Eli Lilly Management Presents at 2013 Barclays Global Healthcare Conference (Transcript)

Mar.12.13 | About: Eli Lilly (LLY)

Eli Lilly and Co. (NYSE:LLY)

2013 Barclays Global Healthcare Conference Call

March 12, 2013 10:45 AM ET


Jacques Tapiero – SVP and President, Emerging Markets

Phil Johnson – VP and Head, IR


Tony Butler – Barclays Capital

Tony Butler – Barclays Capital

Good morning everyone. Thank you for attending this session. I’m very pleased today to have not only Phil Johnson, who is the Vice President and Head of Investor Relations. But most importantly, Jacques Tapiero who is the Senior Vice President and President of Emerging Markets.

One of the important things to watch from an Analyst perspective is, we hear a lot from the corporate side about where we have growth in emerging markets in its x percent, we have growth in this particular region as y percent. Many times we really don’t understand how medicines practiced in those particular regions. And so I’m very pleased today to have Jacques with us.

And today’s format will be, one of our far sight chat, although Jacques will open with some introductory comments. We’ll play a little game with our audience responses toward the end and then we will have a breakout across the hall in the New Yorker Sans breakout room. Jacques?

Jacques Tapiero

Thank you, great. Thanks a lot Tony, it’s a pleasure to be here. What I’d like to do today is first, I’d like to talk some framing on our three strategic priorities as a company and then I will go into more specifically into size on the emerging markets. Well, let me first frame first our priorities, and as you know they are pretty clear.

Number one, is to replenish and advance our pipeline. Number two, is to grow our marketed brands and also very important really grow what really are our three growth engines and that’s animal health, Japan and emerging markets. And number three, is to really work on improving our profitability and basically reduce costs.

The good news as evidenced by the 2012 financial results is, we’re progressing in the right direction. And as a company we feel that the goal which we’ve set to ourselves mid-term are the goals that we’re feeling good. And last but not least on the pipeline, we’ve had some good data in 2012 and with the starting of Phase III asset, we’re going to be getting more read-outs and full presentations in ’13. So in terms of progress overall, I really think we are in the right direction.

So, now let me very briefly speak about the emerging markets, as I said that’s one of the growth drivers for Eli Lilly. And maybe I’d like to do three things for the introduction is, one is, speak about the opportunity, two, define the choices we’ve made as a company and I think that’s important. And last but not least share with you, how we’re doing, what are our earlier results.

On the opportunity, I don’t need to spend too much time, but what I would say is that we’ve seen some challenges. And frankly these challenges we’ve seen them in developing markets as well, developed markets sorry. Pricing, access, what I will call protectionism. So, we’re not immune from the challenges but when you put the opportunity and the challenges there is clearly a good opportunity for pharmaceuticals and especially if you are in areas like we are, there have been some oncology which are fast growing therapeutic classes in the emerging markets.

So, all-in-all, when you look at the growth in the next five years, we’re going to be seeing double digit growth in the emerging markets, and that’s going to represent about two thirds of the growth. So the opportunities is, very clear.

Now, we’ve talked about the opportunity. I think the key is what choices we’ve made. And these choices are really driven by who we are, and where we are the company. So, we’ve made choices in terms of geographies and we have a clear priorities on where we should be spending our efforts and resources. We’ve done the same in terms of segments and no surprise for us, we believe and I believe that what’s going to make the difference in the long-term as to win with innovation in the emerging markets. As for your goal is to really have sustainable profitability, I think that’s going to be very key.

And the third thing, no surprise is more therapeutic areas and at the top clearly that based on the products we have today and the products we’re going to get tomorrow, diabetes and oncology are going to be very important.

I define what I’m calling that size must win and that’s maybe where I would describe them but then we can discuss more on the results we have there.

Number one, as I said is innovation, okay, innovation is critical. And the key goal is what do we do to bring our innovation faster to the emerging markets, okay. Number two its China. China, is 20% of our sales today. It’s 40% of the potential and it’s clearly for you to win in emerging markets you must win in China, and our strategy has been really to invest all across the budget change.

The third must win, is diabetes. And where we’ll frame it is more than 80% of diabetics are in emerging markets. So we have very high prevalence but more than that unfortunately the diagnostic rates are low and control rates are very low. Therefore, for a company like Eli Lilly there is a lot of potential to really fight diabetes and grow our business in diabetes.

The fourth one is what I call expansion. And expansion, we’re covering 17 countries in emerging markets. And so we have many small mid-sized countries where we have not been investing very heavily and they represent for us clearly and act opportunities, especially when it comes to diabetes, so that’s an area of focus.

And the last one, is business development. But specific business development to really compliment our key areas, out of there in terms of the choices, last four in terms of results, overall results first. In 2010, we grew our business 10%, we grew about 10% in ’11. In 2012, as we expected, we had a major hit with I would say Gemzar when we had funded expiring, that represented about 10% of our total sales.

The good news is we lost about $250 million but we almost compensated with $244 million in the same year. That represents an 11% underlying performance and that makes me feel very good on our strategy and the type of results we are having.

So, I’ll ask Tony and maybe we can go anyone to question to some of the five wins.

Tony Butler – Barclays Capital

Thank you Jacques for that introduction. It’s really two questions. One is, you mentioned geographic priorities, your must win sort of China soon, that’s a clear priority, if you could dissect the other clear priorities that would be great.

And second, just to set the stage, Lilly has taken a focused strategy on innovation. Other companies have decided to move into what I’ll call branded generics market try to capture share. I’d just like to get your view as to why, what – do you believe that value proposition is Lilly and why Lilly, maybe didn’t do the branded generics theme much like at least the couple of the other companies that are your proper fit?

Jacques Tapiero

Let me start first, in terms of China first of all. As I said, our goal has been to really invest whole across the value chain. And so we started three years ago and we basically have invested and we have two manufacturing plants in China. We have – we inaugurated last year, a dedicated center for research and development for diabetes to really better understand the Chinese patient and develop medicine that should not only be for the Chinese patient but also maybe more globally as well. We also have Lilly agent ventures there where we’ve invested in many companies. So that in terms of framework.

We also added, we added more than 2,000 sales reps but we really invested in our commercial group in China. And we’ve built capabilities because to win in China is not only to having sales reps is not enough, you really need to have a very strong capabilities in terms of access that’s very critical to make sure you bring your medicines to the market. But that’s important to make sure that you get the right pricing, you get to the listing and your really get up the end, basically have the right to operate and having access to the many hospitals. So that process is very important.

The bottom line is with all these efforts, we’ve doubled our business in the last three years in China. We grew in performance in 2012, 24%, 27% in dollars. That puts us to the fastest growing MNCs in China. So, again we are in the right – with the right therapeutic areas, diabetes alone grew in China 30%, okay. And Humalog it grew about 60% last year and growing faster than Novast. That’s maybe on China.

The question then, what about branded generics. I think branded generics for – to me, we analyze the market very well, okay. And we were very clear from the start that our goal was not just to go for size but to go for sustainable profitability. I’ll give you couple of examples to show why actually it’s the right decision.

Number one, is when you look – take China for example, 70% of the market is local companies, 30% MNCs, most of the BGX is going to be with the local companies. You have some – we have – I would say even Eli Lilly is in good BGX in China, we’re reaching BGX with our original products, okay, that breaks (inaudible) even all the antibiotics. This by the way do very well, but it’s a different concept of BGX because these are original in the country where the quality perception is extremely important, the quality image we are doing very well. So all these brands are growing very well for us.

But we’ve been studying not to go to broad generics, a broad BGX, generics we’re not going at all, okay. But the reason is again, I think it’s – there is a lot of competition there. And I think that we’re seeing a lot of – it’s a big price gain, okay. And so, in my view I was ready to see in the markets, we’re seeing market erosion, okay. As we see, there is a dynamic between the branded generics and the generics that to me is going to have an impact on pricing. We saw markets, no, it was mainly by generics. We’ve generics arriving, that’s really increased the competition and it has been basically a prized one.

Now, we’re not completely out to branded generics. We’ve decided, because we see a need for branded generics in what I would call high-quality difficult to make branded generics. Two examples, where we signed deals in 2012. We’ve signed a deal with a company in China called Novast. Novast is certainly one of the first company in China that is exporting to US, FDA approved. So, we’ve agreed to develop together some brand generics for the China market. I think that will put us in a good position in China.

We also signed a deal with an Indian company, Agila, and that deal was specifically again high quality injectible oncology or specific market, again it’s in our area of expertise oncology, okay. And it’s – I think it’s more of a niche market where we think we can make a difference. So that’s how we basically are focusing on BGX the really way.

Tony Butler – Barclays Capital

Thank you. If we could then move perhaps to diabetes. I believe there are 93 million diabetics in China, only a third have been diagnosed. I’d love to discuss how Lilly believes it can play competitively against Novo who has been engrained for some years and maybe compete effectively against Santa Fe who is also new to the market. And more importantly what do you see with respect to all agents in the future in China? Thank you.

Jacques Tapiero

That’s a very good, very good question. When you look at the Chinese market, as you said there are – you’ve got the prevalence, it’s 9.7% debit equivalence but through diabetes is 15%. So, it’s $92 million $93 million through diabetes $150 million. Then, diagnostic rate is about 33%, treatment trade is actually pretty good, because there is a good reimbursement system. So, once the patient are on the – gets started on the treatment, usually they stay on treatment she is very good.

But then you look at control rate, it’s about 10%. So the opportunity is absolutely it’s huge, okay. So, how are we doing? As I said, we’ve – in China what we need to understand as you said, Novo did start with a very strong position. And a lot of it is – it’s been also linked with timing of approvals. And I’m going to try to be short but it’s a pretty complex system.

For you to really be reimbursed, you have to get into the NRDL, the National Reimbursement Drug List. Now, what’s important to understand, that drug list only happens, it happened in ’09, in ’04. If you miss the window which we did, you have to wait, in our case 2009 before we actually can start competing, it doesn’t mean that they can start selling because once I got it in 2009, then I have to get price registration in the 31 provinces of the country. Then I have to go and have my product listed in the hospital that takes time, it would take about two to three years.

So, the good news today is we have invested the nice competitive commercial infrastructure in place. We have been getting the access. Today we have similar access when it comes to Humalog versus our competitors, okay. We are listed in most of the hospitals, okay. We are playing now in more than 200 cities, now that we have all the success. And so the bottom line is, now we can effectively compete.

So, if I look at the last two years, okay, up to we went to building basically our access, we grew faster than Novo in ’11, we grew faster than Novo in 2012. Now we still have a lot of room to grow. But the good news, if I take Humalog, I said before we grew about 33% exactly in total emerging markets in 2012. In the case of China we grew 60%, well above the markets, okay. So, I think we are now in a position where we can impact and grow share.

In terms of the oral, definitely there is going to be a room for the orals. I think it’s a question again of getting the orals approved, registered and then getting them going through the reimbursement list. So, today, none of the – before has gone I guess through the national list. But I think what’s going to be important is first to get in, but once you get in there is going to be also a very good market.

By the way, we did it before in emerging markets, they are growing as a market more than 40%. And this before for us outside China, we launched Trajenta in more than 20 countries in the emerging markets. And so far the results are excellent. We are very good at the curve, I’ll just give you two examples just to show that we really have the right medicine with Trajenta. In the case of the Mexico, up to about a year, we surpassed Gliza, Galvis and Genovia in mono-therapy sort of market before. In Korea and Brazil, we launched also in the last 12 months and we surpassed on Gliza and Galvis, okay.

So, I think it’s a very good addition to us. It’s an area where we have expertise, we know our customers. We have the right services so that’s going to be a very important asset for us going into the future.

Tony Butler – Barclays Capital

What do you think about the GLPs Jacques? Do they have a role in emerging markets or may they be too expensive?

Jacques Tapiero

They have a role, they are still the smallest. But of course the fact is growing but from a very small date. I think in terms of price, it’s going to be much higher price, but insulin so it’s going to have – versus DPB4 and versus the insulin we use, still is today and will remain the largest segment.

But I think there is room for innovation in emerging markets and there is going to be room for the GLIP I think it’s – that’s a characteristic of the emerging markets. We need to understand the different segments. And so GLIP is not going to be, we’re not going to be sending it in all the segments but there is definitely a segment if you have been out of focus markets in countries where there is no reimbursement, if you think of Mexico, if you think of Brazil, there is a population, there is stop doctors that are going to go and prescribe because patients want the very best but it’s going to our smallest segment.

We made into China as well, there is going to be less, if we give an idea of the insulin might be getting 100% reimbursement, the GLIP will certainly have the co-payment. But the patient in many cases will pay for that if it’s highly recommended by the doctor.

Tony Butler – Barclays Capital

So, this made reference to doing clinical trials in China in emerging markets. Is that prerequisite, is that a good idea, does that get you one formulary or at least on the drug with sooner, just thought to get some thoughts around that strategic decision.

Jacques Tapiero

Yeah, it’s a very important thing to do. When you look at overall, I mean, I’m speaking industry wide, it has overall – it has been taking too long to get our medicines approved in China, four to five years behind US and Europe. So there is a clear goal of Eli Lilly and all the companies as well to accelerate that.

Part of the requirements in China is to have some clinical trials with Chinese patients, okay. So that’s why we’ve invested in our development center in China, where basically we are developing most of our pipeline with a goal to bring that innovation faster into China.

Tony Butler – Barclays Capital

Jacques, if you were to think about – we focused on China. Where are you thinking, resources need to be allocated for markets that you think really – you’ve not spent enough time there, you think really can provide a better return on dollar spent?

Jacques Tapiero

We speak a lot about China and you’re right. China is 20% of Eli Lilly right now and in emerging markets, okay. And I will guess that if you look at the other companies you’re going to have about the same percentage. Now what we call the focus five, which is Brazil, Korea, Turkey, Russia and Mexico, that’s another 40% of the emerging markets today, okay and it’s very diverse, okay. You have some countries like Turkey, where you have high reimbursement, okay, government reimbursement, you have Mexico, Brazil, which is more out of focus. But these five countries are 40%.

Now, what we don’t speak a lot about is the rest. And the rest are very – you have many different countries, in fact and not only 70 countries, such different for Eli Lilly 40%. And as I said before, there are certainly many insight opportunities. And that’s why one of my five must win is called expansion. And we’ve started – we’ve started investing in many of these markets, because there is lot in common.

We took a lot of our China but the dynamic is the same. You are having faster GDP growth, you are having patient thinking more or consumers thinking more about their healthcare. You are having governments trying to expand the coverage. So the bottom line is those markets are also growing fast. And if you get to diabetes, which is one of my top priority the prevalence is very high. You go in the Gulf area, the prevalence for diabetes is more than 20%, go Saudi okay. You go to many of these countries is going to be around 10% to 15%.

So, we have been really going in some of these countries. We’ve been setting some priorities. But the good news is wherever we have seen, India is one where we’ve been in the last two years, we grew our business 35% last year, okay. And with a strong emphasis in diabetes, we have – we signed two agreements, one with a local company, the other one was BI. And so we believe there is a lot of potential there.

We have some countries like Algeria, we have zero, okay when it comes to Humalog. So we grew that business in one year we gained 10-point share in that specific market. And I can give you many others. So yeah, the emerging market and that’s the beauty, it’s a portfolio of countries and you have to look at the facilities.

Tony Butler – Barclays Capital

Thank you. Last question and I’ll put out for the audience response if I may. And Jacques, this may not be under your per-view so you may need to answer but it’s really around animal health in emerging markets and what do you see out of China, what do you see in those emerging markets, can you speak to that because it’s still – its’ a big component for Lily overall?

Jacques Tapiero

I can start, I mean, for the same reason as far my importance in the emerging markets, animal has been extremely important. And the reason is, as you see the development of the middle-class, as you see the development of the countries, there is a big need for food, for more food. And this is where we can play a big role.

So, we have been also really focusing in the emerging markets with animal health. And the very good news is we start with a very – when you look at the total a land animal has for Eli Lilly, it’s a business that grew 21% last year globally. And emerging markets is one of the drivers in one of the areas where we really are putting a lot of emphasis. I mean, the countries are going to be – China is going to be very important, Brazil is extremely important, Argentina. So, we are bringing that same focus as well in animal health.

Phil Johnson

Couple of points Tony. So, typically as you see increases in GDP, and this passes for pizza is often almost every country you look at. You’ll see people going from carbohydrates to plant proteins and then the animal protein. So, in these local markets, we see great growth opportunities, but then also a number of emerging markets that are already set up to be, or we think in the future can become also export markets as well, it’s important to go ahead and have a strong presence for that portion of the business too.

Tony Butler – Barclays Capital

Right. Thank you very much. So, if we could go to the audience response system. We’ve got I think three questions and you could grab your toy and remember that the number, come on John you got to play it too.

Phil Johnson

All right.

Tony Butler – Barclays Capital

Number corresponds to the multiple choice and hopefully you can push the number quickly before the music stops. We can get the first question.

Question-and-Answer Session

Tony Butler – Barclays Capital

So, what do you believe peak sales estimates are for (inaudible), one, less than 1 billion, two, 1 billion to 2 billion, three, 2 billion to 3 billion, four, 3 billion to 4 billion, and five, over 4 billion? Okay, 1 billion to 2 billion seems to be the best answer. Great, next question.

Though I’m not going to ask you to answer, what you did. What do you believe peak shelf estimates are for Lantus(inaudible)? Now this is a better, I think, less than 1 billion, again, 1 billion to 2 billion, number three, 2 billion to 3 billion, number four, 3 billion to 4 billion, and number five, greater than 4 billion? Interesting, interesting. So, almost the middle two, sort of execute to 1 billion to 2 billion competing with Lantus.

And our last question if I may. So, what is the probability that Ramu data in breast will show strong enough progression free survival in favorable overall survival trends at an interim to be adequate for US registration, less than 20%, 20% to 40%, 40% to 70%, greater than 70%, this is probability at the interim? Wow, here is the distribution for you. Lot of mixed views, that’s actually interesting to me.

That brings our last question. So we’ll move quickly to Sans New Yorker. Jacques, Phil, thank you so very much.

Jacques Tapiero

Thank you. We appreciate it Tony.

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