Eli Lilly and Company (LLY) Q2 2008 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to your 2008 Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session. Instructions will be given at that time. [Operator Instructions]. As a reminder, this conference is being recorded. I would like to turn the conference over to the Executive Director of Investor Relations, Mr. Phil Johnson. Please go ahead, sir.

Good morning, and thanks for joining U.S. for the Eli Lilly and Companies second quarter 2008 earnings conference call. I’m Phil Johnson, Executive Director, Investor Relations. I’m joined today by our Chief Executive Officer, John Lechleiter; our Chief Financial Officer, Derica Rice and Jim Greffet and Ronica Fletcher from the IR Department. You can access the earnings press release and supporting materials, a live webcast and Internet-based replay and a podcast of this conference call at lilly.com. The replay, the supporting materials and the podcast will be available on our website through August 2008. During this conference call, we anticipate making projections and forward-looking statements that are based on management’s current expectations. The actual results may differ materially due to various. factors. For example, our results may be affected by competitive developments, the timing and success of new product launches, regulatory and legal matters, patent disputes, government investigations, governmental actions regarding pricing, importation and reimbursement, changes in tax law, acquisitions, business development transactions and the impact of exchange rates. For additional information about the factors that affect our business, refer to our Forms 10-K and 10-Q. In addition, 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. Now, let me turn the call over to John.

Thanks, Phil. Continuing the approach I started on our first quarter call, let me begin with an update of progress on my top priorities. My number one priority is to speed up the flow of innovative new products through our development pipeline. Slide two shows great results through the first half of the year. Through the end of June, seven new molecular entities have entered Phase I testing and we are on track toward our goal of 15 NMEs entering the clinic this year. In addition, through our fitness strategy, we have reactivated two other compounds in our Phase I portfolio. Also, four NMEs have advanced into Phase II testing and one compound, the gamma-secretase inhibitor for Alzheimer’s disease has moved into Phase III. We also continue to supplement our own innovation with collaborations. Earlier this month, we announced the acquisition subject to shareholder approval of SGX Pharmaceutical. This acquisition will provide Lilly with cutting-edge capabilities in X-ray crystallography and structural biology. In the second quarter, we also announced a licensing and development agreement with TransPharma Medical related to TransPharma’s ViaDerm human PTH 1-34 product for the treatment of osteoporosis, currently in Phase II testing. Earlier in the year, we announced a licensing deal with Transition Therapeutics and closed the BioMS deal. Furthermore, during the second quarter, we’ve had a number of successes on the regulatory front. The FDA approved Cymbalta for the management of fibromyalgia. The European CHMP issued a positive opinion on Cymbalta for the treatment of generalized anxiety disorder. We submitted Cymbalta for management of chronic pain to the FDA. The FDA approved Strattera for maintenance treatment of attention deficit hyperactivity disorder in children and adolescence, and the FDA and European regulators approved the next-generation pen for Forteo. In other developments, on the Prasugrel front, we were informed by the FDA that there would be -- that the review period for the ACS PCI indication would be extended by three months, with a new FDA action date of September 26, 2008. Also, along with our partner Daiichi Sankyo, we began patient enrollment in the TRILOGY ACS study, which will compare the affects of Prasugrel against Plavix and patients with acute coronary syndromes who are medically managed. We submitted the complete response to non-approvable letter from the FDA for Zyprexa long-acting injection. This complete response included proposals to manage the risk of excessive sedation events and did not require new clinical trial data. Finally, along with our partner Amylin, in the second quarter, we had our pre-NDA meeting with the FDA for exenatide once weakly. Following this meeting, we believe the DURATION-1 we reported last year provides the necessary safety and efficacy data for the submission. We are still guiding to a submission by the end of the first half of next year, but we are focused on moving the submission date forward. The key factor to submission timing is showing comparability between the commercial material manufactured at the facility in Ohio and the intermediate scale material Used in clinical studies. We’ll provide updates as this process continues. Slide 3 shows the snapshot of our clinical pipeline as of early July and the flow for the first half of this year. You can see that we now have 50 new molecular entities in development. This slide also shows the flow through the pipeline. As I mentioned earlier, seven molecules have entered the clinic this year, targeting diseases such as cancer, diabetes, obesity and atherosclerosis. One aspect of drug development to be expected is attrition, and we have terminated development of five new molecular entities so far this year. We’ve previously indicated that a toxicology finding had been observed in long-term animal studies with our Factor Xa Inhibitor. After completing a thorough review of the data, we have decided to halt clinical development of this compound. Beyond Factor Xa, four NMEs in Phase I or II clinical testing have not met critical success factors to continue their development and have been terminated. We are committed to making timely go-no-go decisions and terminating molecules quickly that do not show promise. Importantly the net flow so far this year is positive. More compounds have entered the portfolio than have been removed from it. Beyond the new molecular entities, we have a large number of new indications and line extensions in development. A number of these are a significant opportunities including Alimta for first line non-small cell lung cancer and non-small cell lung cancer maintenance, Cialis for BPH, Cymbalta for chronic pain and Prasugrel for medical management of ACS, among others. I am confident in the strength of the pipeline and the flow we are generating. This pipeline along with our business development efforts, places Lilly in a solid position to deal with the patent expiry challenges for the next decade and to deliver on our goal of launching two NMEs per year starting in 2011. As a final item relating to the pipeline on slide four, I would like to share with you an update on our lead programs for Alzheimer’s disease, the gamma-secretase inhibitor and A-beta antibody. Recall that there are several unique aspects to this disease. First, while Alzheimer’s disease is a tremendous. unmet medical need, it’s a particularly risky area for drug development. The prevailing hypothesis of the pathology of the disease, the amyloid hypothesis is yet to be proven. Furthermore, unlike traditional proof of concept approaches in which, small studies can be done in Phase II to show clinical efficacy, Alzheimer’s disease trials require large numbers of patients to be treated for extended periods of time to show a meaningful clinical effect. Consequently, decisions we make to advance to large Phase III trials will be based on bio marker data, a proxy for clinical outcome. Second, Lilly is embarking on an aggressive development plan for our two lead molecules that will involve multiple major trials. We’ve already begun the first Phase III trial for the gamma-secretase inhibitor and we expect to begin a second Phase III study later this year. We plan to follow a similar development path for the antibody. Third, this is an area of extensive research and that are number of compounds in development. Competition for patients is high and success in sight and patient recruitment will be key. To help address these issues we have established an innovative arrangement for our two lead molecules. Lilly will share the development cost of our gamma-secretase inhibitor and A-beta antibody with TPG-Axon Capital and NovaQuest, the partnering group of Quintiles Transnational. In exchange for their funding, TPG-Axon and NovaQuest will receive success based milestones and mid-to-high single-digit royalties contingent on the successful development of these molecules. This arrangement is a sensible approach for several reasons. NovaQuest is a wholly-owned subsidiary of Quintiles, the CRO conducting our Alzheimer’s Disease trials. Thus. both parties’ incentives are clearly aligned to maximize the speed, efficiency and quality of this important clinical program. TPG-Axons and NovaQuest return on investment is dependent upon the successful commercialization of these therapies. Our agreement effectively provides Lilly with a hedge, as we enter new and unchartered territory. Finally, consistent with our fit net strategy this will provide Lilly with greater flexibility to direct internal resources to advance additional molecules in our pipeline portfolio. Moving to slide five my second priority is more effectively engaging our customers. Patients, health care providers and payors. Of course the ultimate measure of our success is the performance of our products in the marketplace. The strong performance of our two oncology products, Alimta and Gemzar, reflects a number of innovations and advances we have made in our customer interactions. First, all of our sales representatives are now Using interactive tools to facilitate discussions. This enables improved dialogue on the topics of highest performance to each individual physician. Second, we continue to leverage the very successful complex cases series to show situations in which Alimta or Gemzar are particularly effective agents. This series has been Used quite effectively with Alimta in thoracic cancers and with Gemzar in ovarian cancer. This is an example of our increasing Use of programs in which treating physicians learn from other experts in the field. We continue to focus. on gaining customer incite so that we can address the issues most important to the doctor. To facilitate this we’ve done extensive research across our portfolio including our insulin, Byetta, our oncology projects. He’s how we are putting our learning into practice. With insulin we focused on perceptions about mealtime insulin overall before addressing Humalog specifically. With Byetta, we honed in on the importance of reinforcing the outstanding efficacy, reduction in HBA 1-C, with weight loss that Byetta has shown while proactively addressing any barriers to prescribing, such as reimbursement concerns, particularly with PCPs. With Alimta and Gemzar we’ve gained incite into the spectrum of attitudes and beliefs across different physician groups. This incite provides our ability to demonstrate how Alimta and Gemzar can meet their respective needs. I continue to push the importance of these priorities throughout Lilly along with continuous. improvement in quality and productivity and the development of a new generation of leaders. I recently completed a series of meetings in which I addressed our top 1000-leaders worldwide. These sessions were a venue for me to impart a sense of urgency throughout the organization and to obtain explicitly the commitment from our leadership to win in these challenging times. And I am confident that we can do so. I’ll now turn the call over to Jim to review the performance for the quarter. Jim?

Thanks, John. At a macro level the Q2 results met our expectations and we are tracking to our EPS guidance for the year, taking into account significant items. Let’s first address our EPS performance in the second quarter. Slide six, shows our reported EPS as well as significant items affecting net income and EPS. These items include, first, an $89 million restructuring charge primarily associated with previously announced exit activities in certain manufacturing operations. This charge decreased earnings per share by $0.05. Second, asset impairments totaling $57 million associated with certain manufacturing operations. Please note that this charge is included in cost of sales on the income statement. It decreased earnings per share by $0.04. And, third, a $35 million charge related to acquired in process R&D, associated with the TransPharma Medical in-licensing transaction. This charge decreased earnings per share by $0.02. You can see the impact of these items on earnings per share for this quarter in the table. The table also shows the impact of similar items from 2007 for comparison purposes. Without the impact of these significant items earnings per share were $0.99 in the second quarter of this year, representing growth of 10% over 2007. Also, note that since we’ve owned ICOS for the entirety of the second quarter in both 2008 and 2007, there is no need for pro forma adjustments. Let’s start a more detailed review of second quarter results on slide seven with sales volume trends for the quarter. In the second quarter worldwide sales increased 11% to $5.15 billion. This slide summarizes price and volume trends back to the year 2000. The 11% growth in sales in Q2, is comprised of 6% from exchange rates and 5% from volume, price was not a contributor to overall sales growth. The volume growth of 5% in Q2, continues solid volume perform. This volume growth was achieved despite the drag from the entry of generic versions of Zyprexa in Canada and Germany and generic Actos in Canada. Furthermore, on slide eight, you can see how our major products contribute to worldwide volume growth. Led by Cymbalta, all of our growth products are contributing positively to volume growth. You will notice that Zyprexa shows a volume decline again reflecting the impact of generic entries in Canada and Germany. We will now review the sales performance of selected products and then discus’s the other lines of the income statement. Slide nine, shows worldwide Zyprexa sales increased 2% to 1.24 billion. Sales in the U.S. were flat at 564 million. The impact of both net selling prices and volume was negligible. International sales increased 4% to 676 million due to the favorable impact of exchange rates partially offset by lower prices and decreased demand. Demand outside the U.S. was unfavorably impacted by generic competition in Canada and Germany, offset by solid growth in Japan and several European markets. Moving to slide ten, Cymbalta sales in the second quarter were 654 million, up 26% compared with the second quarter 2007. U.S. sales increased 19% to 543 million primarily due to increased demand. International sales totaled 112 million, an increase of 80% over the prior year driven primarily by higher demands and to a lesser extent the favorable impact of foreign exchange rates. Higher demand outs the U.S. reflects both increased demands in established markets as well as recent launchings in new markets. Slide 11, shows worldwide Byetta sales for the quarter were 195 million, a 25% increase. Lilly reports half of the gross margin from U.S. sales of Byetta plus. sales of Pens to Amylin and 100% of international sales. Total Byetta recognized in Lilly’s income statement was 101 million, a 27% increase. On slide 12, Humalog sales grew 22% to 438 million. U.S. sales increased 17% to 250 million driven by higher demand and increased prices. The positive demand trend reflects the numerous. efforts to reaccelerate Humalog in the U.S., including the recent launch of the Humalog KwikPen. As a leading indicator to overall prescription growth, we track endocrinologist starting new patients on mealtime insulin. Continuing a trend since the launch of Humalog KwikPen. For the first time in May, endocrinologist prescribed more Lilly Pens than Novo Pens for new patients starting mealtime insulin. We view this as a positive sign for our reacceleration efforts. Sales of Humalog outside the U.S., increased 30% to 188 million driven by strong demand and the favorable impact of foreign exchange rate partially offset by lower prices. On slide 13, Humulin sales for the quarter were up 12% to 271 million. U.S. sales increased 4% to 92 million driven by higher prices. International sales increased 16% to 180 million due to the favorable impact of foreign exchange rates and increased demand. Slide 14 shows Cialis sales, which were up 24% in the quarter, reaching 362 million. Sales in the U.S. were up 17% to 128 million, due to higher prices and increased demand while sales outside the U.S. increased 28% to 234 million driven by increased demand and a favorable impact of foreign exchange rates. Moving to slide 15, Alimta sales in the second quarter were 275 million, an increase of 33% over Q2, 2007. U.S. sales increased 21% to 130 million due primarily to increased demand. Sales outside the U.S. were up 46% to 145 million due to increased demand and a favorable impact of foreign exchange rates. Slide 16 shows quarterly Forteo sales of 207 million, up 17% over Q2 of last year. U.S. sales were up 5% to 129 million, due to higher prices partially offset by decreased demand. International sales of Forteo were up 44% to 77 million due to higher demands in the favorable impact of foreign exchange rates. Slide 17 shows the revenues from the products Lilly has launched this decade. Alimta, Byetta, Cialis, Cymbalta, Forteo, Strattera, Symbyax, Xigris, and Yentreve. These products collectively grew 21%, reaching 1.8 billion or 35% of our sales. Before looking at the rest of the income statement, let’s look at the impact of price, exchange rates, and volume on sales results. As mentioned earlier, for the quarter Lilly sales growth of 11% was driven by a favorable impact of 6% from exchange rates and a volume impact of 5%. Changes in net selling prices did not impact overall sales growth. You can see the break down of this price rate volume total by geography on slide 18. Now let’s look at the rest of the income statement. Slide 19 shows the income statement. Gross margin as a percentage of sales in the second quarter was 76.7%, a decrease of 1.7 percentage points compared to Q2 of last year. This decrease was due to the impact of foreign exchange rates and the inclusion in cost of sales of the $57 million asset impairment charge I mentioned earlier. These negative impacts were offset in part by manufacturing expenses growing at a slower rate than sales. Excluding the asset impairment charge, gross margin as a percentage of sales decreased by 60 basis points to 77.8%. The total of marketing, selling, and administrative and research and development expenses increased 11% in the quarter, in line with sales growth. Marketing, selling and administrative expenses were up 12% to 1.7 billion. The increase was primarily driven by the impact of foreign exchange rate and increased marketing expenses including direct to consumer advertising for Evista for evasive breast cancer risk reduction, prelaunch and marking cost associated with Cymbalta outside the U.S. and the U.S. launch for fiber myalgia, launch efforts for Alimta front-line non-small cell lung cancer outside the U.S., continued launches of Byetta outside the U.S. and prelaunch expenses for Prasugrel. Higher litigation expenses also punished up the growth rate in marketing, selling, and administrative expenses. R&D expense grew 11%, to 952 million or 18% of sales. The increase resulted from a $47 million expense for a milestone payment made to MacroGenics Incorporated, related to progress in a clinical trials of Teplizumab and increased discovery research and late stage clinical trial costs, offset by lower Prasugrel clinical trial costs. Other significant items in Q2 of this year totaled 124 million, as I discussed earlier. This is a decrease from 328 million in Q2 of 2007. For your reference, the 2007 amount represents a charge related to acquired in-process R&D associated with the acquisitions of Hypnion and Ivy Animal Health. The Q2, 2008 effective income tax rate was 20.5%, down from 28.4% in the second quarter of 2007. The decline is due to the non-deductability of the in process R&D charge for the Hypnion acquisition in the second quarter of last year, as well as the deductibility of the asset impairment and restructuring charges in the second quarter of this year. Slide 20 shows second quarter other income and deductions which increased by 30.5 million to 32.3 million, primarily due to lower interest expense and gains from the sale of securities, offset by lower out licensing income. Now let me turn the call over to Derica to update you on our financial guidance.

Thanks, Jim. As shown on slide 21, our 2008 earnings guidance and a reported or GAAP basis is now $3.79 to $3.94 per share. The change from earlier guidance of $3.90 to $4.05 results from the second quarter significant items totaling $0.11 per share that Jim described. This slide shows all of the significant items for Q1 and Q2 that affect our guidance. Note that this guidance does not reflect potential charges related to the acquisition of SGX Pharmaceuticals. We are also revising other aspects of 2008 full year financial guidance. These revisions are primarily driven by the continued strength of foreign currencies relative to the U.S. dollar. Stronger foreign currencies result in higher growth rates for sales as well as for marketing, selling, and administrative expenses. And to a lesser extent, R&D expenses. In addition, in the short-term stronger foreign currencies results in a decrease to gross margin as a percent of sales. Having described the foreign currency impact, let’s turn to slide 22 and our updated line items financial guidance. Pro forma sales are now expected to grow in the high-single to low-double-digits, an increase from the previous. guidance of growth in the mid- to high-single-digits. Excluding the impact of the second quarter 2008 asset impairment charges we still expect modest improvement in gross margin as a percent of sales. Including the second quarter 2008 asset impairment charges, we expect gross margin as a percent of sales to be essentially flat. Marketing, selling, and administrative expenses are now expected to grow in the high-single-digits, an increase from the previous. guidance of growth in the low-single-digits. In addition to the impact of foreign exchange rate, these expenses are now expected to be higher due to increased litigation related expenses and higher prelaunch investment in Prasugrel. We still expect R&D expenses to grow in the high-single to low-double-digits. The sum of marketing, selling and administrative expenses and R&D expenses are now expected to grow in the high-single-digits, an increase from the previous. guidance of growth in the mid-single-digits. Other income and deductions are still expected to contribute less than $100 million. Excluding the effect of the resolution of the IRS tax audit in the first quarter 2008, the effective tax rate is still expected to be approximately 22%. Finally, we still expect capital expenditures to be approximately $1.1 billion. This concludes our review for the second quarter and we will now been happy to take your questions. Operator, first caller, please. QUESTIONS AND ANSWERS

Thank you. [Operator Instructions]. First question, James Kelly, Goldman Sachs. Please go ahead, sir.

Great, thank you, and good morning. My first question -- my question really has to do with, and thank you for the comments on the Alzheimer’s program, John, and I know you are going to have some more to share with U.S. next week. Is there anything you can do to help frame a little bit more about the clinical trials? You said there would be multiple Phase III clinical trials going on, any thoughts around timing and also any thoughts around what are the important similarities or differences between your compound especially in the A-beta antibody versus. others that are in the clinic? Thank you.

Jim, I will be happy to take your question. First of all, we started, right now what we have going is one phase III study with the gamma-secretase inhibitor, we expect to start a second Phase III study, in other words a parallel trial with that molecule later this year. We would expect in the future, we haven’t given a specific time to also initiate Phase III studies for the A-beta antibody and I would expect we would probably be looking at two trials also for that molecule. I think on the gamma-secretase the period of treatment is 21 months. So you are looking at a multi-year sort of time frame for enrollment all the way from initial enrollment to completion. Obviously, the data we are going to share at ICAD is really bio marker related data. We think this is a very good lead into these studies but obviously we don’t have the kind of data one would typically expect to see in Phase II as we start Phase III. So we think the arrangement we have with TPG-Axon and with Quintiles, for all the reasons, I talked about would not only support the successful completion of the studies but provides U.S. with an important hedge and also an opportunity to take the funds that in essence are being provided by the financial partner and make other investments in our own pipeline as well outside of these two programs.

Jim, it’s Jim Greffet, I think you also asked about a comparison in trends on antibody versus. Teplizumab, I think we’ll all learn more next week both on data, on our antibody and the broader data set out of that molecule. What we do know is this that the binding properties of the two antibodies are different. Our antibodies binds to the mid region of the A-Beta peptide, our understanding is Teplizumab binds to more of an end region. That’s a meaningful difference by the way we see it. Our antibody only binds to soluble A Beta. We think that will provide perhaps a larger therapeutic margin. We haven’t seen anything like phosgenic edema or erthregy [ph] or bleeding that perhaps we have seen with that news event. We think that’s an important safety difference and, of course, we will learn more next week but there are salient differences between in the antibodies.

In terms of the trials as well the first trial for the gamma-secretase inhibitor we will enroll 1500, the second trial that John mention will start later this year will be around 1,000 patients.

Next question, Roopesh Patel with UBS.

Thank you. A couple of questions on Prasugrel anything from the FDA for the advisory committee meeting for September? And then separately on Exenatide LER, in the unexpected event that the commercial material fails to show comparability to that Use in the trials, can you give U.S. a sense for what the implications are and what the impact may be on time lines? Thanks.

Phil, go ahead and have John address your first question and take a crack at the second one.

I think I can handle both of these. On Prasugrel, we have no, still no indication that this is going to be the subject of an advisory committee meeting. Obviously, we’ve been prepared for an advisory committee since before we filed back in late 2007 but we have no indication there is going to be an advisory committee and at this point we are not planning on one. With respect to LAR, we have a high degree of confidence that we can establish comparability between the at-scale material and the material manufactured at what we’ve termed intermediate scale going forward. Clearly, we haven’t changed our guidance in terms of the timing of that filing. We’ve said not later than the ends of the first half of next year. If, and as we get more information or more direction from the FDA in such a way that it might accelerate that we’ll certainly communicate it.

I know you’re aware but in case there are any calls online that we are not aware of the FDA did formally remove the tentatively scheduled cardiorenal advisory committee for August 19 and 20, from its schedule. I think the only other tentatively scheduled meeting for the year is in the December time frame. Next caller.

Next question, Tim Anderson with Sanford Bernstein.

A couple of questions. I guess I’m surprised by your comments on Prasugrel prelaunch spending is being one reason why SG&A would go higher. Because if anything the launch of that has been pushed out later in the year by the PDUFA slipping by three months. I’m wonder wag changed here, your original expectations on products versus what you think now? Second question is on your gamma-secretase. There seems to be a lot of folks that even clinical trial investigators that are fairly cautious. on that molecule and I’m wondering what you think these folks are missing, maybe talk about the concerns you here and what you think the answer to those concerns are.

Thank you, Tim. I’ll go ahead and have Derica take the question on the Prasugrel investment, Jim go ahead and take the one for the gamma-secretase.

This is Derica, in regards to Prasugrel and the impact on the SG&A, given that the time that we did not know what the FDA would decide in terms of the original PDUFA action date, we pulled forward our preparation for potential launch and we were prepared to go as early as the second quarter. And so now we’ve put those resources in place obviously we will continue to incur those expenses until we get a final response on the September 26, PDUFA date. You will see U.S. making those kind of bets with regard to our SG&A expense to prepare to maximize our top line opportunities including Evista.

It’s Jim. On the gamma-secretase inhibitor, let me answer this in two parts. One, as John described, there’s an inherent risk disease state anyway, we are making some decisions based on bio markers. So that adds a certain level of uncertainty and risk in this disease state in general. Relative to the gamma-secretase inhibitor probably the prevailing concern with inhibition of gamma-secretase is the undesired ripple effect to notch processing. What we’ve seen in the Phase II study that we’ve already done and we will have additional data coming out next week at ICAD on gamma-secretase inhibitor. So what we seen is that we can lower levels of A-beta in the blood and not have deleterious. affect on notch processing of the so we haven’t seen side effects that would be unacceptable and that’s what made our decision to move into phase III trials that ongoing right now. Some additional data there, the half [inaudible] the two half hours in the blood. And what our scientists tell U.S. is that that window may offer U.S. enough time to inhibit the synthesis of data but the half life still allows enough processing for about 12 hours or so through the day that prevents the undesired effect there.

Next question, David Risinger with Merrill Lynch.

Thanks very much. I have a couple of questions. First of all, with respect to the Prasugrel submission of additional information, my question is, did Lilly submit a risk evaluation and mitigation strategy as part of the major amendment submission? That’s question one. Second, with respect to fiber myalgia, there doesn’t seem to have helped Cymbalta trends, should we assume that there was a lot of off label prescribing originally? And then third on the pen A, if you could just walk U.S. through the evolution of that program? I think there was a point in time a few years ago in which Lilly was considering out licensing or partnering the product and then I believe at your December analyst meeting last year you suggested that you were going to get back on track and develop it internally? And then today you’ve announced that you are dropping the program. And obviously this is one of many, many programs so I’m not trying to focus. on a negative but it’s just been an interesting series of events over the last couple of years. So if you could just explain that further that would be helpful. Thank you.

This is will handle your first two questions and have Jim provide the commentary for the Factor XA, in terms of Prasugrel submission, as you know we’ve not commented specifically on the discussions with FDA. Clearly, this issue that’s been raised by many investors around bleed something one that we would definitely want to ensure and have insured that we provide sufficient data we believe for them to go ahead and evaluate that risk with the benefit that Prasugrel provides. We would also highlight that when we went ahead and had discussion on the launch of the trilogy trial for the ACS medically managed patient population we did mention that we have had discussions with FDA about how to structure that trial. They provided feedback that was incorporated. We did in fact essentially have their sign off if you will in time of design and included, for example, the Use of the 5-milligram dose for the patient population of the over 75 years of age and less than 132 pounds. For fibro, we are very excited about this opportunity looking forward to building out the pain profile for Cymbalta. We only received the approval in received the approval in mid-June so that is very early. We would not expect to see results in Q2.

Not to take you on an entire trip down memory but there are a couple of going back in time remember that we’ve had kind of a wealth of ridges in many three ticket rides as Steve Paul likes to say, a pretty expensive Phase III program and it was that dynamic that led U.S. to look for partnering arrangements. Ultimately seeing how that space developed we decided to advance that molecule ourselves and we announced that probably the middle of last year that we made that decision. Remember also that we had done Phase II work in VTD [ph] prevention, very short term studies and we have done the corresponding talks with the support. After we advanced the molecule and decide to reinitiate development internally, the necessary to go into longer-term studies for VTD or atrial fibrillation required longer-term talks studies that we had the finding and made the decision that we did. Ultimately that part of drug development we had some things fallout. Fortunately we found this before we spent a lot of money on the molecule and we have 50 other things in the pipelines that we are to pursue.

Next question, Chris Schott, JPMorgan.

Two quick questions, can you give a quick up day on the Gemzar patent case following the expiration of the 30 month stay? Have you received any notification from Tofron [ph] an intension to launch and please remind U.S. of the process if that were to occur? And going back to the A Beta Antibody, I know you have some different binding characteristics from your competitor but do you plan to segment patient population in your Phase III as you’ve senior competitor here specifically on ApoE4 and I’m sorry if I missed it can you give U.S. a quick update of when you are target to go move the A Beta in Phase III.

Ronica handle your question other Gemzar patent situation and I will handle the last two.

The quick answer to your question is, no, we have not received a ninety-day notice from onsequel televas [ph] in regards to planning on launching but to give some additional information about that, there was, our thirty-month stay expired for both presentations earlier in July. And we did go through the judge and ask for an extension of the thirty-month stay which was then denied. The plan from the judge is within that ninety-day period we would be able to both put that trial into place, here it and rule on it before anybody would launch at risk.

That would preliminary injunction hearing. For the antibody, there is nothing we’ve seen in the clinical data we’ve generated, a preclinical or clinical data to date that indicates to U.S. that we need the segment on ApoE4 carrier status. or any statutes and we have not provided any specific timing on start of the Phase III for the antibodies and stay tuned for further notice.

Line of Tony Butler with Lehman Brothers. Please go ahead, sir.

Thanks very much. The, what I would consider reacceleration of the Humalog seems to be quite frankly underway. I was curious. if you might be able to bifurcate the notion of how demand has changed with KwikPen versus. price and moreover from a non-U.S. perspective if you’ve actually launched KwikPen internationally? And then how that’s actually played out demand-wise versus. FX? The second question is a Prasugrel question and I heard you made some commentary obviously the large Phase III trial that you completed and filed was with a 10-milligram dose but I have heard you make analogy to other products where other doses have actually been approved on bioequivalent type of trials. Could you comment or remind me of those other products that had been approved without actually having them as part of a large scale Phase III like TRITON? Thanks again.

We’ll have John go ahead and handle your first one, Humalog, and then we will handle your Prasugrel one after that.

Tony, the only country where we’ve launched the KwikPen to date is the U.S. We do have plans in upcoming months to launch the product in other countries including Japan and Europe. In both the U.S. and international, there is a good dose of volume growth under those numbers. Obviously in addition, international has the positive impact of exchange rate. The U.S. has some benefit from price. Based on the data we collected since we launched the KwikPen in the first quarter it’s definitely having an impact on sales and I think you heard U.S. mention in the call text that we are now seeing more of our pens prescribed for starter mealtime insulin than the other leading brand.

We’ve also, Tony, seen a shift from about 23% of our sales running through the pens to now fully 26% running through the pens in the short period of time since the truck of the Humalog KwikPen. Prasugrel, a couple examples from our own portfolio where we have doses that are approved that are not fully studied in a registration trial I believe there’s one of our doses Zyprexa is one, Cialis, from our understanding there may be a similar situation for a couple of the doses that are indicated for sub-populations for Januvia as well. If would you like we can follow up after the call we can follow up on those presentations for Zyprexa and Cialis.

Next question, Bert Hazlett with BMO Capital Markets.

Thanks, good morning everybody. Thanks for taking the question. A couple on the Quintiles partnering efforts. I’m not clear does this include the A-beta antibody as well? And briefly if you can comments on how this is accounted for. Is this an offset to future R&D spending? And a little bit of discussion about how enroll many is proceeding for the gamma-secretase program would be great. Just another one or two quick once. Why hasn’t Evista really responded to the breast cancer risk reduction indication? We are seeing DTC now but when should we expect an influxion? And also on the pipeline, thanks for including that information. When do you expect data for the dirucatide [ph], the secondary progress MS indication? I think there’s an interim look up? Thanks.

Sub-parts, let me make sure we get all these answered, Derica answer your questions on the Quintiles. We will have John handle your evasive break cancer risk reduction question for Evista as well the data released for dirucatide and we will come back and handle the gamma-secretase question.

Bert, the regards to the Quintiles partnering, it will be just an offset to future R&D expenses, in regards to the accounting it will show up in that line as acontra [ph].

Your question on Evista, we learned with direct to consumer there is such a thing as staying power and I think we are going to have to see contingency how this place out because the response of consumers to the ad has been very positive. Keep in mind, in addition to motivate ago consumer to go ask a question of her healthcare provider based on the ad, we have to have real good follow through in the office set to go make sure that the physician who’s prescribing will respond to that question or that request. So we are looking across the whole spectra of activities with Evista. We are pleased to have the second indication obviously and are hoping to see improvement in the months ahead. With respect to dirucatide, we have an interim analysis, I believe, on 200 patients from the ongoing Phase III study for secondary progressive disease that should read out sometime this summer.

For the enrollment in the gamma-secretase, we are just starting so early days bullet we have seen so far with respect to our plans we are enrolling more patients per center than anticipated per month so good news on that and we hope to continue that forward with the alignment with now have with our partner on this molecule. Next caller.

Next question, Steve Scala with Cowen. Steve Scala - Cowen & Company: Thank you, have I four brief questions. First, why was there a decrease in demands for Forteo in the U.S.? Second, can you provide more detail regarding the preclinical talks seen with your Factor XA.? Third, could you update U.S. on how enrollment for trilogy is going and when is the earliest we could get data? And lastly is the additional data submitted on Prasugrel continue add major amendment? Thank you.

Steve I’ll go ahead and handle these and ask the group to chime in if they have additional details. I am going to handle these in reverse order. Yes, technically when the FDA extended the review time for Prasugrel, that was in the form of a major amendment and they had the authority basic to the pick any time up to 180 days for that extension. They chose a three-month period which we think is sufficient for them to complete their review. For trilogy, we had first patient visit essentially at the end of June. So it’s really too early to give an update on how the enroll many is going there. The preclinical talks on the factor XA., we are not in a position to share the exact talks findings. We can say however that we have not seen any of the similar kinds of talks issues in any of the human data, human exposures that we had with the molecule. Demands for Forteo, I follow up with you unless there’s someone that has more details.

Steve, it’s Jim. I can add a little bit. There are a couple of dynamics on Forteo that we continue to address. One is the patient population, a lot of them are provided coverage through Medicare and so we do see some folks getting into the doughnut whole. As you know we’ve put in a lot of programs to help those who need assistance through the Lilly Medicare answers programs and the like but nonetheless if you have folks that are in the doughnut whole and aren’t able to get coverage otherwise a lot of times they will discontinue therapy. We try to strive for that since it’s the only product group. I think about 40% in fact of Forteo sales go through that Medicare channeling. The other thing that we are do doing to really help in that area is real tool thing. One the elderly population that this serve there’s a lot of difficulty with providing injections. We’ve done a lot with special bone support and giving patients as many resources as they can have to make sure how they understand the pen, how to answer they were and answer questions. We got approval for the Forteo second-generation pen. It’s substantially easier to Use. We think it will be a meaningful improvement. In fact we have a demo just the other day. Several pages worth of text. It’s a one-pager with about four pictures, about two sets, it takes about 30 seconds to get ready for injection. We have the manufacturer enough to supply the channeling we think that’s another meaningful Forteo to keep this first and only in class available to patients.

Our next question comes from the line of Seamus. Fernandez with Leerink Swann.

Thanks very much. I just actually had one question specifically about the 23 products.. Can you offer U.S. an update on the preclinical toxicology specifically as it relates to seizures and if you have officially completed whether or not seizures have occurred or are occurring with the pro drug and if it has occurred or has not occurred, if you can just provide U.S. with an update there and when we might see an initiation of the phase III clinical studies?

I’ll go ahead and handle the question. We essentially will be able to know by analyst meeting in December an update on the outcome of this one year talks study that you’re mentioning which we know is a point in time profit milestone for to U.S. chief in development of the molecule. We don’t have a read out for to share with you on this call.

John Boris with Citi.

Thanks for taking the question. Just purely on E., the question relates to basically three parts. As part of any risk evaluation or mitigation strategy that the FDA might ask you for would it have included a control distribution plan and have you provided the FDA with any control distribution and how you view the commercial opportunity if that’s put in place initially? Secondly has your manufacturing facility been inspected in Indianapolis and, third, are you in label negotiations yet with DD Macon the brand?

Thanks, John. We’ve got the three you’re looking for. Jim, you want to take a crack at these for the…

Sure. So a similar theme we continue to have the dialogue with the agency, John, so a lot of back and forth in review of the packaging answering their questions and so on. Relative to specific risk evaluation and management plan again we are going to allow that conversation to play out with the agency and once we have the answer on December 26 and complete all the necessary then we will be in a position to discus’s what the exclusions are rather than a play by play. The 19% relative risk discussion against an active comparator we think that offers a lot of important benefits should it be approved. Pre-approval inspection in Indianapolis has not happened. Again as we said earlier that facility has been visited by the FDA in 2008. We haven’t been notified that they will need to take another specific look at it if they do we certainly keep you apprised butter we haven’t the necessary requirements. Just to remind, our bulk facility in Japan has already been in inspection and was approved.

John, this is Phil Finally as part of the label negotiations that is part of the play by play that we are not sharing externally. One point to consider on your first question, however, when you do look at thing like the risk evaluation and mitigation strategies that are called for in the FDA guidelines there are the elements that you’re mentioning things like specific -- I’m sorry, specific physician or pharmacist training, control distribution, there are also things that qualify for a recommend like a patient package insert that are much simpler and much less difficult to comply with. So I think if you’re thinking of for this product I would encourage to you look at the whole range of possibilities of how you might manage risk associated with Prasugrel. There are no further calls on the line so I will turn it over to John to conclude the call.

Thanks, Phil. Thanks to each of you for your time this morning. Let me summarize a few of our key points. We are on track to deliver on our pipeline goals for the year and we’ve made significant progress in the first six months. With solid movement into and through our pipeline. Our next key pipeline event is the FDA action date for Prasugrel on September 26. We are working productively with the agency. We are confident in our data package and the value of this medicine could bring to patients. Improving productivity remains a key focus. and we still expect to deliver operating leverage for the year, growing sales faster than our costs and expenses. We will continue to reduce our headcount and will Use a variety of actions to reduce our expenses. At the same time, we will continue to invest to maximize the range and value of indications on important growth products such as Alimta, Cymbalta, Cialis and Byetta, not to mention Prasugrel. As we make such investments, we are also becoming more flexible in our approach, we are deploying resources in ways that can be adjusted and redirected quick to the respond to changing market conditions. At Lilly, we have a sense of urgency to deliver strong results today while also reshaping our company to win for the benefit of patients and shareholders alike. Thank you all for joining U.S. this morning and I look forward to continuing my interactions with our investors.

And, ladies and gentleman, that does conclude our conference for today. Thank you for your participation and Using AT&T Executive Teleconference. You may also access the AT&T Executive Playback Service at any time by dialing 1(800)475-6701, and entering access code 931079. International participants may dial 1(320)365-3844, and this replay will be available from 11 a.m. to August 1 at midnight. Again the number 1-800-475-6701.