John Lechleiter - Chairman, President, and Chief Executive Officer Phil Johnson - Vice President, Investor Relations Derica Rice - Chief Financial Officer & EVP, Global Services David Ricks - Senior Vice President and President, Lilly Bio Medicines Susan Mahony - Senior Vice President and President, Lilly Oncology Enrique Conterno - Senior Vice President and President, Lilly Diabetes Jan Lundberg - Executive Vice President, Science and Technology Eric Siemers - Distinguished Medical Fellow Alfonso Zulueta - Senior Vice President and President, Emerging Markets Jeffrey Simmons - Senior Vice President and President, Elanco Animal Health

Seamus Fernandez - Leerink Timothy Anderson - Bernstein John Boris - SunTrust Jami Rubin - Goldman Sachs Mark Schoenebaum - Evercore ISI Chris Schott - J.P. Morgan Steve Scala - Cowen & Company Andrew Baum - Citigroup Tony Butler - Guggenheim Partners Gregg Gilbert - Deutsche Bank Colin Bristow - Bank of America Vamil Divan - Credit Suisse

Ladies and gentlemen, thank you for standing by. Welcome to the Q2 2015 Earnings Call. At this time all participant lines are in a listen-only mode and later there will be an opportunity for your questions. Instructions will be given at that time. [Operator Instructions] As a reminder, today's conference call is being recorded. I'd now like to turn the conference over to John Lechleiter. Please go ahead.

Good morning. Thank you for joining us for Eli Lilly & Company's second quarter 2015 earnings conference call. I'm John Lechleiter, Lilly's Chairman, President and CEO. Joining me on today's call are Derica Rice, our Chief Financial Officer; Dr. Jan Lundberg, President of Lilly Research Laboratories; Dr. Sue Mahoney, President of Lilly Oncology; Enrique Conterno, President of Lilly Diabetes; Dave Ricks, President of Lilly Biomedicines; Chito Zulueta, President of Emerging Markets; Jeff Simmons, who is President of Elanco Animal Health; and Ilissa Rassner, Brad Robling, and Phil Johnson of Lilly's IR team. We're also joined by Dr. Eric Siemers. Eric is a distinguished medical fellow for our Alzheimer's disease team. He is dialing in from Washington where he is attending the Alzheimer's Association International Conference. 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 three and those outlined in our latest Forms 10-K and 10-Q filed with the Securities and Exchange Commission. The information we provide about our products and pipeline is for the benefit of the investment community. It is not intended to be promotional and is not sufficient for prescribing decisions. Lilly's positive momentum continued in the second quarter as we delivered solid underlying business performance with productivity improvements driving bottom line leverage with double-digit operating income and EPS growth. And we again saw significant pipeline progress including multiple regulatory approvals and submissions along with positive Phase II and Phase III data readouts. As usual I will begin today's call by highlighting key events that have occurred since our first quarter earnings call in late April. We've seen advances on a number of fronts. Starting with commercial milestones. In Japan we began promotion of Cyramza for gastric cancer. The gastric cancer indication in this market represents a significant opportunity for this product. Here in U.S. we began a promotion of Cyramza for second line metastatic colorectal cancer following FDA approval of this indication day after our last earnings call. On the regulatory front we achieved a number of milestones. In diabetes we received approval in Japan for Trulicity, our once weekly GLP-1 receptor agonist for the treatment of Type II diabetes. We also received FDA approval for Humalog U-200 KwikPen for the treatment of Type I and Type II diabetes. In collaboration with Boehringer Ingelheim, we received European commission approval for Synjardy. This is a single-pill therapy that combines empagliflozin and metformin for the treatment of adults with Type II diabetes. Here in the U.S. the FDA issued a complete response letter for Synjardy and Boehringer Ingelheim has already submitted their response. We're pleased the resubmission was granted a two-month review and we're hopeful we'll be able to bring this product to market in the U.S. yet this year. Moving to oncology as I mentioned a moment ago we received FDA approval for Cyramza in second line metastatic colorectal cancer. We also completed our submission for the same indication in Japan. In addition the FDA Oncologic Drugs Advisory Committee, ODAC, reviewed the data supporting our submission for necitumumab in combination with gemcitabine and cisplatin for us increase first-line treatment of patients with advanced squamous non-small cell lung cancer. We were encouraged by the constructive discussion on the benefit risk profile of necitumumab. We believe necitumumab represents a meaningful advancement in treatment. And moving to our Biomedicines business we submitted Ixekizumab in Europe for the treatment of moderate to severe plaque psoriasis following our U.S. submission in the first quarter. Clearly this continues to be an exciting and busy time for our regulatory colleagues across the globe. On the clinical front we presented detailed Phase III data on three different molecules and highlighted these data on investor calls. First was the presentation of Phase III data for basal insulin PEG lispro in patients with Type I and Type II diabetes at the ADA meeting. As we've stated in the past, we decided to delay regulatory submission to generate additional safety-related data. Next was the presentation of data from the first two of our four pivotal trials for baricitinib in rheumatoid arthritis at the U.R. [ph] in Rome. We're are encouraged by the Phase III data we've seen to date and we look forward to the data readouts from the final two pivotal trials later this year. Last was the presentation of Phase III data for Ixekizumab in moderate to severe plaque psoriasis at the World Congress of Dermatology meeting. We believe Ixekizumab has demonstrated a compelling risk profile in clinical work to date and that Ixekizumab could help patients with moderate to severe plaque psoriasis better manage their disease and improve their quality of life. Further we believe that the level of efficacy and the safety profile demonstrated by biologic agents targeting IL-17A in psoriasis represent a meaningful improvement to currently available therapeutic options and could be a catalyst for greater use of biologics in the treatment of this disease. Just yesterday at the Alzheimer's Association International Conference we presented two-year extension data from the Expedition Ext trial. We believe the data are consistent with a potential disease modifying effect of solanezumab on underlying disease progression and we look forward to completion of the Expedition 3study in late 2016. Apart from these Phase III data disclosures we also had some earlier data presentations that garnered investor interest. Specifically at the ASCO meeting we presented Phase II data for Olaratumab in soft tissue sarcoma. While at the American Headache Society meeting, we presented initial Phase IIb data on our CGRP monoclonal antibody in episodic migraine. We're enthusiastic about the opportunity for both of these molecules. Derica will provide an important update Olaratumab later in the call. On the business development front we announced five oncology deals spanning collaborations with AstraZeneca, BioNTech, Dana-Farber Cancer Institute, Sarah Cannon Research Institute and Immunocore. This is consistent with comments that we made earlier this year that you should expect to see us increase the level of our business development activity through partnerships, licensing, and acquisitions at ever earlier stages of development. In addition, we struck a deal with Sanford-Burnham Medical Research Institute in the area of immunology and we announced a sales collaboration in Japan with Dainippon Sumitomo Pharma for Trulicity. In other news we received a positive ruling from the U.K. Court of Appeal, which held that the Alimta vitamin regimen patent would be indirectly infringed by a generic competitor. This ruling reversed the initial U.K. court's decision granting declarations of non-infringement in France, Italy, and Spain. We announced plans to establish a new drug delivery and device innovation center in Cambridge, Massachusetts. The Lily Cambridge Innovation Center in Kendall Square will help attract top scientists and bioengineers as well as enhance our business development presence in the Boston area. And just this morning we announced plans to effectively double our research presence at our Lilly Biotechnology Center in San Diego, California. On the financial side we took advantage of very low European interest rates to issue €2.1 billion of debt while retiring $1.65 billion of higher coupon U.S. debt. Finally in the second quarter we repurchased $125 million of stock, leaving $3.3 billion remaining on our $5 billion plan. In addition, during the second quarter we distributed over $500 million to shareholders via our dividend. We remain committed to providing a robust dividend and to returning excess cash to shareholders via share repurchase. And now I'll turn the call over to Phil for a discussion of our financial performance for the quarter.

Thanks, John. Before I discuss our Q2 results it may be helpful to review some key features of our presentation of GAAP results and non-GAAP measures. When interpreting our GAAP results and the growth rates versus 2014, keep in mind that 2014 does not include Novartis Animal Health while 2015 includes the operating results of this business as well as all the costs associated with the acquisition. For our non-GAAP measures we now exclude amortization of intangibles and to provide you a better idea of the underlying trends in our business, we've adjusted our non-GAAP measures for 2014 to exclude the expense associated with amortization of intangibles and to include Novartis Animal Health as if we had closed the acquisition on January 1 of 2014. This places 2014 on the same basis upon which we're reporting financials this year. Now let's look at our results for the quarter. Slide eight provides a summary of our GAAP results. I'll focus my comments on our non-GAAP adjusted measures to provide insights into the underlying trends in our business please. So please refer to today's earnings press release for a detailed description of the year-on-year changes in our second quarter GAAP results. Moving to slide nine you can see that Q2 revenue was nearly $5 billion. The decrease of 4% compared to Q2 2014 reflects significant foreign exchange headwinds. Excluding FX our Q2 revenue [indiscernible] on a non-GAAP basis. As we discussed before this year we will feel the negative effect of the loss of U.S. exclusivity for Cymbalta and Evista. This quarter sales of those two products in the U.S. declined by over $110 million. Excluding the unfavorable impact of foreign exchange rates and Cymbalta and Evista in the U.S., the rest of our worldwide revenue increased 6% this quarter. Gross margin as a percent of revenue increased 2.5 percentage points going from 76.7% to 79.2%. This increase was driven by the favorable impact of foreign exchange rates on international inventories sold, which increased cost of sales in Q2 last year but decreased cost of sales in Q2 this year. Excluding this FX effect, our gross margin percent declined by one percentage point going from 77.2% in last year's quarter to 76.2% this quarter. As on prior calls, you'll see a supplementary slide providing our gross margin percent for the last 10 quarters with and without this FX effect. We continue to drive productivity improvements across our business. Total operating expense defined as the sum of R&D and SG&A declined by 7% or over $200 million compared to Q2 2014. Marketing, selling and administrative expenses declined 8% while R&D declined 5%. The reduction in marketing, selling and administrative expenses was due to the favorable impact of foreign exchange rates, cost reductions in the combined Animal Health organization, and ongoing cost containment efforts across Lily partially offset by marketing expenses to support recent product launches. The reduction in R&D expense was driven primarily by the favorable impact of foreign exchange rates. As implied by our full-year guidance we do expect the level of R&D spend to be higher for the remainder of the year as we start Phase II trials for files for tonizimab [ph], our CGRP monoclonal antibody, olaratumab, and additional indications for Cyramza. Other income and expense was income of $29 million this quarter and our tax rate was 20.8%, a decrease of 2.3 percentage points compared to the same quarter last year. This decrease is primarily due to a discrete tax benefit realized this quarter. Also our tax rate in both periods did not include the benefit of certain U.S. tax provisions including the R&D Tax Credit as those provisions had lapsed. At the bottom line net income increased 20% while earnings per share increased 22% reflecting the benefit of our share repurchase. Slide 10 contains non-GAAP adjusted information for the first half of the year while slide 11 provides a reconciliation between reported and non-GAAP EPS and you'll find additional details on these adjustments on slide 21. Now let's take a look at the effect of price rate and volume on revenue. On slide 12 in the yellow box at the bottom of the page you'll see the total revenue decline of 4% on a non-GAAP basis that I mentioned earlier. The significant strengthening of the U.S. dollar against many foreign currencies drove this decline as you see the 8% negative effect from FX this quarter with a favorable volume effect of 3% and favorable price effect of 1%. By geography you'll notice that U.S. pharma revenue increased 3% driven by price, partially offset by volume. And international operations Australia, Canada and Europe or ACE you'll see that there was a decline in revenue of 19% that was almost entirely driven by the negative effect of foreign exchange while on a constant currency or performance basis ACE revenue decreased just 1%. This decrease was driven by a substantial reduction in European Cymbalta sales resulting from a loss of data package exclusivity. In Japan pharma revenue increased 14% in total while on a constant currency or performance basis increased 37%. The size of this increase was influenced by a weak comparison period. Recall that in Q1 2014 we experienced substantial wholesaler buying in advance of an increase in the local consumption tax, which led to corresponding reduction in wholesaler buying in Q2 2014. Consequently the performance growth of 10% for the first half of this year is more reflective of the underlying trends in Japan. Turning to emerging markets we saw a revenue decline of 15% driven by a negative foreign exchange effect of 12%. On a performance basis emerging market sales declined 4% driven by lower sales in China and the negative effect of the Brazil Humulin tender we had last year. This quarter our pharma revenue in China declined 16% driven by lower volume. On a non-GAAP basis, which adjusts 2014 as if we'd completed the Novartis Animal Health acquisition on January 1 of that year, Alanco Animal Health declined 4%. Excluding the negative effect of foreign exchange Alanco revenue increased 3%. Moving to slide 14 you'll see the effective changes in foreign exchange rates on our Q2 2015 results. This quarter, as mentioned earlier, FX was a top line headwind reducing revenue in U.S. dollars by eight percentage points. In terms of cost of goods sold, however, FX provided a substantial benefit, which led to FX having essentially no impact on operating income and EPS. At the bottom of the slide you can see that our non-GAAP EPS in the second quarter grew 22% with and without FX. Slide 15 shows our pipeline as of July 20 with changes since our last earnings call highlighted, green arrows showing progression and red arrows showing attrition. In terms of advancement you'll see that our CGRP monoclonal antibody has moved into Phase III with initiation of pivotal trials in cluster headache. And we initiated Phase II testing for an oncology molecule. We also terminated element of our oral glucagon receptor antagonist for diabetes in Phase II as well as for five Phase I molecules. With that update I'll now turn the call over to Derica.

Thanks, Phil. As on our prior calls, I'll recap the progress we've made on the key events we've projected for 2015 and then review our 2015 financial guidance. Turning to slide 16 you'll see that a majority of events anticipated for 2015 have already occurred in the first six months of the year with the vast majority being positive. Since our last earnings call, we've achieved a number of additional milestones. We initiated Phase III trials for Cyramza in both first-line EGFR mutation positive non-small cell lung cancer and in second-line urothelial cancer as well as for our CGRP monocolonal antibody in cluster headache. As John mentioned earlier we had a number of detailed disclosure at medical meetings for basal insulin PEG lispro, baricitinib, ixekizumab, and solanezumab. You will also see that we updated the regulatory submissions category to reflect Japanese submission for ramucirumab for second-line metastatic colorectal cancer and European submission of ixekizumab for psoriasis. As we announced on our ixekizumab investor call we've added an event to our key event list for the simultaneous submission of ixekizumab in Japan for both psoriasis and psoriatic arthritis. Earlier John mentioned the presentation at ASCO of the Phase II for Olaratumab in soft tissue sarcoma. These data were compelling and included a 10-month overall survival benefit in patients in the treatment arm that received Olaratumab. I'm pleased to announce that based on the ongoing discussions with the FDA we intend to submit U.S. and European regulatory applications for Olaratumab in soft tissue sarcoma based on these data, or based on these Phase II data. We hope to complete the U.S. submission before the end of 2015. As a result you'll see a new item on our list of key events to reflect this positive development. In addition, the FDA has granted a Olaratumab breakthrough designation. We're pleased that Olaratumab is the third in-clone molecule following Cyramza and ixekizumab that has generated promising clinical data and that could help patients with cancer live longer. You will also see new checkmarks to reflect three approvals John discussed earlier: Japanese approval for ramucirumab in second-line gastric cancer and dulaglutide Type II diabetes. And in the U.S. approval for Humalog U-200 KwikPen. Finally in the other section you'll see the green checkmarks for the positive Alimta ruling from the U.K. Court of Appeal and we now have a date in mid, for mid-November for the appeals hearing at the European patent office. We noted in the past that 2015 is another year where we're focused on demonstrating successful execution of our innovation-based strategy. We're pleased with the progress we made in the past few years and so far this year and believe this progress solidifies our near to medium-term growth prospects. Turning to our 2015 financial guidance, we've raised the bottom end of our revenue range to reflect the solid underlying performance for the first six months of the year and the launch trajectories of Jardiance, Trulicity, and Cyramza. We've also modestly increased the range for our non-GAAP other income to reflect net gains on investments realized to date and added a new line for GAAP other income that reflects the debt repurchase charge. To reflect the discrete tax benefit booked in Q2 we've reduced our non-GAAP tax rate by about 50 basis points. And our GAAP tax rate also reflects the impact of the debt repurchase and the BioNTech charges. At the bottom line we've raised our non-GAAP EPS range by $0.10 and now forecast full-year non-GAAP EPS to be in the range of $3.20 to $3.30 per share. Our new GAAP EPS range of $2.20 to $2.30 per share has been updated for this same $0.10 increase as well as the Q2 charges we booked for the debt repurchase and the BioNTech deal. Finally I want to point out that we own shares of Receptos and you've undoubtedly seen Celgene's offer to buy receptors for $232 per share. At this time, it is not clear to us when a deal may get done and we've not made a determination of what we will do with our shares. We'll monitor this situation and we will incorporate any necessary changes into our future guidance updates. In summary, while our second quarter revenue reflects the impact of foreign exchange headwinds and the lingering effects of U.S. patent expirations for Cymbalta and Evista, we remain on track to return to growth in 2015 driven by excellent progress in our innovation-based strategy. We had solid underlying business performance and our continued focus on productivity and cost controls drove strong leverage at the bottom line while providing the capacity to fully invest in our new product launches and to pursue additional promising pipeline opportunities. This solid business performance was the primary driver for increasing our non-GAAP EPS guidance. With tangible results from our innovation-based strategy we aim to drive revenue growth and expand margins throughout the balance of this decade. As we discussed in the past you'll see sharpen our focus on areas where we're best positioned to compete and win and we'll continue to find ways to increase productivity and do the work of pharmaceutical R&D better. This concludes our prepared remarks and I'll turn the call over to Phil to moderate the Q&A session. Phil?

Great. Thank you, Derica. Leah [ph], if you could provide instructions for the Q&A session we'll get started with caller's questions.

Certainly. [Operator Instructions] And our first question is from the line of Seamus Fernandez with Leerink. Please go ahead.

Thanks for the question. So congratulations on a strong quarter. Derica, maybe you can just or overall if you guys can give us your thoughts on how you see the progression of Alimta sales outside of the U.S. going forward? Sort of if we just kind of exclude the competitive landscape and think about it independent just with the court rulings how you see that going forward and what amount of sales is actually reflected and represented by that, how durable you think that is? The second question, so as we think about the evacetrapib opportunity if you guys could give us any additional color you could provide on the number of events, the powering of the study? I know you said 15% power in the past, but historically when we've seen studies like this it's conservatively powered. So 15% at 95% or 98% reduction would imply somewhere between 1,400 and 1,600 events. So it would be really helpful to understand how conservatively powered your 15 assumption is on evacetrapib? And then lastly on all Olaratumab just in terms of the market opportunity in soft tissue sarcoma, can you just give us a quick update on your thoughts there in terms of the patient size in the U.S. and then also globally? Thanks a lot.

Great, Seamus. Thank you for the questions. I'll go ahead and actually provide some context on your first question on Alimta O-U.S. and some of the exposures there. And then, Dave, if you'll talk about the second question for that evacetrapib powering? And then, Sue, if you'll handle the Olaratumab question? So, Seamus, for O-U.S. if we go back to the guidance call early January, we had mentioned that last year we had about $880 million in Alimta sales in Europe. We'd indicated that about $80 million of that amount would already be subject to loss of exclusivity in markets where we did not have the compound patent or the longer dated vitamin dose regimen patent. Of the remaining $800 million about $175 million was represented by Germany with the rest being the other European countries, of which France is the largest by far followed by Germany and then Italy and Spain with U.K. being clearly the smallest of them. So hopefully as you're thinking about rulings we've had so far in Germany and rulings out of the U.K. court that provides you some basis to understand the level of exposure that's there. For Japan I don't have last year's number but I do have this quarter's number in front of me since we also have litigation ongoing in Japan. We have $67 million in Q2. We had $57 million of Alimta revenue in Japan in Q1. The emerging markets business is a similar size to Japan where we had about $63 million in revenue this quarter and about $63 million last quarter as well. So the major exposure really is for O-U.S. the European both litigation in specific countries that's ongoing and as mentioned on the call earlier the outcome of the European patent office appeal hearing that will occur in November. Dave?

Sure. Yeah, Seamus, thanks for the question on anacetrapib. What we've said in the past is we're powered to show the effect size on LDL alone. And so your range there is about right. I don't think we've got into the exact number of events and I would remind the investors we extended the trial by six months, which is part of our Q1 communication, which actually adds to the event total that we'll see. So in a sense that may increase the powering of the study although not markedly. So the study was designed to show an effect on LDL alone. Using the Oxford curve [ph] that we've seen play out through time we estimate about a 30% reduction in LDL so thus the mid-teens [indiscernible] outcome and that is looking at the quintuple endpoint. We also have a minimal threshold for the triple hard end points of death, MI, and stroke. And we believe we have ample events now as we look at the data coming in mid-next year.

Sue?

Yeah. And with regards to Olaratumab, so the size of the market, it's about 11,900 patients who are diagnosed with soft tissue sarcoma in the U.S. For drug treatment there's about 5,800 and U.S. And then O-U.S. about 5,000 again. I think the important thing here is that there really hasn't been anything approved or shown an overall survival advantage in about three decades in this tumor type. So it's a big unmet need and we're very excited by the data that we have and the opportunity to bring Olaratumab hopefully to patients. So we have announced that we'll be filing based on discussions with the FDA in the U.S. and we also anticipate doing that in Europe too. We also are planning to initiate a Phase III study over the next few months in Q3 and to do some pediatric studies. So I have to say we're excited about the opportunity with this molecule.

Yeah. Just a real quick add-on to that, Seamus. I think clearly and for good reason there's been a lot of interest in the investment community on immune-oncology agents that have shown durable responses for a number of patients. While this is not in that nice shiny penny of immune-oncology, the kind of benefit that we saw for overall survival is quite striking. You're talking about 25 months of overall survival compared to 15 months on the comparator arm. So while this is a smaller patient population, an orphan drug essentially type of patient population, we're very enthusiastic about the data we've shown to date. Leah, next caller please?

And the next question is from the line of Tim Anderson from Bernstein. Please go ahead. Mr. Bernstein your line is, excuse me, Mr. Anderson your line is open.

Yes. Thank you. A few questions. On solanezumab, obviously the AAIC data presented yesterday. I'm wondering if you can talk about that in the context of Expedition 3and how you will be, I should say, how or whether you will be incorporating a delayed start design into that trial. And really is that something that you would likely need for approval? Or is that something that could come later? In other words is it a regulatory necessity to show results on a delayed start design? Or is it more of a labeling matter? Second question is on Amyvid, your AD imaging agent. Kind of a rounding error commercially but it seems that PET imaging in the future could have some real value when it helps, when it comes to kind of helping rule in Alzheimer's disease. Is there an unappreciated commercial opportunity at some point in the future with the product? And then last question just on diabetes. If I look at sales levels of various products, it seemed to track below what I would've expected in different geographies and I'm wondering if that speaks to an increased level of price erosion that might've impacted results?

Great, Tim. Thanks for the questions. Dave, if you can handle the solanezumab Expedition 3and Amyvid questions? And then, Enrique, the diabetes question. And obviously, Chito, if you want to make any comments on the growth in emerging markets with diabetes products, please do chime in. Dave?

Great. Thanks, Tim, for the questions. I'll try to handle these and if I get in trouble my experts also online can help. First, regarding the data we showed yesterday on the Expedition Ext or extension study, this is a very long-term set of data with the drug effect in Alzheimer's. And I think we're pleased to see that the safety of the product continues to look very good in this population. We're happy that the delayed start impact we had hoped to see was displayed and that the later patients coming on to sola after the 18-month blinded period did in fact not catch up as tested statistically but also numerically visible and that the treatment effect appeared to persist. So on the back of that though it's important to note that, that's only important if Expedition 3is positive. This does not represent a basis for submission or - because it's not a blinded assessment. But I think those are encouraging signs for us. And as you know and we've said many times on calls like this, we think included a number of features in Expedition 3, which give us a good shot to really thoroughly test the question of solanezumab in mild patients including your question on PET screening. So I'll jump to that, which is we believe it's essential to eliminate from these studies and in clinical practice to screen for amyloid in patient who have dementia to really define the underlying cause. Of course that's consistent with Alzheimer's disease versus other types of dementia. Right now Amyvid is available commercially in the U.S. and many European markets. It is not a major product for us today. As you know it's not reimbursed by CMS in the U.S. for instance. I would frame this I guess in three ways. It's useful for patients, for treators, and for our company. Why is - sales would be expected to increase of Amyvid should disease modifying agents become available including solanezumab because I expect most of those labels and/or payer requirements will force patients to have confirmed amyloidosis to be eligible. That's good news, but probably still wouldn't be a massive undertaking in terms of revenue impact for the company. But it's also important to look at the PET capabilities we have in two other frames. One is as a drug development tool. And really operationally being able to manage a clinical network a site that has ready access to the Amyvid PET has really helped us enroll studies quickly and make sure that we can scan patients in a timely way, keep them in the study, and synchronize that complicated machine that allows us to get Expedition 3done for instance, and future studies like the base program with AZ. And then finally and particularly for something like our Tau Tracer, which is in Phase II, these are very useful drug discovery and scientific tools to help us accelerate and make good decisions about earlier phase Alzheimer's programs. So these are really essential parts of our total Alzheimer's vision and we'll talk more about that in December at our Investor Meeting focused on Alzheimer's.

Great. Thank you. Enrique?

Sure. So as we look at our diabetes business, there were a number of one-time events that are impacting the quarter-to-quarter results and I thought first I would say that the underlying business fundamentals are good, not just when it comes to volume. But we've not seen any significant changes when it comes to contracting or additional price pressures over and above what we're seeing before. Let me speak to Humalog for a second. In Q2 of last year, we had a significant adjustment related to, positive adjustment related to managed Medicaid. That was about five points in terms of the impact when we look at the compare of Q2 of 2015 versus Q2 of 2014. We had a little bit of de-stocking also in the U.S. as we look at Q2. But as we look at the business fundamentals, we continue to feel good about our prospects. We also have some anomalies when it comes to Tradjenta and in this particular case there were two important adjustments that have been made over the last year or so. We made an adjustment in Q3 of 2014 that basically, a negative adjustment in Q3 of 2014 for Tradjenta sales because we had not accrued enough when it comes to our rebates. We were getting more of our business coming from Medicare than we had initially estimated. And then in Q2 of 2015, in Q2 of 2015 we had a negative adjustment. In essence we had overstated some of our sales in the first half of 2014 and we have in a certain way understated our sales in the first half of 2015. To make this simpler the bottom line is if we were to normalize for some of these onetime effects and we were to reassign the accruals to the right quarter, our net sales would be growing in the case of Tradjenta in the U.S. about 15%. Clearly we have a very significant volume growth.

Great. Leah, next caller, please.

And the next question is from the line of John Boris with SunTrust. Please go ahead.

Thanks for taking the questions. With the commercial launch activity heightened in Japan can you maybe just walk us through the opportunities for Cyramza, Trulicity there and the type of pricing if you've received any innovation type pricing on Cyramza for gastric cancer there? Any relationship with Sumitomo with Trulicity and how you'll launch there? Second question on the CGRP antibody, can you maybe just walk through what the significant points of differentiation are relative to [indiscernible] who also have competitive antibodies here? And with the rollout of this earlier than anticipated in cluster headaches, just your thoughts on when you might be in a position to compete those clinicals? And then the third and final question for John Lechleiter just on the political front, can you maybe address two issues that seem to be taking center stage in Washington, most notably repatriation and your thoughts whether we're going to see something that happens their along with tax reform going forward? Thanks.

Great, John. Thanks for the questions. You got a good smattering of the management team involved here so let's see, Sue, if you'll start off talking about Japan Cyramza, how we'll proceed in that, any update we've got on pricing there? We'll stick with Japan and move over to Enrique for comments on Trulicity including the recently announced partnership for the commercialization of the product there. Dave, for the CG3 monoclonal antibody questions and then John for the two last questions on repatriation and tax reform. So, Sue, please start.

Yeah. Sure. Okay. With Cyramza we actually launched Cyramza on the 22 of June and we do see this as a really good opportunity for Cyramza given the unmet need there is in Japan and given the number of patients who are treated in Japan with gastric cancer. We estimate about 16,000 patients in Japan are treated in the second line gastric versus about 6,000, 4,000 to 6,000 in the U.S. So the opportunity there is great. The feedback that we've got from thought leaders is good and the initial feedback from the sales force again is very positive. So it's early days, 22nd of June launch. We did get a slight sales buy-in but clearly we'll be tracking the sales going forward. From a price perspective, yes, we have got the price. The bar price for the 500-milligram is ¥355,000 and for the 100-milligram is about ¥75,000. So we'll give you the exact details on that but we feel good about the price we've got in Japan.

Great. Enrique?

Sure. As we have said before when it comes to Trulicity overall expansion of the GLP-1 class is critical for us. Just to quote a few numbers in the U.S. when we look at new patient growth that number is now close to 50%, five zero, when we look at four weeks year-on-year or 13 weeks year-on-year. So we're clearly very pleased with that. When it comes to Japan, this is even more true just because in Japan the GLP-1 class has the lowest penetration in Type II diabetes of any major market. Now for us to accomplish this we have decided to partner with Dainippon Sumitomo in order to give us to have the appropriate reach when it comes to the small clinics. And this is going to be critical for us.

Great. Thank you. Dave?

Yeah. So on CGRP we're excited about this program. As was announced today we did initiate the cluster programs in both chronic and episodic in Q2. We don't have an exact timing at this point for the readout. It's enrollment dependent, John. But we would hope to be able to enroll those studies rapidly given the unmet need and then be able to submit those to regulators as quickly as possible. We'll give updates as we begin to see a little bit more rate on that and you can look at ClinicalTrials.gov, which we update religiously on these points. That is one of the sources of differentiation we might see for our program versus others, which is indications. At this point I just want to emphasize that there's a big market. There's about 14 million migrainers who could benefit from a preventative just in the U.S. and CGRP neutralization appears to have a very profound and so far looks relatively safe method for alleviating the suffering from this condition. So there's probably room for a number of players. Really we're going to have to wait to see the Phase III programs play out and often things like dose selection and frequency, et cetera will be different. And we'll see who comes up with the best data package at the end. Right now we're focused on execution and getting in the clinic with the Phase III program in the coming months and are excited by the recent Phase II readout we saw.

Jan, do have anything to add on CGRP?

I think we are seeing several antibodies having more or less similar results, which I think is encouraging for the class as such. And the studies have been somewhat different in relation to the number of migraine headache days that has been the focus. Some studies have been episodic classical definition of 4 to 14, others have been 8 to 14 and there could potentially be a difference of the effects of these agents depending on how many migraine days you have. But I think overall we are very encouraged about this class for this large indication in all aspects.

Great. Thank you. John?

John, thanks for your question. I think speaking for Lilly in terms of the potential for tax reform, we're encouraged by many of the recent soundings that have come from Washington. We've been for as long as I've been CEO and I'm sure before that advocating for corporate tax reform. We have an uncompetitive tax system in this country. It puts American companies at a disadvantage. It actually discourages investment in the United States. So we would be very anxious to see a system that takes a territorial approach to taxation and as part of that if we enable some repatriation, obviously we would be broadly in favor of that. The devil is always the details but we're hopeful that short of comprehensive tax reform that current events the impetus for the Highway Trust Fund, et cetera might spur action here. And we're more than ready and willing to participate in a constructive discussion.

Great. Thanks, John. Leah, if we can go to the next caller.

Certainly. And that is Jami Rubin with Goldman Sachs. Please go ahead.

Thank you. John, just a quick question for you. You had mentioned in your prepared remarks your growing in trust in deal activity but mostly confined to partnerships, licensing deals, et cetera. Can you elaborate a little further on that? And in your mind is there - does this mean that you're not going to make acquisitions but rather focus on partnerships, licensing deals? And if you, if the answer is you're not, that you are interested in acquisition activity, is there a limit as to how big you would go? And would you consider using your equity? Just given where your multiple is I would think that, that would be something that would be advantageous to you now. And then a question for you, Derica. You've previously guided to the FX benefit on gross margin this year to unwind next year assuming exchange rates remain constant. Can you update us on what to expect in terms of the magnitude of that impact? Thanks very much.

Okay. Jami, I'll start off. Thanks for the question. I think what we called out at the beginning of the year was our sentiment favoring deals done at ever earlier stages. I think this is not inconsistent with the trend you see in the industry. I think in terms of later-stage deals or maybe even larger-size deals, we're going to be guided first and foremost by the therapeutic categories where we've chosen to compete. And again I think we sort of outlined that quite distinctly at the beginning of the year. That would be diabetes, oncology, and neurodegeneration with emerging interest and presence in pain and in autoimmune disease, again depending on the outcomes of clinical studies. Obviously we filed ixekizumab. We fully intend to move into that psoriasis angle from an autoimmune perspective once we gain approval for that molecule. So if you go back and you look at the deals we've done since I became CEO in 2008, the ones that stand out obviously are ImClone. We think we can have as many as three molecules from that then existing ImClone portfolio that will eventually be on the pharmacy shelf that augmented and supplemented a presence we already had in oncology. The second biggest deal in that period of time was the Novartis Animal Health. We have been buyers, obviously, on the animal health side going back at least to the deal with Monsanto to acquire BST in the middle of the last decade. We very clearly aim to continue to build that business both through organic and inorganic means. I mean in between you have a variety of smaller deals. Abbott is a good example is a good example of a unique opportunity we saw to acquire technology that as Dave said earlier gives us a real boost and I think a competitive advantage in the Alzheimer's space. I think in terms of thinking about what the magnitude of something Lilly might consider, I think the Novartis ImClone deals kind of define that. At the same time we're not anxious to go out and pay inflated prices for the hot property of the moment. There's a bit of a, I think a bit of a bubble right now with respect to valuations on some of the smaller companies or the smaller entities in biotech. And I think it's better use of our, better for our shareholders and better use of our shareholder's equity to focus and foremost on our internal efforts, which are quite strong and I think quite robust in all these therapeutic areas and which we'll continue to augment and supplement aggressively by these earlier stage partnerships.

Thanks, John. Derica?

Jami, in regards to gross margin we've said that each quarter we try to neutralize the impact of FX in gross margin by the additional slide that we provide that kind of shows you the normal run rate. And obviously this year we're running slightly above the mid-seventies. But we said when we - when I think towards 2016 to focus you all, you should be thinking about that 75% range of gross margin being net of FX.

Great, Thanks, Derica. Leah, next call please.

Next question is from the line for Mark Schoenebaum with Evercore ISI. Please go ahead.

Hey, John. Hey, guys. Congratulations on the stock this year by the way. I was intrigued by John's comments that there's a bit of a biotech bubble since I cover biotech as well. That scared me. You ruined my day. But anyway actually I do have a question for John kind of building on John Boris' question. Just and I know you're very tuned into Washington. Just this general question, this comes up all the time but I feel like the volumes just turned up a little bit on the price point for cancer drugs given the pace of innovation there. I'd like to hear you kind of talk about your long-term view on that. Not your one or two-year kind of view but maybe put on your 10-year cap and just kind of ask the question are the current price points for cancer drugs sustainable if the current pace of innovation continues? And how you think the industry is going to react to any pricing pressure you might see? And then just on ixekizumab, the IL-17 antibody clearly the AstraZeneca Amgen announcement on - Amgen announced they were waiting for AstraZeneca. But on their decision to pull out of the partnership because the side effect profile is a big positive for you guys. I was just wondering if you could speak, if you would be willing to speak in more quantitative terms of what that might mean. Kind of how many patients you think will ultimately be on the drug, et cetera? This looks to me like it could be a multi-billion-dollar addition to your out year numbers. I just kind of want to know if I'm totally on the wrong track or not. Thank you very much.

Mark, thanks for the question. So, John, if you'll start off and then we'll go to Dave for the ixekizumab question.

Hi, Mark. I'm sorry if I ruined your day. I'll try to make it up in some way.

No problem.

Okay. With respect to a lot of media attention and political kind of attention to the price point for cancer drugs, look, I think first and foremost up to the point where we have data, which does not include this year, we did a study that dates back to last year looking at the proportion of drug spend as part of total, the cost of total cancer care. It's remained remarkably consistent over a long period of time. So put another way, while today we hear a lot about the cost of cancer medicine, I'm not sure I've ever heard anybody complain about the cost of that long stay in the hospital that many of our drugs, these cancer drugs, help to minimize or to eliminate and that's because hospital stays are covered by insurance. I think the question is what's the cost to the patient and how can we ensure that more patients have access, affordable access, to cancer medicine just like they've got through their insurance policies affordable access today to other forms of care that are required for people with cancer. In terms of how we look at this in the long haul, I think we're going to have to wait and see how this plays out. We're already seeing in many of these classes two or more competitors emerging. We know in other classes of medicines, the diabetes would be one example we're familiar with, we see intense competition that has resulted in lower net effective prices based on negotiations that we must undertake with payers and insurers in that space. Obviously we haven't sort of seen that play out in quite the same way in oncology, but I think we should be encouraging innovation because innovation begets competition rather than discouraging innovation by threatening things like price cast et cetera. For a cancer patient, cancer medicines, particularly some of these new what you might call breakthrough therapies that we all know about, represent the highest quality and most medically effective approach we have in our material of any other intervention. So the calling these out for being simply based on price fails to look at the incredible value that these drugs bring, not in terms of avoiding or minimizing other system costs, but in terms of getting patients that precious additional time and quality of life that is so important.

Great. Thanks John. Dave?

Yeah. So Mark, thanks for the question on Ixekizumab was mentioned in the call text we submitted in the U.S. and Europe and shortly in Japan and other major markets. We're excited about the program. In terms of our assets, that's what we're focused on, which is we see a drug here that is providing a whole new threshold of efficacy for patients suffering from moderate to severe plaque psoriasis. We've reported PAZ-100 [ph] as high as 40% and PAZ-90 [ph] in sort of unprecedented range as well. So we think we've got a great asset and we had a special call in June about this and answered a number of questions about the psychiatric safety and as we said then, we don't see an imbalance numerically or statistically across arms, whether they be active comparators or the two doses of Ixekizumab. So we're proceeding through the regulatory process. Of course, we need to get through that with all the caveats. In terms of the market opportunity in psoriasis, depending on how you count it with PSA or not, I think people would say there's a $4 billion to $6 billion opportunity right now globally and I would just point out that in our estimates less than the treatment rate with biologics in moderate to severe plaque psoriasis is probably less than half of RA. So there's just a huge amount of possibility for growth of biologics as a class in the space. Our vision for that is that the newer, more effective therapies will be a great way to drive interesting greater treatment in dermatology community. We think patients will demand it through time and the caveat there is of course, the normal access and regulatory processes are what stands between us and that opportunity. We don't know what will happen with the former Amgen asset. We're focused on our program and we think there's ample growth for a number of assets in psoriasis and we like our product.

Thanks, Dave. Leah, if we can go to the next caller.

Certainly. It's the line of Chris Schott with J.P. Morgan. Please go ahead.

Great. Thanks very much for the questions. Maybe the first one on solanezumab and more broadly in Alzheimer's. I guess coming back from AIC, some of the feedback from the meeting is that the ARIA signal seen in some competitive products is largely asymptomatic and maybe be able to be treated through. I guess just being sure of your thoughts on ARIA and what that could mean for the competitive landscape. And maybe just part of that answer, if you could just talk a little bit more about you guys targeting monomer A-beta versus plaque given that you do have products going after both in the pipeline. Second question was a longer-term question on diabetes. There's been some market concern that this category only becomes more competitive over time and gets even more price pressure going forward. You guys obviously have a differentiated portfolio but how do you think about the risk of an even more conservative payer environment in this category going for forward? Thanks very much.

Great, Chris. Thanks for the question. So first for the Alzheimer's disease, the ARIA signal and is this treatable, [indiscernible]. Jan, if you want to start out off with a few comments and, Eric, we may see if you have additional comments that you would like to add to that. Jan, certainly if you want to talk about sort of the plaque specific approach that we've got in the clinic and then Enrique for the price pressure in diabetes segment. Jan?

Yeah. Well in relation to the ARIA signal that was reported, I think first it's clear that Biogen has much more of that than solanezumab which I think is a key difference right now. Secondly, it was claimed that you can treat through it. On the other hand, Biogen also had dropouts I think to a large extent in the trial so it still needs to be seen in a larger situation than in phase 3 whether it really holds true and my view is that if you have an agent that doesn't have very much of this that, that's a competitive advantage for solanezumab. If you look at the types then of monomer AD antibodies versus plaque antibodies, we have both two selective agents then in Lily. Solanezumab targets then the monomer AD which is then a precursor in a way to the plaque. We have an agent in phase 1 called N3pG which is a pyroglutamate plaque specific antibody. And in preclinical experiments we have seen as a monotherapy for N3pG very good clearance then of amyloid deposits in transgenic models than of Alzheimer's disease in mice and it's even more efficacious if you combine it with an oral base inhibitor while you more or less have a total clearance of amyloid from these mice brains. What we also have seen in the preclinical experiments for N3pG the plaque specific antibody that did not give micro hemorrhage which is kind of related to the ARIA signal out to brain edema that the Alzheimer patients have. So we hope that we could have a plaque specific antibody with less impact then on the brain edema than what we currently see with a Biogen molecule.

Great. And, Eric, do you have anything that you like to add for the discussion around the asymptomatic nature of our ability to treat, et cetera, that you feel has been adequately covered?

Yeah. Well I just briefly mention that I think these are relatively early days in terms of the field sort of understanding how that may be managed. Fortunately with solanezumab we really haven't had to deal with the issue too much because it's just a half of percent in placebo treated and 1% in solanezumab treated without really any associated symptoms. But for other molecules where you do have ARIA that may be asymptomatic in two-thirds of people but it's so asymptomatic than in one-third of the people. So that's something that I think broadly in the field we'll just need to get more experience with.

Great, Thanks, Eric. Enrique?

Sure. It's difficult to speculate when it comes to the payer environment on diabetes but I think it's helpful for us to be able to look back because that means, because that was the first class in diabetes that was under pressure when it comes to the narrowing of formularies. And that started sometime in 2009. Through this period from 2009 to today what we have been able to see is that Humalog, we've been able to have fairly stable net prices for Humalog over this period. If anything, they are slightly up but clearly not much. So I would say that yes it is likely that there's going to be narrowing of formularies in other segments in the diabetes space. But I do not expect a significantly different behavior when it comes to some of the net prices and Humulin insulin actually behaved. So that's basically what I would offer there.

Great. Thank you. Leah, can we move to the next caller, please.

Certainly. It's the line of Steve Scala with Cowen & Company. Please go ahead.

Thank you. I have three questions. Even at the high end of your new EPS guidance range, it implies a slightly down second half after a very strong first half. Other than a tougher compare in Q4, what is driving the second half weakness? It seems like Lilly is setting up for a better-than-expected second half as well. Secondly, on Jardiance, the CV [ph] outcomes data in Q3, since it is Q3, is the data in house? How will it be released? And Enrique, are you anything but very confident in the data? And then lastly, what does the lowering of the ADAS-Cog delta at the end of EXPEDITION 1 and 2 from the 2.01 to the 1.83 in July tell us about the patients enrolled and or how they changed over time? Thank you.

Great, Steve. Thank you for the questions. So clearly, Derica, to you on the first question related to the guidance in the second half performance, Enrique for the Jardiance CV [ph] outcomes, and then Dave, if you want to kick off the response for the ADAS-Cog question we received. Derica?

Good morning, Steve. We've had really solid underlying performance in the first six months of this year. And we expect that that solid performance to continue for the second half of this year as well. What you should see also in the second half of the year, and I'm going to kind of reflect on some of the comments that Phil made in his remarks, where in the second half we do expect to make incremental investments in our R&D pipeline given the positive data readouts that we've seen. So we talked about the start of phase 3 trials for tanezumab, our CGRP monoclonal antibody, laratumab, as we highlighted earlier, as well as the intent to invest in additional indications for Cyramza. And as we continue to see more positive data readouts, you'll see is fully investing in our pipeline opportunities. At the same time, as you heard Sue say, we're in the midst of launching in Japan for Cyramza as well as the ongoing launches in other geographies. So we will fully invest behind that as well. So we really are expecting our top line momentum to continue. You'll see us continue to drive productivity gains, but what that does is it gives us the capacity to make these kinds of investments while still returning to growth this year and margin expansion.

Thanks, Derica. Enrique?

Steve, we expect to see the data this quarter, to see the data soon. As we have said, once we have the opportunity to see the data, we will issue a top line press release with the results. We are planning to showcase those results in September at EASD, but that's as much as I can share right now.

Great. Thank you. Dave?

Yeah. As it relates to the question of, I guess, the final endpoint displayed in the cooled mild EXPEDITION 1 and 2, two-and-a-half years ago, versus what was displayed yesterday, you're right, there is a small difference. I think that you mentioned it there. In terms of what those absolute numbers are and the difference, the reason for this, and I'll try to put this in very lay terms, is the statistical technique that is both preferred by the FDA sort of by consensus and we use in Alzheimer's studies is called MMRM. It's different from other techniques you may have seen like LOCF. What it does is it relies on all the data available to estimate the missing data. And this technique is thought to reduce type I error. That's what the FDA prefers. It's a technique we used in both assessments that you're referring to. Because the second assessment includes more data, that is the continuing patients, the number does move around slightly. The core data underneath it is identical. That data was locked in 2012, and it's the same data. What we're doing is estimating missing data using this statistical technique. So I'm not sure there's much news or read through with that but if you'd like to learn more, Steve, we could set up the background on why that occurs. The bottom line take away is I think the same that there is a meaningful difference at the end of the 18 months, and that difference persisted through the open label extension.

Great. Thanks, Dave. Leah, next caller, please.

And the next question is from the line of Andrew Baum from Citigroup. Please go ahead.

Okay. Thanks. Just returning to the question of building out your immuno-oncology franchise. And would you mentioned some of the deals you've done. And I know you've had these two very experienced immuno-oncologists. Some of your competitors are engaged in rather more frenetic activity in this area. So along those lines, three questions. Number one, in terms of preclinical, one wouldn't normally ask about compounds but [indiscernible] very fast in this category. Is there anything close to clinic from your preclinical portfolio within the next 6 to 12 months? Second, what is the disease [ph] interest in adoptive cell [ph] therapy given your highest individual [ph] was closely aligned in that area? And finally, should we assume that you have largely done the build out [indiscernible] ? Or as I suspect you're really just getting going in terms of building out franchise? Many thanks.

Okay, great. Thank you very much for the questions. I think, Sue, you want to handle those? January, feel free to chime in if you'd like to complete any of the answer? Sue?

Yeah, sure. So as you've seen, we have had a lot of activity. I wouldn't say it's frenetic. I think that was the word you used, frantic, but we have got focused activity in three areas in our R&D portfolio and strategy. We are focused on cell signaling, the micro environment, and immuno-oncology. And we will continue to focus on those areas because we believe that it's going to be rational combinations of molecules within those three areas that's going to be important in the future. With regard to immuno-oncology, as you said, we have a number of announcements that we've made on collaborations over the past 12 months and it's really into areas. One is in partnership to combine our pipeline and marketed products with agents. In fact, we have seven trials either planned or ongoing in combinations with ROI [ph] agents with four different companies. And then we have our own clinical development where we have three agents in clinical development: our TGF-beta, small molecule inhibitor, our CXEL 4 [ph] inhibitor, and a TSF-1R [ph] antibody. And then we do have a number of agents in discovery. I don't know if January wants to comment more but we have a number of agents in discovery and we do see that we're going to be bringing some of the I-O agents out over the coming months and years. So I think on the cell therapy, yes, it's an area that we look at. It's not an area that we are driving at this point in time but I think we need to look at all areas in I-O. And we see this as - the I-O there's so many unknowns at the moment in I-O and our view is this is a long-term plan. We're going to be smart in where we focus. We've really looked at T cell [ph] redirection as an area and you can see that a number of the deals that we have done are in that area. And I think that covers the question. Anything you want to answer or add, Jan?

It's evident in immuno-oncology that we've seen the first generation of single agents then, like the PD-1 and PD-L1. And we are part of the second generation coming, when we are combining, for instance, different checkpoints inhibitors into bio-specific antibodies. And we also are very keen to activate T cells in a more specific way using the Immunocore technology. So I think we are just seeing the first door open in the immuno-oncology field and there is very much more to do.

Great. Thank you. Leah, next caller please.

Next question is from the line of Tony Butler from Guggenheim Partners. Please go ahead.

Yeah, thanks very much. Three brief questions from me. I wanted to go back to Tim's question on solanezumab. [indiscernible] modification from EXPEDITION 3, is that still potentially a theme [ph] that the FDA could get you? Or are there some other statistics or clinical information that you may need to show them?

Tony, I'm not sure you can hear me. We're having a real hard time making out the question. Can you repeat it?

Start again.

Yeah. Are you there, Tony?

His line is still connected.

Yes, hi. Is this better?

Yes, it is. Yeah, thank you.

My apologies. So back to Tim's question on solanezumab, I'd like to just understand, is Expedition 3 itself sufficient for a disease modification claim? Or will other clinical information be required? Second, is there any or could you elaborate on the biological rationale for JAK1/JAK2 which could be more beneficial in RA or in dropping AACR source versus an anti-TNF? And third I guess just to Sue as you think about Cyramza at least in the U.S. and we'll leave out CRC for the moment, where are you getting the best traction with respect to non-small cell lung or gastric? Thank you.

Great, Tony. Thanks for the questions. So Dave, if you'll talk about maybe the first two, Yon [ph] feel free to complement the answer as well and then Sue for the question on Cyramza, particularly here in the U.S. what we're seeing. Dave?

Yeah. Good question on Expedition 3. We've designed this to be a stand-alone pivotal study to support registration of solanezumab in Alzheimer's patients. In terms of the exact claims underneath that, the FDA themselves have admitted they've been vague and it's a moving landscape because the science is moving so fast in Alzheimer's, I'm aware of two clear statements they've made and I think yesterday's data supports one of them, which would be in addition to a marked change, a clinically relevant change in ADAS-Cog and in the ADL measures, or some composite thereof to support disease modification they said they would look at supportive data in a delayed start format. And I think the speaker yesterday spoke about that. They have a very elegant trial design they proposed. No one's actually ever conducted such a thing. Our data, which is a sort of delayed start is helpful in that regard. Tony, that's how I would describe it and then they've also spent a lot of time talking about biomarkers and, of course, unlike other fields we don't yet have a validated biomarker for disease progression in Alzheimer's. And we are conducting a sub-study in Expedition 3 using our tao tracer. We see this as a very important part of not only expedition 3 program potentially to support disease modification and other claims for solanezumab but also to advance the fields understanding of how tao progression maps to cognitive decline in people with confirmed amyloid, which we don't have that data today. So we'll have to wait and see on the specific claims. Of course, we've got a lot of irons in the fire to support solanezumab in that regard but regulator in the whole field is moving rather rapidly here. So it's difficult to predict. On bemaciclib and the JAK1/JAK2 and what is I guess you're saying theoretical basis why it could be better than anti-TNF, the bottom line is we're running that experiment and we will see that experiment readout in the fall. And we're really going to have to wait to see whether bemaciclib could be better than a TNF or equal to, which is the first test we'll run. There are lots of plausible explanations why it could happen. JAK1/JAK2 signaling and we continue to point this out that JAK2 signaling is important to have an IL-6 like effect as well as GM [ph] CSF, both of which we have human data validating those targets in RA. Whether that yields better than TNF, which is a quite different target is the test we're running.

Thanks, Dave. Sue?

Okay. And with Cyramza in the U.S. we're actually seeing a good uptake in both gastric and in lung. As we look at gastric, I mean, we launched the single agent indication earlier last year. So the majority we used last year with single agent, then towards the end of last year we launched the combo and we're seeing more uptake in combination. With gastric prior to the regard data there wasn't anything approved in the U.S. in the second line treatment of gastric cancer. So clearly we're seeing this as all people are seeing this as an advance and we're seeing a good uptake, good feedback so far about the experience that people are having as well. In lung, we launched earlier this year, and we again are seeing good uptake in the second line post platinum patients. We see these as very two different opportunities with the lung indication being much larger but clearly it's going to be more competitive. The feedback we're getting is positive, about 40% of our sales in Q2 came from lung indication and we continue to see a good opportunity to continue to grow in lung as well as to expanding gastric going forward.

Thank you, Sue. Leah, next caller please.

And the next question is from Gregg Gilbert from Deutsche Bank. Please go ahead.

Thank you. Three quick ones here. First perhaps for Dr. Siemers or perhaps Dave. How would you summarized how actual Alzheimer's treaters took the data that was presented down in D.C. if that was it all on your agenda to kind of feel out folks that are not just clinical trial gurus? Perhaps secondly, Chito can comment on what's happening in China. There's been a pretty sudden slowdown for pharma sales for the industry. Curious if you could comment on that and how long those conditions might persist. And for Derica, were there any meaningful wholesaler inventory level changes in the quarter versus last Quarter? It looks like A.R. was up a bit. Thanks.

Great, Gregg. Thanks for the questions. So we'll start off with Dave on the first question. We may see if Eric has something he'd like to add since he's been out at AAIC. And then to Chito on the China question and Derica for the wholesaler inventory impact in the quarter.

Yeah, Gregg, thanks for the question. I think the field as we talked to practitioners is obviously anxiously waiting for a disease-modifying agent in the absence of any way to slow down this horrible condition. The question of clinical meaningfulness always comes up and the research we've done would say most practitioners would say a one-third reduction over an 18-month period of time is quite meaningful. But we have Dr. Siemers on the line here who's a neurologist and I'm sure spoke to many of your colleagues. Enrique, what are your views on how the lay field is interpreting the data?

Yeah, it's a great question. I think going into the meeting, we wondered ourselves whether this would be interesting just to clinical trial gurus or geeks or whatever you want to say or whether it would have more of a broad interest and I think the interest was fairly broad and I think there's maybe two major reasons for that. One is that just by showing these delayed start results, I think it was in a sense supporting what we initially showed in the placebo-controlled period. Now, of course, that was a secondly outcome we always worry about those a little bit, but these delayed start results would actually add to the weight of evidence that those results in face, we hope will be replicated in Expedition 3. The other piece is that this whole concept of disease modification has been discussed is something where the science is evolving. There has been fairly good agreement, including by regulators, that this delayed start design can provide evidence of disease modification and I think the data were really accepted as evidence of that. Again, it's a secondary analysis from Expedition and Expedition 2, but I think it gives us some real confidence that we'll see very similar results in Expedition 3 and that's one strong piece of evidence of disease modification.

Great. Thanks, Enrique. Chito?

Gregg, as I'm sure you've heard from other companies, there has been a pretty significant drop in the market growth in China. I think as we all recall from the mid-teen growth in the last few years, year-to-date growth is somewhere around single digit and if you look at the multinational cohort of companies, I think May was around 2% growth over the same period last year. Now, I think the primary factor that's driving the slowdown is really some government initiatives and policies that are curtailing volume growth and we're seeing more hospitals and institutions shifting to lower-priced generics. So we see this continuing at least in the short-term as there is pressure within the national government to curtail expenses. There's discussion also in curtailing pricing and linking together all types of products from the original brands to generics. So there's pressure on the volume side and moving forward I think you'll see more pressure on pricing, particularly for off patent brands. Now, we need to balance that with the medium-term opportunities and long-term positive opportunities in China. We have obviously very positive demographics and there is a sincere commitment, I believe, by the national government to expand healthcare coverage to a broader set of the Chinese population. But I think we should expect that the short-term will be challenging, again because of policies related to volume control in the hospitals and pressure for original brands. As far as Lilly's concerned, I think the better measure to look at our performance with the year-to-date performance, given the quarter-to-quarter variability of wholesaler buying patterns, and year-to-date we're below on 5%, but it's really driven by very [ph] - a decline in our growth and some of our off-patent products, primarily in neuroscience, oncology and anti-infective products, again because of volume control but also because of the generics. However, if you look at the - our patented products, we're very pleased to see strong performance from Cialis growing at 23%, Forteo growing at over 50%. And our Analog business, I know there was question earlier to Enrique, the Analog Insulin business in China is growing 12% year-to-date. Now, we're getting significant pricing pressure on the unit insulin side where local companies are beginning to win the provincial kids. But once again, we anticipate pressure in the short-term, but we're very confident that [indiscernible] the long-term prospects remain very, very positive.

Great, [indiscernible]. Thanks for that color. And Derica, on the wholesaler changes in the quarter?

Sure. Hi, Gregg. As it pertains to wholesalers, there was really nothing unusual or unique as it pertains to wholesaler activity in the quarter.

Great. Leah, if we can go to the next caller, please.

Certainly. It is the line of Colin Bristow with Bank of America. Please go ahead.

Thanks for taking the questions and congrats on the quarter. A couple of quick ones. On Trulicity, could you talk about the progress you've made in terms of access, and any additional color you could give on the launches of Trulicity and Jardiance that would be helpful. And then number two, what do you see as a potential impact on the trajectory of the SGLT-2 class and then Jardiance within that, if there was a positive CV [ph] benefit. Do you expect a heavy asymmetrical benefit for Jardiance, or do you think this would just be bled through as a benefit for everyone? And [indiscernible] , just a third quick one on saler [ph]. Any additional updates we should expect prior to the Expedition 3 readout? Thank you.

Great, Colin. Thank you for the questions. Obviously we'll go to Enrique for the first two on some of the access and uptake we're seeing for Trulicity and Jardiance, as well as then, what the impact might be a positive CV [ph] outcomes trial for Jardiance, and then over to you, Dave, for the solanezumab question and either [ph] updates we've got on that program going forward. So, Enrique?

Sure. So we are pleased with the progress that we've made with both Trulicity and Jardiance. We now have about 70% access when we look at commercial access in the U.S., and about 30% being Part B with Trulicity. As I shared earlier, I think for us, a key to be able to get long-term value for this product is to ensure the GLP-1 class is growing, and we clearly see a significant acceleration of the GLP-1 class. In the case of Jardiance, the situation is similar. When it comes to - continue to basically get asked this. I would say that we have, differently from the GLP-1 class, we have seen a slowdown, significant slowdown when it comes to the HCLT-2 [ph] class, when it comes to new patient starts this year, so that's something that we're watching of course very closely. And it is difficult to speculate on what relative share of the benefit, disproportionate benefit will we get on, if we were to have a positive CV [ph] outcomes result. Clearly this is going to provide a lift to the entire class, and we do expect that we're going to get a disproportionate share of that benefit, how much I think is difficult to say.

Great. Thank you, Enrique. Dave?

Yeah, on - so on what we will expect to - starting with yesterday and until the end of the Expedition 3 study is, there will be some scholarly articles and other data coming out on the original Expedition 1 and 2, including the Pool of Mild's [ph] paper we do expect to come out. Also I had a - there was an interesting presentation yesterday, looking at the amyloid changes using a more modern and accepted method, which did show a difference between active and placebo, so these types of reanalysis and additional data filling out the picture from 1 and 2 will continue. But the big data readout, Expedition 3, which we guide people to really focus on won't happen until after the last patient visit and data analysis, last patient visit we project Q4 of 2016. And we have made the decision just to communicate it formally that we will not conduct an interim analysis for EXPEDITION 3 so we will run the trial to completion. Enrollment went so quickly in that trial. There's very little time and benefit for us to go ahead and garner from doing the early read. We'll look the trial play out and preserve all the powering for the final readout at the end.

Sure.

I know were getting close to the bottom of the hour but I believe we've got one more caller. We're happy to take that question before wrapping up the call.

Certainly. And that is from Vamil Divan from Credit Suisse. Please go ahead.

Great. Thanks for sneaking me in here. So just a couple of quick things I could, maybe some different topics and we focus on so far. One, just on the Animal Health side. You kind of close the Novartis deal. Just kind of if we can get a sense from Jeff for how he's viewing that business kind of going forward and kind of the growth we should expect going forward. There's 2% constant currency growth this quarter or year-to-date so just want to see how - what you think there. Second, just on the PCSK9 obviously a lot of interest and excitement around the industry on that because the first ones, most of the market, you guys still got yours in phase 2. And if you can just give an update on how you view that opportunity for Lily? And then third maybe it's a little bit early for this but just around the dividend with all the news you've been having on the pipeline in the kind of return to growth you're seeing, how should we think about your view on the dividend going forward? Thank you.

Great. Fantastic. Thanks, Vamil. So, Jeff, you'll start us off and we'll shift over to Dave for the PCSK9 question and finish up with Derica.

Yeah. The overall Animal Health business Cylanco [ph] is tracking to our plans and expectations. This year has been focused on integration after coming out of an era of a lot of growth. We're planning to return to that but this year's big focus is on the integration. Our previously committed savings level on the integration of $200 million by 2017, 2018. What I would say is we see that as a minimum expectation and we'll have an Animal Health investor conference in December in Boston where we'll get into more detail what we would say is today we're seeing ourselves meeting and exceeding all the key milestones on Novartis and that'll be a key driver in returning to growth. So yes, we saw 3% growth this quarter but what we would say is we see the combination of the integration as well as our pipeline and innovation returning us back to top-tier industry growth once we come to the integration. We'll articulate more of these details again in Boston at the end of the year. Thanks.

Dave?

Yeah. On PCSK9 there's really no update from the last call where we have the question. We have our phase 2 data complete, we're looking at our strategic options for this program recognizing there's three competitors ahead of us and we would want to see differentiation or perhaps look for other options to have them all move forward.

Thanks, Dave. Derica?

In regards to the dividend, we're very encouraged and excited about the current performance of the business and as we've seen us kind of turning the tide and returning to the spirit of growth and margin expansion it really is giving us the capacity if you've seen this year to return to more regular cadence of dividend increases and we see that going forward over time. And then likewise you'll see us continue also to look to supplement that with returning additional excess cash to shareholders via our share repurchase program.

Thanks, Derica. John, would you like to go ahead and conclude the call for us?

Sure, Phil. We appreciate your participation in today's earnings call and your interest in our company. We've received a positive feedback on the recent calls we hosted to discuss our diabetes business and late stage data from two key molecules in our Biomedicines business. They're sitting there [indiscernible]. So building on that experience, we plan to host an investor event in Boston, as Jeff mentioned, on Tuesday, December 8 to highlight to other areas of our business that obviously are generating significant investor interest and that's Alzheimer's and Animal Health. So we hope the information we share at this upcoming events will be likewise helpful you. Finally, if you have questions we didn't address in today's call, please contact our IR team. I can tell you that they are standing by and would be happy to help. So have a great day and thanks again for joining us.

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