Ladies and gentlemen, thank you for standing by and welcome to the Eli Lilly Q2 2017 earnings call. For the conference, all participant lines are in a listen-only mode. There will be an opportunity for your questions. Instructions will be given at that time. [Operation Instructions] As a reminder, today's call is being recorded. I'll turn the conference now over to Mr. Dave Ricks. Please go ahead, sir. David A. Ricks - Eli Lilly & Co.: Thank you and good morning. Thank you for joining us for Eli Lilly & Company's second quarter 2017 earnings call. I'm Dave Ricks, Lilly's Chairman and CEO. Joining me on today's call are Derica Rice, our Chief Financial Officer; Dr. Jan Lundberg, President of Lilly Research Labs; Enrique Conterno, President of Lilly Diabetes and Lilly USA; Dr. Sue Mahoney, President of Lilly Oncology; Dr. Levi Garraway, Senior Vice President of Oncology Global Development and Medical Affairs; Christi Shaw, President of Lilly Bio-Medicines and Jeff Simmons, President of Elanco Animal Health. We're also joined by Kristina Wright, Chris Ogden and Phil Johnson of our IR team. Today we'll cover our usual quarterly content in an abbreviated form. That will free up time for Sue and Levi to walk you through an update on our oncology strategy. We believe the increased clarity and focus that is part of our revised strategy will make us more competitive in this key therapeutic area. 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 listed on slide 3 and those outlined in our latest forms 10-K and 10-Q filed with the SEC. The information we provide about our products and pipeline is for the benefit of the investment community.…

Certainly. [Operation Instructions] First we'll go to the line of Chris Schott with JPMorgan. Please go ahead.

Great. Thanks very much for the questions. Just two here. First coming on baricitinib, can you just elaborate a little bit more on what a trial addressing DBT and PE would look like here? It seems like it ought to be a very, very large or very long-term study given the low event rate. So along those lines, should we think about something significantly longer than 18 months delay if you have to run a study with baricitinib? Second question for me is on diabetes. Any initial look or commentary on the 2018 kind of access or pricing as we go through this contracting season? I guess, should we think about any major changes to your access or price? I know you're not going to give 2018 guidance, but just kind of directionally, how should we think about the portfolios heading into next year? Thanks very much. Philip Johnson - Eli Lilly & Co.: Great. Thank you, Chris, for the questions. So Christi, we'll go to you for the first question on baricitinib, and then over to you, Enrique, for the question on 2018 access for diabetes products. Christi? Christi Shaw - Eli Lilly & Co.: Thank you very much for the question. As you probably saw in the press release this morning, we remain very disappointed, especially for the many rheumatoid arthritis patients in the United States who don't have access to bari in spite of its access in other countries and regions. In terms of the clinical trial and how long that will take, we know that in exploring all of our options, the minimum amount for resubmission will be 18 months. We don't yet have clarity with the FDA. That will be discussions we have with them, exactly what kind of trial will help define better the benefit-risk profile of baricitinib. But we are committed to a path forward working with the FDA on that. And I'll summarize by saying in the end, all of these patients who are living with rheumatoid arthritis in spite of all of the great treatments that are available continue to suffer, and Americans deserve access to this treatment and we will continue to pursue not only rheumatoid arthritis but other indications with bari. Philip Johnson - Eli Lilly & Co.: Okay. Thank you, Christi. Enrique? Enrique A. Conterno - Eli Lilly & Co.: Chris, so we do have, as you're aware, good access when we look across our brands, and we have a strong performance which helps our competitive position as we look at 2018. The negotiations at this stage are not finalized. It would be premature for me to comment. Philip Johnson - Eli Lilly & Co.: Yeah. And Chris, we do typically allow the payers to actually make their announcements before we would comment on changes. I don't think we'll begin to hear any of those until August, September timeframe, likely. John, if we can go to the next caller, please?

And we'll go to Seamus Fernandez with Leerink. Please go ahead.

Thanks very much for the questions. So, just a couple here. In terms of the situation with baricitinib, you do mention other opportunities and indications. I think about a year ago at your Analyst Day you mentioned expectation for your atopic dermatitis study to wrap up with baricitinib. We haven't seen those data yet. Just wondering when we might see those data? And if that is one of the indications that you're interested in pursuing? Just as a follow-up to that, given the DBT PE dynamics, can you just help us understand if RA patients are uniquely at higher risk of DBT and PE such that FDA would be a little more balanced when considering other indications? And then just a final question, as we look at sort of the opportunity for leverage, I know this question continues to get asked of Dave on a repeated basis, but as we continue to look at the leverage opportunity in the operating expense line, just wanted to get a better sense of if this is still viewed as a purely sales-driven opportunity or if you can work to control costs. And just wanted to say thanks, Derica, for all of your efforts over the years. It's been a real pleasure. Philip Johnson - Eli Lilly & Co.: Great, Seamus. Thank you for the questions. Chris, we'll go to you for the first two on baricitinib. Derica, if you want to comment on the third one? Obviously, Dave, feel free to chime in. Christi? Christi Shaw - Eli Lilly & Co.: Sure. Thank you for the question, Seamus. We are pursuing other indications and continue our studies in atopic dermatitis as well as lupus, and we're also going to begin the psoriatic arthritis trial next year. In specific terms of atopic dermatitis, the…

And that will be John Boris with SunTrust. Please go ahead.

Thanks for taking the questions, and congrats on the results. So, question for Dave on the pricing front. Obviously, there continues to be some bantering that continues on the pricing front, but the industry has done a relatively good job to shift that to discussing, certainly high coinsurance, high deductibles. It seems as though Lilly does give up a significant portion as a pass-through on rebates. How can the industry help to shed additional light on that 50%, I think, that Lilly gives back in terms of rebates to give that back to customers for coinsurance, dependency in plans? Is there any thought about how you can do that through contracting with PBMs going forward to get better control over where that's going? The second question just for Levi, really appreciate the internal review that you gave but when you look externally, and if you had a wish list, are there certain things that you don't have within your portfolio that might be at the top of the list that you would like to bring in to Lilly's oncology portfolio? Thanks. Philip Johnson - Eli Lilly & Co.: Great. John, thank you for the questions. Pretty straightforward. Dave, for the first one. And then over to you, Levi, for your wish list on your external innovation. Dave? David A. Ricks - Eli Lilly & Co.: Yeah. Thanks, John. On the pricing debate in the U.S., of course, the battle will never be over. I think we need to continue to explain the value proposition we offer and defend the business model. But I agree with you. We have staved off, I think, some of the worst ideas and continue to remain focused in Washington and the states on advocating for strategies that can actually bring down out-of-pocket cost for consumers.…

We'll go to Tim Anderson with Bernstein. Please go ahead. Timothy Minton Anderson - Sanford C. Bernstein & Co. LLC: Thank you. A couple of questions. On abemaciclib, you described this as one of your foundational assets and later this year you'll present MONARCH 3. Do you think that once those results are presented, the general takeaway from analysts and from oncologists is going to be that abema is clearly better than palbociclib when everyone does their side by side comparisons? Thus far, despite Lilly's claims of differentiation, there's not a lot of people that are convinced that it's truly a best-in-class product. Second question is on Alimta and the timing of the ruling for the IPR. In the past, Lilly was willing to give a timeline because the rules for this sort of thing are pretty clear. Most recently you've backed away from providing a timeline, and I'm wondering why the uncertainty this time around and what can we expect in terms of a timeline, if you have any updates. Philip Johnson - Eli Lilly & Co.: Great, Tim. Thank you for the questions. I think, Sue, those are both for you. Susan Mahony - Eli Lilly & Co.: Yeah, Tim, thanks very much. Yeah. Well firstly, on abema we're delighted that we have the priority review for MONARCH 1 and MONARCH 2, and we anticipate getting action on those Q1 of next year. With regards to MONARCH 3, we're presenting it at ESMO. I think we've been pretty clear all the way through, Tim, that we do believe that we've got a differentiated medicine here and one that potentially could be best-in-class. We've got to look across all of the data to assess that across the different clinical data, looking at PFS response rate, et cetera, and across different trials, and we've now got the MONARCH 1 data that shows single agent activity. The MONARCH 2 data, which was in an endocrine-resistant patient population, a very homogenous patient population where we, to the best of our knowledge, have seen the highest PFS in any trial today in that population, and of course, we'll see the MONARCH 3 later this year. So we continue to be very excited by this molecule. But I would continue to encourage you to look across all the data and all the trials as we assess this medicine. With regards to the Alimta IPR, we are now anticipating that we should get a reading on the IPR by the end of this year. That's the latest that we know, okay? And if we know any more, we'll let you know, but that's our understanding. Philip Johnson - Eli Lilly & Co.: Great. Thank you, Sue. John, if we can go to the next caller, please.

We'll go to the line of Andrew Baum with Citi. Please go ahead.

Thank you. A couple of questions, please. The obvious bedfellow for prexasertib given the mechanism and the lack of overlapping top (50:41) would be a PARP inhibitor, so what's your appetite for larger and later biotech deals around, in your own words, a potentially foundational drug in the form of a PARP? Second for Levi, how does your TIM-3 differentiate itself from Novartis? I think both target hospitals (51:01) if I read your slides correctly. And then finally on the outlook statement in relation to animal health, could you break down for us how much of the competitive pressures, market slowing that you're seeing is market-specific versus merely portfolio-specific? Thank you. Philip Johnson - Eli Lilly & Co.: Andrew, thank you for the questions. So, Dave, we'll go to you for the appetite for large later-stage biotech deals. On to Levi for the question on TIM-3. And then Jeff, over to you for the drivers in animal health. Dave? David A. Ricks - Eli Lilly & Co.: Yeah. Thanks, Andrew. Just to – not commenting specifically on the PARP inhibitor idea, and maybe Levi if I could just chime in on that, but the frame we have on M&A and business development isn't necessarily limited by size but rather by logic, which is we're interested in things that add to our portfolio where we can create new value for patients in the health care system, maybe through combinations or through individual assets. We're not interested in business combinations that create a short term cost synergy. We've said in the past that those would include small and mid-sized M&A and so in that regard, I guess your question is would we rule out M&A, small and mid-sized? No, we wouldn't if it made sense on the first basis, which is adding…

And that would be Umer Raffat with Evercore. Please go ahead.

Hi. Thank you for taking my question. I actually wanted to focus on marketed products, if I may. And perhaps starting off on the diabetes side. I was curious what the dynamic is behind Humalog franchising pricing pressure in the U.S., but Humulin franchise has seen pricing tailwinds this quarter. So that was one. On Taltz perhaps in psoriasis, curious to how you're thinking about how IL-23 competition impacts the trajectory going forward or not. And then finally, I found it interesting that you mentioned Alimta U.S. is tracking at decreased demand, despite the Keytruda approval in KEYNOTE-021G and I was just curious what the dynamic is there. Thank you. Philip Johnson - Eli Lilly & Co.: Umer, thank you for the question. So, Enrique, we'll go to you for the Humalog and Humulin pricing dynamics. Christi, to you for the question on IL-23 impact to Taltz. Then Sue, the U.S. Alimta question. Enrique? Enrique A. Conterno - Eli Lilly & Co.: Sure. So as we've noted during previous earning calls, we expect some volatility around our U.S. Humalog sales. We expect that to continue, given that we make estimates on rebates and discounts at the end of each quarter. We do not learn about the actual utilization until later periods. Now maybe the best way to characterize Humalog is to basically try to look at the underlying performance and try to normalize it for some of these changes that are related to prior periods. When we normalize Humalog, Humalog sales are declining about 5%. There is growth in the low single-digit when it comes to volume, but pricing is basically declining in the mid to high single-digits. Now, why is price declining if we continue to see pressure when it comes to increased rebates? Also, we basically see a…

And we'll go to Steve Scala with Cowen. Please go ahead. Steve Scala - Cowen & Co. LLC: Thank you. First, a question for Dave on baricitinib, it seems that Lilly and FDA have a significant difference of opinion on regulatory requirements. How, in your experience, are such differences resolved and what are the mechanisms and timeframe for doing so to get the best possible outcome for Lilly? So that's the first question. And secondly, why is the baricitinib psoriatic arthritis trial initiation being delayed? Is it to clarify the landscape for the molecule overall or is it some indication-specific reason? Thank you. Philip Johnson - Eli Lilly & Co.: Your question, Dave for the first general question on the situation with FDA and then, Christi, to you for the second question on psoriatic arthritis. David A. Ricks - Eli Lilly & Co.: Yeah. Thanks, Steve. Obviously, as Christi said and we noted in our remarks, we're disappointed with the outcome. I think we do have clarity on what the FDA's point of view is. It's just not our point of view and therein lies the difference. Now they're the regulator. We need to engage with them and find the best path forward. Considering time but also label quality for baricitinib and RA. The resolution of this, to me, there's a variety of tools available to us. One of those is to do new clinical work as we indicated that the FDA has requested we do that. That's something certainly we're scoping and looking at now. In addition, all of the original for FDA studies we did in the Phase 3 program continue and so we continue to pile up events, albeit on a baricitinib-only basis to compare to background rates, et cetera, and I think that's important. And then…

We'll go to Jami Rubin with Goldman Sachs. Please go ahead. Jami Rubin - Goldman Sachs & Co. LLC: Thank you. Just sticking with that topic on baricitinib, at what point – or is there actually a point where you just decide it's not worth going forward, just given that there are other newer agents coming to the market and RA is a really entrenched market to begin with? I mean, is there a point that you just say it's not worth it? Or not? And then should we also assume that the atopic dermatitis and lupus indications are also put on hold until you get better clarity with FDA? And then my other question relates to SUSTAIN-7, which I believe should be reported out sometime in the third quarter. Can you remind us, Dave, your expectations for that study? I think you've said before that you would expect semaglutide to show better efficacy but maybe worse safety than Trulicity. And if SUSTAIN-7 is positive, how do you maintain market share of Trulicity? Thanks very much. Philip Johnson - Eli Lilly & Co.: Thanks, Jami. So, Dave, let's go to you for the first question on baricitinib's procedural aspects and if we ever get to a point where we wouldn't go forward with RA. And then, Christi, if you'd comment on plans for atopic dermatitis and lupus? And then, Enrique, on our view on SUSTAIN-7. Dave? David A. Ricks - Eli Lilly & Co.: Yeah. Thanks, Jami. The bottom line is we're a long way from anything like that point that you're highlighting for a couple of reasons. I think, first, rheumatoid arthritis remains both a large unmet need and the largest category in the autoinflammatory space. Baricitinib has proven profound benefit, best-in-class. We of course did the Humira head-to-head…

We'll go to Gregg Gilbert with Deutsche Bank. Please go ahead.

Hi. Maybe just going back to clean up on animal health. Dave, any updated thoughts on Elanco and how it fits into the long-term value creation story you have for Lilly? I assume you've had adequate time now to really dig in on that? And then on the pipeline, is there anything you could share about what was learned in the interim analysis for the BACE inhibitor? And on the DACRA, if I could call it that, how might that be differentiated from Trulicity? Thanks. Philip Johnson - Eli Lilly & Co.: Hey, Gregg. Thank you for the questions. Dave, if you want to comment on the first animal health question? And then, Jan, if you like to maybe comment on the interim that we had for the BACE inhibitor as well as the DACRA, and Rick, absolutely feel free to comment on that one as well. Dave? David A. Ricks - Eli Lilly & Co.: Yes. Gregg, I think this question has come up before and I'll say the same thing which is in any case we need to constantly review our portfolio. We need to make sure all of our assets, we have a basis for holding and driving incremental value versus what anyone else can do and animal health is no different from that. Right now, as Jeff indicated in his answer in terms of the performance issues, and in my early days here, we've been very focused on operational improvements that we've put together a number of companies including Novartis combination. And in my experience, and also I think in our real experience, it takes some effort and work to get to true operational effectiveness after that kind of combination. We also have some environmental headwinds we need to reposition against. Jeff outlined a response to…

We'll go to Geoff Meacham with Barclays. Please go ahead.

Good morning, guys. Thanks for the questions. Just had a few. On galcanezumab, lots of data across the CGRP landscape this year. How are you guys thinking about the payer attitudes before the filing? I can't remember, have you guys – is the launch reflected in your long-term revenue growth guidance? And then a bigger picture question on biz dev, you guys provided a pretty specific strategy on oncology. How much does valuation inform the decision or the urgency and what's the relative attractiveness to other categories such as neuroscience, inflammation, et cetera? Thanks. Philip Johnson - Eli Lilly & Co.: Okay. Geoff, thank you for the question. So, Christi, if you could comment on how we view pair attitudes in the migraine space. Derica, if you can comment on whether or not galcanezumab is in our sort of midterm financial expectations. And then, Dave, you'll take the last question. Christi? Christi Shaw - Eli Lilly & Co.: So we're very excited, first of all, about galcanezumab. If you think about patients losing up to 50 days of their life every year and being able to cut that in half, it's just an amazing proposition. We do know we're not going to be the only product on the market, and we'll have a lot of competition but I think we have a couple of things. One, I don't – we don't see any other CGRP data that's better than our own. We look at the data and see that if you look at the response rates, about 60% of patients respond, have a greater than 50% response rate, 33% at greater than 75% response rate, and about 12% or 1 in 8 patients will have 100% response rate. So we feel like we have a very strong efficacy profile, couple…

We'll go to Vamil Divan with Credit Suisse. Please go ahead. Vamil K. Divan - Credit Suisse Securities (USA) LLC: Great. Thanks so much for taking the questions and thanks for the overview on the oncology strategy. So a couple of follow-ups just on the oncology side. CSF-1R I think is a mechanism that we've heard pretty good interest from (01:17:05). So I was a little surprised when you mentioned that's more of a Tier 2 asset now. And you said it was a magnitude of success that (01:17:11) you wanted to see. Maybe you could just give a little more detail on what you're looking for from that asset in terms of the efficacy? And then a more general question on that front, we've seen other mechanisms, like dose (01:17:22) for example, where you don't see much efficacy as a single agent, but it does seem to have value in combination. So how do you think about that when you're making your prioritization decisions sort of at early stage? And maybe putting your mechanism as a lower priority when there might be an opportunity in a different indication or in combination. And then second just on abemaciclib, following up on some of your earlier comments, we've heard for a while about some of the opportunity here for this class and this drug outside of breast cancer. And you mentioned non-small cell, I think squamous and I think pancreatic cancer on your slide. Can you just give us a sense of when we might start seeing some more data on these other tumor types to get a sense of potential for the drug and the class outside of breast cancer? Thanks. Philip Johnson - Eli Lilly & Co.: Great. Vamil, thank you for the questions. Levi, if you'll take maybe…

We'll go to Tony Butler with Guggenheim Securities, please go ahead.

Thanks, thanks very much. Enrique, back to Humalog, if I may, you made a reference to volume being up, but I'm curious about the class as a whole, of rapid-acting insulins continuously down. Is that solely based on price? Or does that actually reflect some level of a decline in overall demand and what might those patients actually be moving toward or moving into as opposed to those rapid-acting agents? And then secondly very simply, Christi, when the resolution for baricitinib with the FDA, whatever it may be, another trial or some negotiation or patients who, you know, you look out in Europe and you're able to supply data to the FDA. The question really is, when you refile does the entire NDA clock restart at – the 12-month timeframe or is there some other fraction of that which we need to look forward to? Thank you. Philip Johnson - Eli Lilly & Co.: Tony, thank you for the questions. So we'll go to Enrique for the Humalog class question for the rapid-acting insulin and then, Christi, do you want to comment or I can comment on the second question on the very (01:22:40) timeframe once we resubmit. Enrique? Enrique A. Conterno - Eli Lilly & Co.: Yeah. The main impact here when we look at the meal-time insulin class is really related to pricing. Now we do have, when we look at the growth rates of that class, the growth rates have come down, the class is still growing but it's growing less than it was growing two, three years ago and clearly this is part of basically increased utilization of both SGLT-2s and GLP-1s. Philip Johnson - Eli Lilly & Co.: Thank you, Enrique, and Tony, and your question, when we resubmit our anticipation would be that the FDA would need to declare that a type 1 or type 2 resubmission and you would have I believe something like a 3 or 6 month timeframe then for them to have a PDUFA date and provide their answer to the resubmission.

Thanks, Phil. Thank you, Enrique. Philip Johnson - Eli Lilly & Co.: John, if we could have the next caller, please?

We go to Alex Arfaei with BMO Capital Markets, please go ahead.

Good morning, folks, and thank you for taking the questions. A couple on Trulicity which had a great quarter. First, on the cardiovascular outcome study, the REWIND study expected next year, how confident are you in that study given that two out of the four CV outcome studies with GLP-1s have failed to show a benefit? Is there anything in the design or patient characteristics that would basically suggest that the probability of success was more than a coin toss? And then when can we expect the results from AWARD-10 evaluating Trulicity and Jardiance? It would seem like that's a promising combination. My understanding is that the study has completed. Just wondering when we can see the results. And then finally were there any notable inventory changes for Trulicity and Taltz this quarter? Thank you very much. Philip Johnson - Eli Lilly & Co.: Alex, thank you for the questions. Actually, before we go on, just to clarify the last answer that I'd given. I think a type 1 is actually a two-month turnaround, not three months. And the type 2 is in fact six months. Enrique, if we can go to you for the question on how we're viewing the chances for success of the REWIND trial for Trulicity and timing for AWARD-10 to read out. And then if you want to comment if there were any issues or changes in inventory levels for Trulicity, and, Christi, if you want to comment on Taltz. Enrique? Enrique A. Conterno - Eli Lilly & Co.: Sure. So, it's really dangerous to speculate when it comes to how different trials are going to read out. We do have, I think, a very good experience when conducting cardiovascular trials in the diabetes space. I think Lilly probably has designed and conducted more trials than anybody else in this space, either by ourselves or with some of our partners. So, we feel confident that we've designed the trial in the right way, as we are awaiting on the results clearly. When you look at the different GLP-1s, I would say that not all GLP-1s are comparable, so we continue to like our chances. When it comes to your question on inventory for Trulicity, nothing material when it comes to inventory. We had some favorability related to changes in the estimates for revision (01:26:00) and discounts may be in the neighborhood of about $15 million out of a $380 million base, in the case of U.S. revenue. And as far as AWARD-10, we should be disclosing that at an upcoming medical conference. Philip Johnson - Eli Lilly & Co.: Great. Thank you, Enrique. Christi? Christi Shaw - Eli Lilly & Co.: An easy answer for me, in regards to Taltz there. No – nothing unusual. We're really happy in fact to see that the volume and the demand is the reason for the uptake. Philip Johnson - Eli Lilly & Co.: Great. John, we have time, I think, for one last question from the line.

And we'll go to David Risinger with Morgan Stanley. Please go ahead. David R. Risinger - Morgan Stanley & Co. LLC: Thanks very much. So, I wanted to just ask a high level update, please. And then a couple of minor quick questions. So with respect to the outlook in Washington, it seems like the Trump administration and Congress are focused on matters other than drug pricing, but it would be great to hear your updated perspective and outlook on pharma's focus in Washington and any developments you think investors should be anticipating with respect to drug pricing in the second half of this year? And then in terms of my more minor questions, KEYNOTE-189 is listed as an internal readout on your slide but not external. Is that simply because Merck will issue the external press release? Or, do you not expect an external press release in the second half of this year? And then finally, Derica, on gross margin guidance that was reduced from 77% to 76%, can you just talk about the key franchises and specifically what drove that, whether it's mix or any other factors? Thank you. Philip Johnson - Eli Lilly & Co.: Great, Dave. Thank you for the question. So, Dave Ricks, we'll go to you for the first question. Sue, for the KEYNOTE-189 timing question. And then Derica for gross margin percent. Dave? David A. Ricks - Eli Lilly & Co.: Sure. Thanks, Dave. Probably, we spend a long time talking about what's happening in Washington but I'll try to be brief. Look, we've responded to the concerns as an industry and as a company, I think, pretty well, in terms of putting pro-actively aligned ideas from across the industry on the table that can leverage the power of the marketplace and competition…

Ladies and gentlemen, that does conclude your conference. Thank you for your participation. You may now disconnect.