oh, go ahead, Jake.

[Jacob Van Naarden, Chief Operating Officer Loxo Oncology at Lilly]

Sorry, and the first question, we like having 305 as an important asset in the portfolio. Obviously, it'll be the company's first foray into hematologic malignancies. We try not to make portfolio decisions strictly around sort of the nature of what we have today. Obviously, if we can advance new candidates that have applicability in hematologic malignancies, and that's obviously a nice boon to the overall portfolio. And as we look externally, it's another axis of our evaluation, but ultimately every product has to stand on its own as being meaningful for patients. And so we still apply that same level of rigor regardless of the fact that we have three or five now. I think three or five has the ability to be a meaningful product for patients and for the company, regardless of what the rest of the hematologic portfolio looks like. And the second question about the calibration of IMBRUVICA head study, I think, without commenting directly on how long our study will take, I'll say that, number one, our study will take a long time because the natural history of patients treated with ibrutinib in the first line setting is good. And so in an event driven progression free survival study, you'd need to accumulate a certain number of events, and that can take a long time to happen. I think the thing to point out that's important is that the calibration of ibrutinib study is a non inferiority design. Whereas we will be testing a superiority question and so the statistical burdens on the study are just different. For those two different types of trial designs. I think, as you know, the main value proposition of drugs like ibrutinib and [indiscernible] are largely around safety. Fortunately, 305 has an emerging safety profile that we think looks very good and very competitive. But the main proposition of 305 is efficacy.

[Sara Smith, Director of Investor Relations]

Thanks, Jake, and thanks, Carter, for your questions. next caller, please.

[Operator]

We will Go to the line of Seamus Fernandez with Guggenheim. And your line is open.

[Seamus Fernandez, Guggenheim]

Great. Thanks for the question. So just a couple here. Hoping to get a sense from Dan, of what you're hoping to see in [indiscernible] study results, which I believe are anticipated to be announced in the first quarter of next year. And what advances the program and what happens if the program does not show a signal? Are you presumably out of the gamma like beta space at that point. The second question is, is on truth appetite, really interested to see this half path in obesity patients study. Can you just give us a little bit of a sense of the scientific underpinnings there. But also, is there potentially a signal of benefit that you anticipate seeing an offer that you are seeing in some of these early follow up from some of your other program. On the cardiovascular front, and then maybe if you could just give us a quick update on your oral surgeon? anticipating some medical meeting presentations? How's that? The surgeon kind of shaping up from your view as the best-in-class, poor combination with abemaciclib. Thanks so much.

[Sara Smith, Director of Investor Relations]

Thanks, Seamus. We will go to Dan for all three of those?

[Dan Skovronsky, President of Lilly Research Laboratories]

Okay. Thanks, Jamie. So I'll start with the Nano [indiscernible]. You're right that we're going to have this trailblazer trial read out. In early 2021, didn't matter of course, is our amyloid lowering drug we've seen in Phase 1 trials that it can clear amyloid plaques to a degree that hadn't previously been seen both in terms of the depth and rapidity of plaque clearance. What are we going to be looking for in the study results? Well, of course, this is a study designed to demonstrate efficacy. So we'll be looking for improvements on cognitive and functional outcomes as well. And Alzheimer's studies, of course, we'll look at biomarker data, I would be surprised if we don't see the expected effect on amyloid plaque larix. But we'll also look for if we if we have a positive clinical efficacy signal, we will also be looking for confirmatory signals on other biomarkers, including tau. That's the back of your data. I think if we see plaque clearing, but we don't see a slowing of cognitive decline, that would be the disappointing results. And then we would think hard about whether or not plaque claring in this population is something worth continuing to pursue, given the strength of this molecule and testing a plaque ladder mechanism. I doubt we would continue to go forward. On tirzepatide path, I think you're should asking why, why pursue this? I think there's, well, first of all, we know a lot about the benefits of tirzepatide, including, of course, prominently weight loss. We also know the positive effects of weight loss and cardiovascular outcomes, particularly in patients with heart failure with preserved ejection fraction. So based on that we can sort of extrapolate effects as we might expect to see. I think you were asking, directly we've seen outcomes in HFpEF patients with some of our other trials with tirzepatide that gave us confidence here, the answer, that's no. This is based on extrapolation from other mechanisms plus the pharmacology and also the physiology that we've seen in tirzepatide. Maybe before we go to oral surd, which I will give Jake an opportunity to talk about, maybe Mike, do you have anything to add on HFpEF?

[Mike Mason, President of Lilly Diabetes]

No, no, Dan, I think you answered the question well. We're excited about the potential to study than as important population with, which is a huge unmet need in the marketplace.

[Dave Ricks, Chairman and CEO]

Right. I think it also ties into our thinking around obesity in general, which is not only is driving down weight, important for patients, it is important for their medical outcomes. And as you treat or even cure obesity, we expect to see a lot less morbidity and mortality from various diseases, including heart failure. Jake or oral, third.

[Dave Ricks, Chairman and CEO]

Sure. So we haven't talked a lot publicly in the context of data, clinical data, around our oral third. Its progressing nicely in a Phase 1 trial. I imagine we'll be in a position to talk more about it in calendar '21. Obviously, it's a competitive space. And so we're monitoring what our competitors are doing as well. But we're happy with what we're seeing so far. I think, strategically, one of the reasons we got into this space to begin with was because of abemaciclib on the premise that owning a CDK4/6 inhibitor and an oral surgeon, the same portfolio would be strategically valuable. And that was circa a year, year and a half ago, I think that idea has only become more profound with the results of abemaciclib in the ad driven setting. It's the only CDK4/6 inhibitor with benefit in that setting. And, you know, now having that strategic asset in the portfolio with [indiscernible] has allowed us to think slightly differently about just our place in the competitive dynamic. So obviously, the clinical data efficacy and safety for oral surgeon has to be on par with our competition regardless, but assuming that that plays out. We like our overall strategic competitive positioning in the space. But I think we'll be in a position to talk more specifically at some point next year, perhaps with some clinical data to speak to as well.

[Sara Smith, Director of Investor Relations]

Thanks, Jake, and thanks Seamus for your questions from here forward, please limit your questions to one, so we can try to get to as many callers as possible before 10 am. Next caller please.

[Operator]

Thank you. We will go to the line of Louise Chen with Cantor. And your line is open.

[Louise Chen, Cantor]

Hi, thanks for taking my question here. So I'm just curious what the opportunity for reversible BTK are in first line and then how do you think about your head-to-head studies and first line CLL/SLL as treatment paradigms could potentially change with this CAPTIVATE study? Thank you.

[Sara Smith, Director of Investor Relations]

Thanks, Louise. We'll go to Jake for that.

[Jacob Van Naarden, Chief Operating Officer Loxo Oncology at Lilly]

Sure. So I think the opportunity is somewhat straightforward. The opportunity in first line is to improve outcomes for patients relative to existing agents, namely ibrutinib. And so, we -- when you look at other areas of targeted oncology, drugs that have meaningful treatment effect on the same target pathway in patients who've relapsed on that same pathway, one line prior those drugs tend to have more pronounced benefit against that same initial agent when compared head-to-head. And so that that's one of the many reasons that we think it's important to ask this question. But it's a very risky clinical trial for a variety of reasons. So again, I think the natural, especially near-term home for the agent for patients is in patients who've relapsed on those drugs. And I think that setting will persist, frankly, regardless of how the first line trials end up. But we think the first line trials are important questions to ask. Your referenced the CAPTIVATE study, time limited therapy, clearly time limited therapy of BTK, BCL 2 combinations, or even just BCL to CD20 combinations are an important emerging trend for the field. We're embracing that trend in the context of the relapse setting with one of our two CLL studies. And so it's a -- something we're paying close attention to, we think it's very real. It may not ultimately be for all patients. But we think it's an important trend to follow. That having been said, you know, if we're going to test the question of whether or not we have the best BTK inhibitor in the first line setting, the right way to do that is with continuous monotherapy head-to-head.

[Sara Smith, Director of Investor Relations]

Thanks, Jake. Thanks, Louise for the question. Next caller, please.

[Operator]

We will go to the line of the Vamil Divan with Mizuho Securities, and your line is open.

[Vamil Divan, Mizuho Securities]

Great. Thank you so much for taking my question. So just a question revolves around baricitinib. And you mentioned the approval for atopic derm, one of the key attractions for next year. So just wondering how you think about that opportunity for that drug and it have a [indiscernible] safety profile, the kind of safety concerns on the jack class, and also maybe the competitive data format, because seriously, I think their system stacks up. And maybe also just the opportunities are U.S versus ex U.S, given [indiscernible] a lot broader uptake outside the U.S to date going to have in the U.S. Thanks.

[Sara Smith, Director of Investor Relations]

Thanks, Vamil. We'll go to Ilya for that question.

[Ilya Yuffa, President of Lilly Bio-Medicines]

Sure, yes. We see bear sitting obviously the data around the atopic dermatitis, an area where we see significant opportunity and unmet need and also under treated. What we see from a [indiscernible] standpoint, we do believe it has a good safety profile in terms of we obviously got approval for atopic dermatitis in Europe and we're awaiting to get approval in the U.S. We do see significant opportunity both U.S and outside of the U.S. We do see that the overall profile both from an advocacy standpoint, and safety is a determinant around dermatology to be -- to utilize [indiscernible] for atopic dermatitis. We see [indiscernible] an important role there. And it's also one where we've seen significant improvement and our success in dermatology as a whole, especially with Taltz and so we see the commercial execution helping our ability to make [indiscernible] with atopic dermatitis. And then also furthering our work in dermatology with our [indiscernible] data there as well. So we do see both atopic dermatitis and the [indiscernible] adding to the commercial opportunity for [indiscernible].

[Sara Smith, Director of Investor Relations]

Thanks, Ilya. Thanks, Vamil for your question. Next caller please.

[Operator]

We will go to the line of Geoff Meacham with Bank of America. And your line is open.

[Geoff Meacham, Bank of America Merrill Lynch]

Hey, guys. Thanks a lot for the question. So Dave, or for Dan, I guess on the Prevail deal announced today, could you speak to how you guys view gene therapy fitting into the portfolio? And maybe what went into the need to add it? And could you eventually expand the technology from neurology into other areas such as HemOnc. Thank you.

[Sara Smith, Director of Investor Relations]

Thanks, Geoff. We will go to Dave for that question.

[Dave Ricks, Chairman and CEO]

Yes, I will start on the strategy side, maybe Dan wants to comment on the portability of Prevail specific. It would be 910 technology to other settings. But we of course, constantly scan the landscape for new modalities that could become important in developing drugs in our core therapeutic areas. Of course, neuro degeneration for us has been core for a long time, although we're we are waiting data to support drug submissions and approval. It's an area of keen interest given our history in neuroscience. That shouldn't be a surprise and with emerging information about gene therapy given its a privileged compartment, the nature of sell turnover, etcetera. The and the well characterized, monogenic diseases that exists there, we became quite interested in companies like Prevail. We did a comprehensive look at the field, we like where they are, GVA was a very well profile target. And they're in the lead using more proven techniques for gene therapy. So it looks like a good entry point. I wouldn't expect this to be our last effort in gene therapy, rather, our first year of course, we have the gene editing transaction earlier in the quarter. And we do see with within neuroscience, their generation reveals a platform to go after a number of important targets. And maybe Dan can comment on beyond neurodegenerative conditions. Yes of course, as they said, CNS just makes a [indiscernible] Lily give on our expertise here also immune privileged, states that neuron cell turnover. But then most importantly, we have highly validated targets with no other disease modifying therapies again. So that's why makes a lot of sense. Let's start here with [indiscernible] progress in CNS. Of course, gene therapy will be used for a variety of different diseases across different organ systems. But this is our starting place and then over time, we built an air.

[Sara Smith, Director of Investor Relations]

Thanks, Dave and Dan. Thanks Geoff for you question. Next caller please?

[Operator]

We will go to the line of Steve Scala with Cowen. Your line is open.

[Steve Scala, Cowen]

Thank you. In 2021, if you take the midpoint of the COVID antibodies sales range of $1 billion to $2 billion, and you apply a 50% net profit margin that equals $0.80 to $0.85 per share. If that is in the ballpark, that implies earnings per share in 2021 will be about flat in the absence of that contribution. This is not a criticism. Perhaps it's just a smart move by management to spend opportunistically, but I just want to understand if that's how we should look at it. And I'm only allow one question, I'd like to make an observation, I am assuming disclosure policy would have required Lily to state in the release if pancreatitis was seen in SURPASS-1. Thank you.

[Sara Smith, Director of Investor Relations]

Thanks, Steve. We'll go to Josh for that question.

[Josh Smiley, Chief Financial Officer]

Steve, I think if you look at the ranges that we're projecting here, if you pull out and what we said in the beginning of the call, we've got somewhere between like $0.30 and $0.85 attributed to COVID. I think so if you pull that out, and then look at midpoint to midpoint 2020 without COVID to 2021 without COVID, we see double-digit, mid double-digit types of EPS growth. So I think maybe it's which parts where you look at it in the range and what you're attributing to COVID versus otherwise, but I think we're very clear there that we see really good underlying business growth, again, probably 10% point -- midpoint to midpoint, top line growth, margin expansion at excluding COVID, that gets you double-digit EPS growth, and we think that's a good harbinger of how the next 4 or 5 years will look for us.

[Sara Smith, Director of Investor Relations]

Okay, thanks. And quickly to Dan, if you want to comment on Steve's observation about pancreatitis.

[Dan Skovronsky, President of Lilly Research Laboratories]

Yes, I have no idea whether that's something we would disclose or not. But I can just tell you now that we did not think it is next trial.

[Steve Scala, Cowen]

Thank you.

[Sara Smith, Director of Investor Relations]

Thanks, Dan, and Josh. Thanks, Steve, for your questions. Next caller please.

[Operator]

We will go to line of Ronny Gal with Bernstein and your line is open.

[Ronny Gal, Bernstein]

Good morning. Congratulations on a very fine year. Quick question around the assumptions around biosimilars in both the basal and the fast acting market in 2021, how'd you factor those into guidelines?

[Sara Smith, Director of Investor Relations]

Thanks, Ronny. We'll go to Mike Mason for that question.

[Mike Mason, President of Lilly Diabetes]

Thanks Ronny for the question. We don't see any incremental impact for biosimilars in the U.S market. They've not been able to get access on payer formularies. And because of that, we don't see an impact in 2021. Thanks.

[Dan Skovronsky, President of Lilly Research Laboratories]

Maybe just to jump in, just to remind everyone that starting January 1 Part D $35. Cap program kicks in, which will have the effect of reinforcing brand usage in Part D. So, affordability improves pretty dramatically for a large number of Americans and probably goes to the incumbents in that setting?

[Sara Smith, Director of Investor Relations]

Thank you, Dave and Mike, and thanks Ronny for the question. Next caller please.

[Operator]

We will go to the line of David Risinger with Morgan Stanley, and your line is open.

[David Risinger, Morgan Stanley]

Yes, thanks very much. So my question is for Josh. Josh, could you just go back to a little bit higher level in terms of net price prospects in 2021? So could you just recap for the total company, what you expect the percentage impact of net price will be in 2021? And then provide what do you expect for the U.S and ex-U.S? And then also, if you could comment on 2022. So should we expect the percentage changes in price to weaken, meaning get worse in 2022, because you won't have a recurring benefit of the changes to 340b such that the U.S net price pressure would be worse in 2022. Any color beyond 2021 would also be helpful. Thank you.

[Sara Smith, Director of Investor Relations]

Thanks, Dave. We'll go to Josh for this.

[Josh Smiley, Chief Financial Officer]

Yes. Thanks, Dave. I was hoping just to be done with 2021 and move on. So first, to be specific about our 2021 guidance. I think when we look on a worldwide basis, we'd see mid single-digit price declines. We're going to see probably highest in China as a function of NRDL we mentioned. We'd expect to have other products compete and be added NRDL, we see a significant price hit there more than compensated by volume. So it'd be probably number one. Japan, we would see modest price declines as a function of the normal pricing environment there and probably pretty stable in Europe. Stable meaning mid single-digit decline. So I think outside the U.S., you put all that together, we'll see in the mid single digits. In the U.S., our underlying trend, as we've been talking about for many years is probably mid single-digit. We do get the benefit of the 340b sort of reset, that would bring us down to low single digits in the U.S. You put all of that together, I think on a worldwide basis, again, you're still probably in the mid single-digit decline, highest in China, lower in the U.S. I think the trend then for '20 to 2022, again, probably are from a competitive perspective, probably still in that same sort of mid single-digit range. Of course, there's a lot that will happen between now and 2022 on the legislative administrative side in the U.S. I think we were happy with the competitive dynamics for our products. I don't see anything fundamentally changing in terms of trends for 2022, other than what we may see on the structure side.

[David Risinger, Morgan Stanley]

Thank you.

[Sara Smith, Director of Investor Relations]

Thank you, Josh and thanks Dave for your question. Next caller, please.

[Operator]

We'll go to the line of Greg Gilbert with Truist Security, and your line is open.

[Greg Gilbert, Truist Security]

Thank you. Dave, given your new role as Board Chair at Pharma, I was hoping you could weigh on whether the industry can support meaningful reform despite some companies being more worried about Part D versus others more worried about Part B and other differences that you're probably more aware of than I am. It seems like a golden opportunity for the industry to get something meaningful done and what should be a pretty centrist regime. Thanks.

[Dave Ricks, Chairman and CEO]

Hey, Greg. Thanks for the question. I think the way you characterize that question, that's how we see it. Both Lilly and I think the majority of Pharma Board members that the backdrop for improving patient affordability while maintaining strong innovative environment and the base of the industry that has led us to such a successful year responding the pandemic is as good as it may get. And the pressure continues to build on out of pocket, pay at the pump costs. So I tend to agree. Getting alignment on the -- always depends on the particulars between the two parties. The setup in the Senate will matter for that tactically and then between companies. So specifics matter. It's hard to say, that will happen or that can't happen. But what I can tell you is the spirit is to try to get to yes, to move forward ideas, whether they be administrative or legislative that can help out of pocket affordability for Americans and recognizing the moment, maybe now to do that.

[Sara Smith, Director of Investor Relations]

Thanks, Dave. Thanks, Greg for the question. Next caller please.

[Operator]

We will go to the line of Umer Raffat with Evercore ISI, and your line is open.

[Umer Raffat, Evercore ISI]

Hi, thanks so much for taking my questions. First on the covid mAb, Jake could you remind us how much of that $1 billion to $2 billion is stockpiling versus regular? And I asked because there's a possibility of oral customer becoming available in January. And Dan on SURPASS-1, it looks like there was a baseline imbalance on weight, maybe placebo in the high 70s and [indiscernible] appetite arms in mid to high 80s by our math. This wouldn't have mattered much on placebo adjusted weight loss. Placebo doesn't move much. But I do wonder, was there an imbalance on A1c as well? And if Jake could give us a sense for 4 hours by a performance status zero versus one, thank you.

[Sara Smith, Director of Investor Relations]

Okay. And we'll go to Josh for the first question, Dan, for the second question and then Jake for the final question.

[Josh Smiley, Chief Financial Officer]

Hi, Umer. On the monoclonal antibodies, what we're really projecting, is it so no stockpiling assume they're the $1 billion to $2 billion range that we have for 2021? Would there's much more immediate demand for the benefits of those products and would be encompassed in that number. So what we're really looking at is just what are the purchase agreements that we have in place today, and what's likely to come in the early part of next year. So we're not assuming any kind of long-term stock piling or anything in that regard.

[Sara Smith, Director of Investor Relations]

Okay. Thanks. We will go to Dan for the question on tirzepatide.

[Dan Skovronsky, President of Lilly Research Laboratories]

Sure. So you're asking about the baseline characteristics of the placebo group versus the three drug groups. We didn't see imbalances. They were well balanced for demographics and clinical characteristics, including A1c and weight or BMI for placebo versus drug.

[Sara Smith, Director of Investor Relations]

Thanks, Dan, and then Jake for LOXO-305.

[Jacob Van Naarden, Chief Operating Officer Loxo Oncology at Lilly]

Yes, I think the question was about differences in activity based on performance data. [Indiscernible] not announced as we perform, so I don’t know the answer. But given the prior therapy and the extent of prior therapy is likely correlated with performance status, and we didn't see an effect on activity in the context of varied combinations of prior therapy. I think that's a somewhat of a read through in your question, but not a direct answer, because I simply don't have the data.

[Sara Smith, Director of Investor Relations]

Okay, thanks, Josh, Dan, and Jake, and thanks Umer for your questions. That exhausts the queue, and we'll go back to Dave to close out the call.

[Dave Ricks, Chairman and CEO]

Okay. Thank you, Sara for hosting today. We appreciate your participation in today's call and you're interested in Eli Lilly and Company. As you've heard today, we've made meaningful progress in 2020 and are committed to another year of growth, margin expansion and advancement of our innovation based strategy in 2021. Thanks again, for dialing in everyone. Please follow up with the IR team if you have questions we didn't address on today's call. Have a great holiday and a great holiday period and a safe time with your families. Thank you.

[Operator]

Thank you and ladies and gentlemen, that does conclude your conference call for today. Thank you for your participation and for using AT&T Executive teleconference service. You may now disconnect.