Dave Ricks - Chairman, Chief Executive Officer Josh Smiley - Chief Financial Officer Dr. Dan Skovronsky - Chief Scientific Officer Anne White - President of Lilly Oncology Patrik Jonsson - President of Lilly Bio Medicines Mike Mason - President of Lilly Diabetes Kevin Hern - Vice President of Investor Relations Kim Macko - Investor Relations Mike Czapar - Investor Relations

Ladies and gentlemen, thank you for standing by and welcome to the Lilly Q4 2019 Earnings Call. At this time all participants are in a listen-only mode. [Operator Instructions] As a reminder, today’s call is being recorded. I'd now like to turn the conference over to your host, Kevin Hern. Please go ahead.

Good morning. Thank you for joining us for Eli Lilly and Company's Q4 2019 Earnings Call. I'm Kevin Hern, Vice President of Investor Relations. Joining me on today's call are Dave Ricks, Lilly's Chairman and CEO; Josh Smiley, Chief Financial Officer; Dr. Dan Skovronsky, Chief Scientific Officer; Anne White, President of Lilly Oncology; Patrik Jonsson, President of Lilly Bio Medicines and Mike Mason, President of Lilly Diabetes. We're also joined by Kim Macko and Mike Czapar of the Investor Relations team. During this conference call we anticipate making projections and forward-looking statements based on our current expectations. Our actual results could differ materially due to a number of factors, including those listed on slide three, and those outlined in our latest forms 10-K, 10-Q and any 8-K's, filed with the Securities and Exchange Commission. The information we provide about our products in pipeline is for the benefit of the investment community. It is not intended to be promotional and is not sufficient for prescribing decisions. As we transition to our prepared remarks, a reminder that our commentary will focus on non-GAAP financial measures, which exclude the financial contribution from Elanco during 2018 and 2019 and present earnings per share as though the full disposition via the exchange offer was complete on January 1, 2018. Now, I'll turn the call over to Dave for a summary of our Q4 results.

Thanks Kevin. 2019 was a solid year for Lilly and our strong Q4 financial results highlight the strength of the underlying business. We exited 2019 with momentum and will continue to focus on executing our strategy in 2020, which is to deliver excellent business results, develop and launch new medicines for patients and drive increased productivity. Revenue growth accelerated in Q4 increasing 8% versus Q4 2018 or 9% in constant currency. This strong performance was driven entirely by volume, which contributed 10 percentage points of growth despite continued headwinds from the loss of exclusivity in the U.S. of Cialis and the global withdrawal of Lartruvo. Excluding Cialis and Lartruvo, worldwide volume growth was an impressive 15%. Newer medicines continue to be our growth engine representing 46% of our revenue this quarter. We made good progress in Q4 on our productivity agenda, as operating income grew 10% versus last year. We posted strong revenue growth and held marketing, selling and administrative expenses flat versus last year, while increasing our investment in R&D. Our non-GAAP operating margin was 26.3%, an improvement of 40 basis points versus Q4 2018. We finished 2019 with a full year operating margin slightly below our guidance of approximately 28% as we made targeted, strategic investments in Q4 across both our commercial portfolio and pipeline, which will enhance our opportunities for future growth. These investments provide good momentum heading into 2020 and keep us on track to achieve our 31% operating margin target this year. We’ve announced multiple pipeline milestones since our Q3 earnings call. These include positive results in the remaining two Phase III trials of the baricitinib BREEZE-AD program in atopic dermatitis, the submission of selpercatinib in the U.S. and Europe, and the FDA granting selpercatinib a priority review; the submission of tanezumab for OA pain in the U.S., in collaboration with Pfizer; the submission of higher doses of Trulicity in the U.S. and Europe, and the submission of baricitinib for atopic dermatitis in Europe and Japan. During Q4 we put our strong operating cash flow to work, returning approximately $900 million to shareholders via share repurchase and dividends. In addition, as previously announced we increased our dividend 15% for 2020. This marks the second consecutive year of a 15% dividend increase, reflecting our confidence in the outlook for the business. Finally, we recently announced the pending acquisition of Dermira. The company focused on developing new therapies for chronic skin conditions. Dermira is an exciting – has an exciting asset Phase III for atopic dermatitis, baricitinib in addition to the currently marketed products for excessive underarm sweating, QBREXZA. This transaction enhances our Phase III pipeline and complements our existing efforts in atopic dermatitis with baricitinib. We look forward to closing that transaction here in Q1. Moving to slide five, you’ll see the list of key events since our last earnings call. In our continued efforts to help make medicines more affordable and reduce out-of-pocket costs for patients, we recently announced plans to introduce two additional lower priced insulins, Humalog® Mix75/25 KwikPen and Humalog Junior KwikPen, both products will be available by mid-April and will be offered at a 50% lower list price compared to the branded versions. Once these additional options are available more than 90% of Lilly’s Humalog options will be accessible to help patients reduce their out-of-pocket costs, and we hope to see payers provide increased access to patients for these solutions. During the month of December alone Insulin Lispro helped nearly 79,000 patients in the U.S. These recent addition complement existing offerings in the Lilly Diabetes Solution Center which currently helps as many as 20,000 patients per month better afford their insulin. As a company that has been in business for over 140 years, it invests over $5 billion per year in long term research and development, we take our responsibility to pursue sustainable business, social and environmental practices very seriously. Now I’ll turn the call over to Josh to review our Q4 results and to provide an update on our 2020 financial results.

Thanks Dave. Slide six summarizes our presentation of GAAP results to non-GAAP measures, and slide seven provides a summary of our GAAP results. So looking at the non-GAAP measures on slide eight, you’ll see revenue increase 8% or 9% in constant currency. Gross margin as a percent of revenue declined 70 basis points to 79.9%. Excluding the impact of FX on international inventory sold, gross margin as a percent of revenue was 79.6% and on the same basis our gross margin percent decreased by approximately 50 basis points compared to Q4, 2018, driven by unfavorable product mix and the negative impact of price on revenue. Moving down the P&L, operating expenses grew 6% versus last year's quarter. Marketing, selling and administrative expenses were flat as cost containment and productivity measures offset investments in key growth products. R&D expenses increased 14%, reflecting higher develop expenses for late stage access, including tirzepatide, selpercatinib and mirikizumab. Operating income increased 10% compared to Q4, 2018 and sales growth outpaced expense growth, resulting in an operating income as a percent of revenue of 26.3% for the quarter and 27.2% for the full year. This quarter's results are indicative of the potential for growth and margin expansion our portfolio of new medicines offers. We are well positioned to drive top-tier revenue growth and invest in the next wave of new medicines, while driving margin expansion at the same time. We exit 2019 with significant momentum executing our strategy and are on track to achieve our 2020 full year operating margin target of 31%. Other income and expense was income of $206 million this quarter compared to income of $31 million in Q4, 2018, driven by investment gains on public equity. As we highlighted previously, this line item can be volatile as public market valuations fluctuate. Gains in Q4 were primarily generated by our investments in China biotech companies through our Lilly Asia Ventures ARM and strategic investments in companies focused in newer technologies like RNAi. While we appreciate the gains, we are even more pleased with the relationships and the potential to develop new medicines for patients that accompany some of these investments. Our tax rate was 12.6%, a decrease of 300 basis points compared with the same quarter last year, driven primarily by an increase in net discrete tax benefits, including tax benefits from the resolution of U.S. and foreign orders. At the bottom line net income increased 26%, while earnings per share increased 31%, due to a reduction in shares outstanding from share repurchases. Slide nine outlines the same non-GAAP measures for the full year. While we are excited with our performance in Q4 and the momentum headed into 2020, we are also pleased with our overall performance for the full year in 2019. Last year we experienced the full effect of the Cialis patent expiration and the impact of the withdrawal of Lartruvo. In spite of these headwinds we grew the top-line at 5% in constant currency and generated EPS growth of 11%, while investing behind our newer products and pipeline. We are also generating good shareholder value and established a strong strategic foundation, through our split-off of Elanco and the acquisition of Loxo Oncology. As we highlighted in December last year, we are well positioned in 2020 to deliver our five your financial goals and continue this period of sustained growth. Moving to slide 10, you will find a reconciliation between reported and non-GAAP EPS. Additional details are provided on slides 26 and 27. On slide 11, we quality the effect of price, rate and volume on revenue growth. As mentioned earlier, worldwide revenue grew 9% in constant currency during Q4, driven by strong volume growth of 10% partially offset by price. Foreign exchange had a modest negative impact on revenue growth. For the fourth straight year we delivered worldwide revenue growth each quarter despite headwinds from patent expirations. U.S. revenue grew 7% compared to the fourth quarter of 2018, volume growth of 8% was led by Trulicity, Taltz, Verzenio, Jardiance and Emgality. Excluding Cialis and Lartruvo, volume grew over 50. Pricing was a 1% drag on U.S. revenue growth this quarter, impacted by increased funding during coverage gap in Medicare, unfavorable changes in estimates for rebates and discounts and disproportionate volume growth in lower net price segment, which was partially offset by the net of modest list price increases and higher rebates, as well as reduce reliance on patient assistance program, primarily due to improved commercial access for Emgality. The full year impact of price was a headwind of 3% consistent with our 2019 and 2020 expectations for U.S. price having a moderate drag on revenue growth. Moving to Europe, revenue grew 12% in constant current, driven by impressive 15% volume growth, partially offset by the negative effect of foreign exchange and price. Volume growth was led by Trulicity, Olumiant, Taltz and Verzenio. We are pleased with the uptake of our new products across Europe and are looking forward to continued strong growth in 2020. In Japan revenue grew 7% in constant currency, driven entirely by volume growth, somewhat offset by a modest pricing headwind due to the government mandated price decreases that went into effect in 2019. Verzenio, Cymbalta, Trulicity and Olumiant were the key contributors to grow. Revenue in the rest of the world increased 14% in constant currency led by 44% growth in China on the same basis. China growth was driven by strong performance across a number of key products, including Tyvyt, so we are excited about the recent launches of Trulicity, Taltz and Olumiant. The same information for our full year revenue is at the bottom of the slide. As shown on slide 12, our key growth products continue to drive impressive worldwide volume growth. These new medicines delivered nearly 15 percentage points of growth this quarter, continuing the strong trajectory we've seen throughout 2019. Brands that have experienced loss of exclusively provided a drag of over 400 basis points driven primarily by Cialis. As a reminder, generic tadalafil entered the U.S. market in September 2018, significantly impacting Cialis revenue, with erosion further accelerating in Q2 2019 as multisource generics entered the market. While the impact of this event is beginning to sunset, it’s still had a meaningful negative impact on growth in Q4, 2019. Slide 13 highlights the contributions of our key growth products. In total these brands generated over $2.8 billion of revenue this quarter making up 46% of revenue. Our newest medicines again had impressive results in large and growing therapeutic areas and our ability to reach more patients continues to demonstrate the strength of our commercial execution. Within diabetes, the injectable GLP-1 class continues to add new patients despite the entry of the new oral therapy. In the U.S. total injectable clip prescriptions grew 29% versus Q4, 2018 and Trulicity grew faster than the market, hosting an increase of 32% in total prescriptions during that same period. Net pricing in the U.S. for Trulicity declined in the mid-single digits in-line with our expectations for Q4 and for 2020. As we discussed on the Q3 call Trulicity price in Q1 through Q3 of 2019 with impacted by a number of factors that we don't expect to persist in 2020. SGLT2 inhibitors accelerated their trajectory as full U.S. prescription for the class grew nearly 20% versus last year’s quarter and new therapy starts grew over 46% as the market leader Jardiance continues to drive strong class growth and accounts for over 55% of total prescription. Our sustained market leadership in these two important and growing classes within diabetes is a competitive advantage for our diabetes business and positions us well for future growth. In analogy Taltz continues to have growth as U.S. total prescriptions grew nearly 40% versus Q4 2018. Despite an increasingly competitive market, Taltz gained over three share points in dermatology during 2019 and rheumatology weekly prescriptions have more than doubled during that same time frame. In 2020 we look to build on the strong momentum demonstrated in 2019 and reach even more patient. In pain, Emgality continued its U.S. leadership and share of market for new to brand prescription at over 47%. While pleased with the uptake, we believe there is room for significant additional grow as we expand our commercial presence in primary care. We continue to see progress with roughly 80% of prescriptions reimbursed at the end of Q4, reflecting the strong access of Emgality. Within oncology, Verzenio U.S total prescriptions grew over 46% versus Q4 2018 and the CDK four and six markets is showing encouraging growth as total prescriptions increase by over 16% during the same timeframe. Additionally Cyramza continued to post solid growth as we realize the rapid synergies across our portfolio. In addition to the strong performance of our key growth drivers and look forward to potentially launching three new medicines in 2020, with Rayvow, selpercatinib and Ultra Rapid Lispro. We believe all three new medicines have potential to be first in class or best in class and to improve the lives of patients. In addition, launching new medicines in to therapeutic areas where we have existing commercial infrastructure will support further margin expansion. Slide 14, shows the year-over-year change in select lines of our income statement, focusing on our non-GAAP results, foreign exchange rates had a moderate – negative impact on revenue, gross margin, operating income and EPS, and a moistest net positive impact on operating expenses. On slide 15 we provide an update on capital allocation. In 2019 we invested over $13 billion to drive our future growth through a combination of business development, capital expenditures and after tax investment in R&D. In addition we returned approximately $7 billion to shareholders via dividend and share repurchases. As Dave mentioned earlier, we also announced the 15% dividend increase for the second consecutive year, showing our confidence and the outlook for the company. We're focused on utilizing the strong cash flow our business generates to develop the next wave of new medicines through both internal and external sources, that’s highlighted by the recently announced acquisition of Dermira. We remain active in assessing bolt-on acquisitions or in-licensing where we can create shareholder value and enhance our future grow prospectus. Turning to our 2020 financial guidance on slide 16, you'll see that we've updated our non-GAAP guidance to reflect the impact of the planned acquisition of Dermira and a recent strong business performance. Specifically we're increasing our revenue range by $100 million to include QBREXZA and to reflect strong prescription trends we see in the underlying business. Updating our SG&A guidance to accounts for the addition of the Dermira sales force and the commercial expenses to support QBREXZA and maintaining all other line items and confirming our non-GAAP earnings per share range of $6.70 to $6.80, an operating margin target of 31%. On a reported basis the impact of the Dermira acquisition will have an impact $0.21 and earnings per share for 2020 is now expected to be in the range of $6.18 to $6. 28. We continue to execute our innovation based strategy while leveraging our young commercial portfolios of new medicine to drive margin expansion over the mid-term. Now, I’ll turn the call over to Dan to highlight our progress on R&D.

Thanks Josh. Slide 17 shows select pipeline opportunities as of January 27. Positive movement since our last earnings call includes the submission of selpercatinib in the U.S. and Europe, as well as the initiation of Phase III for selpercatinib in patients with RET Fusion-Positive Non-Small Cell Lung Cancer or RET-mutant medullary thyroid cancer. The submission of tanezumab in the U.S. for osteoarthritis pain, the submission of higher doses of Trulicity for Type 2 diabetes in the U.S. and Europe, the submission of baricitinib for atopic dermatitis in Europe and Japan; the addition of lebrikizumab for atopic dermatitis to the Phase III portfolio pending the closure of the Dermira acquisition; the initiation of a Phase III of Tirzepatide in obesity and a Phase II study Tirzepatide in NASH; the initiation of Phase II for our checkpoint agonist, CD200R in immunology and the initiation of Phase I for four assets, as well as the termination of three early stage oncology assets. In addition, we had some important early stage readouts, including LOXO-305 our novel BTK inhibitor, which we highlighted on the 2020 financial guidance call and continues to progress quickly in development. We also had internal data readouts from to Phase II trials, of pegilodecakin in combination with immunotherapy agents in patients with non-small cell lung cancer, CYPRESS 1 and CYPRESS 2. Although the full data will be presented at a medical meeting later this year, I can say that both studies were negative. So we are disappointed in the lack of efficacy for pegilodecakin in combination with checkpoint inhibition in lung cancer, we remain committed to finding new therapies for people with cancer. Although we are still analyzing the totality of the data that we have obtained with pegilodecakin, at present we do not anticipate additional trials with this agent. Moving to slide 18, we show a final tally of how we finished 2019 versus the key events we expected to occur. 2019 was a very productive year and we made significant progress in bringing new medicines to patients. In total, we added four new Phase III clinical programs to our pipeline, all with the potential to be first in class or best in class. We reported 12 positive Phase III or registrational trials readouts, including a mix of NMEs and new indications or new data for launch products. We submitted 12 NMEs or new indications for regulatory review in geographies around the world and we received positive regulatory action on two new medicines, Reyvow and Baqsimi, as well as four important new indications across Trulicity, Taltz, Emgality and Cyramza. We're proud of the significant achievements we made in 2019, and we are focused on discovering and developing more new medicines to help patients as we enter another promising decade. Moving to slide 19. While it’s early in the year, we've already made good progress on our 2020 goals, having announced the initiation of additional Phase III trials for selpercatinib, positive results in the remaining two trials of the baricitinib BREEZE program for atopic dermatitis. The submission of baricitinib for atopic dermatitis in the EU and Japan, the submission of tanezumab for osteoarthritis pain in the U.S. in collaboration with Pfizer. FDA approval of Trijardy, a fixed dose combination of empagliflozin, linagliptin, metformin and regulatory approval of Cyramza for first line EGFR positive non-small cell lung cancer in Europe. Before turning the call back over to Dave, I'd like to spend a few minutes providing additional details on important milestones for two clinical programs that I mentioned earlier. It is the initiation of additional clinical trials for tirzepatide and the completion of the baricitinib BREEZE-AD atopic dermatitis program. Beginning with tirzepatide on slide 20, we previously shared our plans to initiate a cardiovascular outcome study for tirzepatide this year, assessing tirzepatide head-to-head against the most widely used GLP-1therapy, i.e., Trulicity. This is a bold move. It signals both our confidence in the strength of tirzepatide as well as our desire to deliver meaningful data for patients and physicians on how new medicines measure against leading therapies. Through very collaborative discussions with the FDA, we've gained alignment on the key design features of this unique study called SURPASS CVOT. This trial will include approximately 12,500 patients with Type 2 diabetes and confirmed atherosclerotic cardiovascular disease and will measure time the first occurrence of the composite endpoint of CV death, myocardial infarction or stroke. The study will assess both non-inferiority and superiority of tirzepatide versus Trulicity and we anticipate it will take just over four years to complete. In addition to SURPASS CVOT, we're pleased to share that the Phase III Type 2 diabetes program, SURPASS, is progressing extremely well. Investigator interest has been very strong, and four of the eight SURPASS clinical trials are already fully enrolled. We look forward to sharing topline results for the first study readout from the SURPASS program later this year. Finally, we are exciting that the SURMOUNT Phase III obesity program is actively dosing patience and that the synergy Phase II program and NASH is currently under way as well. Given the profound weight loss scene in Phase II trials of tirzepatide we are excited about the potential opportunity these additional clinical programs presents to help patients. Together with the ongoing SURPASS studies, these additional studies will expand the current Phase III tirzepatide program to over 20,000 patients. We're excited about the breakthrough that tirzepatide represents for patience and will continue to invest fully to maximize this opportunity. Moving to slide 21, we recently announced the completion of the final two studies in the BREEZE-AD clinical program, BREEZE-AD4 and BREEZE-AD5. The full BREEZE program was comprised of five studies assessing baricitinib in both monotherapy and in combination with topical corticosteroids in patients with moderate to severe atopic dermatitis. Well not all the data have yet been presented, we are particularly encouraged by the strong results for the 2 milligram dose in the U.S. trial. We believe that the full data package generated from BREEZE-AD shows the potential that baricitinib could offer as an additional treatment option for patients with atopic dermatitis where there are limited choices. In addition these data add to the large safety database of baricitinib having over 10,000 patient years of safety data. We recently submitted baricitinib for atopic dermatitis in the EU and Japan and we expect regulatory action late in 2020. We plan to submit in the U.S. later this year. We anticipate that baricitinib will be the first oral JAK inhibitor for the treatment of atopic dermatitis and we look forward to bringing a new treatment option to patients. Finally we recently announced the planned acquisition of Dermira. Pending deal closing, this transaction would add an additional medicine to the Lilly pipeline for moderate to severe atopic dermatitis, that is Lebrikizumab, which is an injectable antibody targeting IL-13 currently in Phase III trials. We view Lebrikizumab as highly complementary to our efforts with baricitinib in atopic dermatitis. The unmet medical need here is large and we anticipate physicians and patients we use a range of oral injectable therapies similar to current common practice for the treatment of psoriasis. Now I'll turn the call back over to Dave for some closing remarks.

Thank you, Dan. Before we go to Q&A, let me briefly some up the progress we've made in the fourth quarter of 2019 and the full year. We deliver impressive performance in Q4. Our revenue grew 8% as our newest medicines were again the catalyst for volume-based growth. Our worldwide prescription trends are strong and we are well positioned entering 2020 to continue our positive trajectory and deliver our 2020 financial guidance. We advanced our productivity agenda, controlling operating expenses, while investing behind key commercial growth drivers and our late stage pipeline. We grew sales in Q4 while keeping marketing, selling and administrative expenses flat versus Q4 ’18, demonstrating our ability to drive margin expansion. We've made important pipeline progress in Q4, tapping a year that featured significant new additions for the Phase III portfolio, several positive readout in Phase III trials and a multitude of regulatory submissions and approvals. Finally we returned nearly $600 million to shareholders via the dividend and completed $300 million of share repurchases as well. As we shared during our 2020 financial guidance call last December, we are in the early stages of a period of sustained growth at Lilly. The balance of new medicines we plan to launch over the next five and the continued scaling of our newer medicines compared to our limited patent exposure sets up an exciting period ahead. We are pursuing new medicines in some of the most important diseases with both significant unmet medical need and sizable business opportunities. We are pleased with our finish to 2019 and our position of strength as we enter 2020, and the next decade of this company's history. This concludes our prepared remarks. Now I’ll turn the call over to Kevin to moderate the Q&A.

Thanks Dave. We'd like to take questions from as many callers as possible, so we ask that you limit your questions to two for follow-up. Sean, please provide the instructions for the Q&A session and then we are ready for the first caller.

Thank you. [Operator Instructions] Our first question is going to come from the line of Geoff Meacham from Bank of America/Merrill Lynch. Please go ahead.

Good morning guys. Thanks for the question. Just say we’re on Taltz and one on the Olumiant Filing in AD. So for Taltz the growth has been solid, but what would you say could be a demand tipping point looking to 2020 and beyond. Is it a new contract agreement or is it a broader indication base. You have to invest more commercially. And then on the Olumiant Filing in AD, I wasn't sure if the effect of the 4 mega-dose changes the regulatory conversation in the U.S. Maybe you’ve had an RA Indication since approval obviously, which was mostly focused on the 2 mega-indication and 2 mega approval but wasn’t sure if that changes at all on the back of this new data. Thank you.

Thanks Geoff. We’ll go to Patrick for both of those questions.

Thank you very much. We are very pleased with the performance of the policy in the fourth quarter last year with the growth of growth of total RX with approximately 40%. If you look at the difference space its possible in dermatology despite the increased competition. We think we are holding ground very nicely and we are maintaining our total RX share of market in Q4 despite the increased competition. Also added to the body of evidence, we had a diverse strength by the IL-23, but we have gained demonstrated superiority on skin clearance; and that's the third study combined with Stelara and in Enbrel where we have again demonstrated superiority. So we are confident in the continued growth phase of dermatology. The biggest opportunity for us remains being in rheumatology where we – in Q4 announced the old IL-17 to demonstrate superiority versus humera in the SPIRIT-Head-to-Head (H2H) study, and we saw something – this consideration in Q4 in terms of new to brand and we are confident that we will continue to grow in the rheumatology space where there are a lot of opportunities for us. We also filed during the second half of last year the Non-Radiographic AxSpA, and that's an indication where we’ll also see a lot of patients that are not being appropriately diagnosed and even if diagnosed, not appropriately treated. Lastly, both in dermatology and rheumatology, a huge amount of patients are still treated with [inaudible]. In Dermatology 40%, in rheumatology 70% and we believe that remains the biggest opportunity for all new assets to ensure that patients are being upgraded to new modern modifications and save the treatment. In terms of Olumiant, why we don't comment on regulatory actions for specific brands, we continue to explore options to get the 4mg dosage approved in the U.S.; however, in the light of most recent regulatory actions without the JAK inhibitors, we are also realistic in terms of our expectations to get four milligrams approved in the U.S. in the near term. But as Dave mentioned, we are very much encouraged by the 2 milligram data of Olumiant in atopic dermatitis and where we’re demonstrating hitting our primary objective both in terms of at least 75% improvement on skin inflammation, but also in terms of patient reported outcomes, improvements on itching. So that is encouraging for us in terms of the Olumiant submission in the U.S.

Thanks Patrick. Geoff, thanks for your questions. Next caller please.

Thank you. The next question is going to come from the line of Chris Schott from JPMorgan. Please go ahead.

Great! Thanks very much. First question was just on the quarterly progression of sales and earnings as we go through 2020. I think last year we saw depressed first quarter sales relative to the rest of the year that’s surprised the street a bit. Should we expect a similar dating of sales in 2020 and are there any particular products we should be watching where I guess 2020 kind of resets of plans could impact those first quarter results. My second question was just on the Alzheimer's strategy more broadly. How would the approval or I guess not of Zagotenemab impact how you're thinking about your pending Alzheimer's readouts and development strategies from here. Thanks very much. A - Kevin Hern: Thanks Chris. We’ll go to Josh for the first question and Dan for the second one.

Thanks Chris. If we look at 2020, you know we don't provide quarterly guidance, but if we look at sort of the trajectory of sale that we’d expect, if you look at our guidance for the full year you know we're somewhere in the high single digits for sales growth. We’d expect that kind of growth to be pretty consistent through the year, although keep in mind in Q1 we still will have a little bit more of the overhang from things like Cialis. So you might expect to see a little bit more sales growth through the year, but pretty consistent. On an absolute basis though Chris, we do always see sales in Q1 lower than Q4. One of that just has to do with shipping patterns and otherwise so – again, growth should look good in Q1 relative to the year. Absolute sales will be less. I think that is a trend that you see I'm sure across almost all companies. There's nothing unique going on there other than normal shipping patterns between Q4 and Q1.

Chris, thanks for your question on our Alzheimer's strategy. You know of course we like many others will be watching aducanumab closely, and of course we’ll adapt our plans and thinking to meet wherever we see the regulatory bar placed, but I don't think you should expect us to pivot in our Alzheimer's strategy one way or another. We’ve placed some pretty important bets. We are excited to see those readouts over time, both with Solanezumab, but also our own plaque clearing antibody Donanemab, as well as our anti-tau antibody that’s in phase II. We also have a tau small molecule in phase I and other agents earlier in development. So we’ll continue to progress those. We think we have smartly designed trials that will give us import readouts over time. A - Kevin Hern: Thanks Dan. Chris, thanks for your questions. Next caller please.

Thank you. Our next question is going to come from Louise Chen from Cantor. Please go ahead.

Hi, thanks for taking my questions here. So the first question I had for you is can you provide more color on what might be driving your stronger volume growth when compared to other companies out there in the space, and if this is durable over the longer term. And then my second question for you, is with this growing competition in atopic dermatitis, where do you see Lilly fitting into the evolving treatment paradigm. Thank you.

Thank you. So we’ll go to Josh for the first question and Patrick for the second. Thanks guys.

Thanks Louise, good morning. I think in terms of volume growth, what we see at a corporate level is the function of our portfolios. We mention about a little bit less than half of our sales are coming from new products that we launched since 2014. 10 of those, they are all still in – very much in their growth phases; Trulicity growing at 31% for example, Taltz at 37%. So we've got a relatively young portfolio. We expect the volume gains that we saw in Q4 to be sustainable between 2020 and 2025 as we mentioned on our guidance call. We expect to see top tier revenue growth over that period. It'll be driven by volume gains; it'll be driven by that cohort of products, as well as the new launches that will expect over this period, including the three that we’re planning for this year. You couple that going forward with last generic exposure, then probably most of the companies that you know we compete against or that you cover and I think that would certainly say to us that the volume gains we're seeing or something that we’re planning for and think are sustainable. A - Kevin Hern: Thanks Josh, Patrick.

Apparently it’s estimated that approximately 18 million Americans are suffering from Atopic dermatitis and 10 million of those are suffering from severe to moderate Atopic dermatitis and the treatment opportunities are very limited. One is saying that they feel Atopic dermatitis is pretty much where psoriasis was 15 years ago. In the light of that we believe that we are extremely well positioned. As we shared, we are encouraged by the most recent data on Olumiant, both in the U.S. and outside the U.S. and we have submitted Olumiant for approval in Japan and EU and we’ll take regulatory actions in 2020 here in the U.S. and we believe that Olumiant could definitely be an option for patients that are having fear of injection. And we're also excited about the announcement we made a few weeks ago about our intent to acquire Dermira, and lebrikizumab is the big driver of that deal and we see lebrikizumab based upon the phase II(b) data as the medicine will at least be competitive with Dupixent and we have an opportunity given the best in class differentiating on each. So overall we believe that we can play a very important role in the field of Atopic dermatitis. We built the first oral JAK inhibitor for patients of fear of injections and the potential best in class medicine in lebrikizumab. A - Kevin Hern: Thanks Patrick. Louise, thanks for your questions. Next caller please.

Thank you. Our next question will come from the line of Tim Anderson from Wolfe Research. Please go ahead. I apologize, the next question then will come from the line of Umer Raffat from Evercore ISI. Please go ahead.

Hi, thanks so much for taking my two questions. Both of them are Kevin’s favorite topic. So the first one is on the CNS penetrance of your GLP-1 and I have two parts on the first one. So there's feedback out there that Trulicity doesn't cross blood-brain barrier very much, perhaps in part because of its size. A, can you comment on that, and in that same question I also want to ask, tirzepatide does not have an IGG. So presumably, it should have good CNS penetration. I just want to make sure I hear your take on the CNS penetrant of both Trulicity and tirzepatide. Secondly, Dave perhaps for you, so the A4 trial in asymptomatic Alzheimer's, my understanding is it was fully enrolled in December 2017 and at this point it's already past two years in every single patient and by end of 2020 you would have hit a three year landmark in every single patient. So my question is, strategically thinking if regulators are being more accommodating of late. Wouldn’t it make strategic sense to possibly consider taking an efficacy read at three years, because even at three years it's 2x the duration of all prior sola and aducanumab trials. Thank you very much.

Thanks Umer for those questions. This is – Butler Bulldogs basketball is probably my favorite topic, but we don’t cover that on the call; this is a close second though. We'll go to Dan for both of these.

Okay, great. Thanks very much. So with respect to CNS penetration of GLP ones, you're right that these are large molecular weight molecules. Actually both FC fusion molecules like Trulicity and also isolated peptides like tirzepatide. Those modifications to the peptides are what gives them the long half-life that enables once weekly injection and molecules of that size typically don't penetrate the blood brain barrier. Having said that, we don't see those attributes, blood brain barrier penetration as being important for the efficacy of this class of drugs as evidenced I think by the tremendous efficacy that we’ve seen with Trulicity and unprecedented efficacy that we've seen with tirzepatide, so I think that addresses that. With respect to A4, you're right that this is a longer duration trial and really I think any other large Alzheimer's trial has ever been. The reason for that though is because these patients are asymptomatic at the beginning of the trial, so they are very early in the disease course and it takes a great deal of time to let these patients progress in their disease course and it's only through progression of patients on the placebo group and hopefully differential, less progression of patients on therapy that we could hope to see an effective drug. So that's why the design includes such a long follow-up period.

Thanks Dan. Umer, thanks for your questions and we'll go to the next caller please.

Thank you. And once again we’re going to have a question from the line of Tim Anderson from Wolfe Research. Please go ahead.

Hi! A question on your PD-1 with an event and really plans for that product outside the U.S. It seems like last summer when I talked to management it was really described as the China only opportunity with limited potential, but it seems that you may have pivoted in recent months and may have bigger plans to bring them in to other geographies, so I'm hoping you can give us your latest thinking. And then second question is just on the Dian-Tu Alzheimer's trial confirming that we should see those results really any time, can you confirm that? And then just how do you view odds of success. It kind of seems to me that it's highly improbable that this will yield positive results for solo, but what are your views? Thank you.

Thanks Tim. We’ll go to Anne for the first question and Dan for the second.

Well Tim, thanks for the question on Tyvyt and our business collaboration. So as you said, our current focus is on development and commercialization of Tyvyt in China, however it’s been really important and a perfect strategic partner to us and so we're always open to discussing opportunities to expand that for mutual benefit. There's really not more we can say at this time. We're really pleased. I think as Josh and Dave mentioned, the performance of Tyvyt in China, it's been a remarkable story and really now as you know the only PD-1 that’s included on the NRDL list and I think that demonstrates how the NHSA has recognized its clinical value and then we were able to share the great news that we had the first line non-squamous read out at interim that’s positive, so we’ll be planning to submit that this year and we expect additional read out in first and second line squamous this year with an event. So it's been a great product and we look forward to what more we can do here. But thanks for the question.

Thanks Anne. Dan?

Yeah Tim, on DIAN, just reminded for everyone that this is dominantly inherited type of Alzheimer's. It's rare and sort of severe and fast progressing form of Alzheimer's disease where we testing solanezumab. Your question on timing of results, we don't have the data yet, but we do expect that this quarter. In terms of the odds of success, I think it's hard to speculate, but as you know this is a very small trials, small population is being studied and it is as I said a severe form of Alzheimer's. So those factors weigh against it, there is other factors that weight for it. We know that it’s driven by mutations here and amyloid over production and has a relatively longer follow-up, but we’ll just have to wait and see that data.

Thanks Dan. Tim thanks for your questions. Next caller please.

Thank you. Our next question then is coming from the line of Andrew Baum from Citi. Please go ahead.

Thank you. A couple of questions. [inaudible]

Hey Andrew, this is Kevin. Andrew, we are really having trouble hearing you and can't really pick up the question, other than we heard tirzepatide.

Is that any better?

No, not much, we’ll try it.

My question is on tirzepatide, talking about your outcome trail. You are running a head-to-head trail versus Ozempic, which you described as a high bar. There is some literature on potentially GIP agonism could potentially be increased in cardiovascular, rather than decreasing it, given its evidence is a marker for heightened cardiovascular disease as well as some preclinical data. Perhaps you can talk to your thoughts on the relevant development literature and then second more broadly we’d like to think that Lilly is perhaps second in place than many of your pears, in understanding the direction of this particular administration in terms of healthcare reforms. There has been some discussions about the IPI proposal could be expanded to include Medicare part D drugs rather than just part B. Perhaps you could share your thoughts on what you expect in that direction. Apologies for the long question?

Thanks Andrew. We’ll got to Dan for the question on tirzepatide and then Dave on the policy question.

Yeah thanks. First of all, just a clarification that tirzepatide trial it had again against Trulicity. Look I think that there is a little bit of literature out there as you referenced about – it’s actually GIP-1 but our thinking is really based on the clinical data we've already obtained with tirzepatide in the Phase II trials. I think everything we see in those trials, point to a large cardiovascular benefits for drug like this, and so that's the driver’ that's what gives us confidence is the real clinical data with this molecule. The combination of GLP-1 and GLP-1 gives certain effects which we are able to see. So for example there improved day-1 C control and notably the very dramatic improvement on weight loss, which I think will drive cardiovascular benefits even higher than we saw in Trulicity.

Thanks Dan. Dave.

So on the policy front, we continue to advocate for change in the U.S. system because although we're in a – as an industry and certainly as Lilly a deflationary price environment those savings are not reaching consumers at the pharmacy counter. And so either through a combination of passing through a transparency of those discounts or insurance reform, we're for change. And our focus is primarily right now with the legislative pathway on both those fronts. There is one more vehicle probably left in this Congress to work on those, but progress is difficult in Congress. So we continue to advocate for change on the other patience though. As it relates to IPI, you know this proposal was part of the blueprint in spring of ’18. It's been sitting out there for a while. We've yet to see any draft guidance for proposed rulemaking or any version of this in detail. There is always a lot of swirling rumors about it, including expanding it to other parts of government programs or changes to it in terms of the objectives. We see it largely as misguided, primarily because in Part B patients hardly have any cost sharing to begin with. So if we're worried about out of pocket costs for patients, IPI will do very little, it's mostly just a punitive measure against the industry going back to decisions made on European pricing sometimes decades ago. It won't probably change those prices in Europe if that’s the present goal, and it certainly won't change the affordability equation for patients in the U.S. So we oppose it for those reasons. That said, it's administrative potential action and want to read it if it comes out and decide what to do from there, but it pretty much is a difficult thing to support for our industry and you’ll probably see pharma universally oppose it. So we'll wait and see.

Thanks Dave. Andrew thanks for your questions. Next caller please.

Our next question will come from the line of Seamus Fernandez from Guggenheim. Please go ahead.

Thanks for the question. So maybe that the first question is really for Josh. Josh, can you just help us understand the progression of margins as we move through the balance of next year, or sorry this year in 2020. When I look at the original guidance from this year, I think you guys had said 28% was the target. I think ultimately we ended up at 27.2% at the final point in the year. But on the guidance call in December, you had – you stated and reiterated the 31% target. Can you just help us understand the past to that 31% just because the second half of this year I think kind of came in below investors’ expectations to some degree, and we're just trying to understand a little bit better the very strong moves in margins going higher. Obviously the pieces of guidance makes sense. I think we're just trying to understand the path as we move through the balance of the year. And then the second question. You know that the pegilodecakin update, thanks for that. Appreciate the understanding and the challenges. Can maybe – Jay can just sort of update us on his thoughts and also Dan, could update us on your thoughts for the growth of the oncology development portfolio and directionally where you're headed? Thanks.

Josh, and then Dan.

Great! Thanks Seamus. In terms of margin this year, again we reiterated that we are on track for 31%. And the one thing that we have said is Q1 will likely be below 31% that’s mostly a function of the less absolute sales that I talked about on a prior question, on top of a relatively fixed OpEx absolute amount. So I think as you look or model OpEx for the year, we see that it's pretty constant on an absolute base quarter-over-quarter. Of course some small variation, and then you'll see absolute sales dollars on a quarter over quarter basis grow. So we don't expect to be at 31% in Q1, but that’s - again that the function of the dynamics of the growth through the quarters. Remember though in terms of how to get there in totals for the year, we said for 2019 that we would grow our R&D at a unusual growth rate in in 2019 as we scale up programs like tirzepatide and Mirikizumab. In 2020 those programs are running at, you know more like full speed, we are able to bring and a an asset like Dermira and keep that with you know relatively smaller growth rate and R&D. So I think we are confident that the sales growth that we are seeing, that we talked about in Q4 and should persist for the year on top of a slower growing OpEx that we can predict and manage, will get us to 31% and again I wouldn't be too concerned in Q1 if we are not at that level, but you should expect it as we move through the year.

Thanks Josh, Dan.

Thanks for the question on oncology strategy. Of course on the last call we talked about our Loxo Oncology at Lilly and how that's changed oncology strategy and we're quite pleased with the progress that we made on executing against that strategy. You can see some portfolio changes in our pipeline update and we also talked about the three key early stage programs, 305, KRAS and SERD, all of which are progressing in the clinic. While we said we're going to focus on a lot of our resources on high probability, biology that's well understood, bets like those, we will also from time to time continue to pursue more novel biology, higher risk, high reward bets like Pegilodecakin was and that will be a smaller part of our portfolio in the future.

Thanks Dan. Seamus, thanks for your question. Next caller please.

Our next question comes from the line of David Risinger from Morgan Stanley. Please go ahead.

Thanks very much. I have two questions, first just going back to the high level on GLP-1s and Alzheimer's. Novo has recently conveyed enthusiasm about the potential for GLP-1 treatment in Alzheimer's. Could you just comment on your view of whether GLP-1 treatment over a few years can actually change the progression of Alzheimer's? And then second with respect to hide those Trulicity, could you please frame what we should focus on when we see the Phase III data and your planned positioning of that product. Thank you.

Thanks Dave. We’ll go to Dan for the first question and then Mike for the second one.

Yeah thanks. Of course we are aware of the comments that Novo has make on GLP-1 and Alzheimer's disease and the potential there. Look forward to seeing data from that first trial. Look I think we know that GLP-1 treatment has beneficial cardiovascular outcomes, including we've seen reductions on stroke, probably that's a tip of the iceberg and there's other micro infarcts that are decreased by GLP-1 therapy. That could overtime contribute to a slower rate of cognitive decline. Is there a direct effective of GLP-1s on Alzheimer’s pathology? I think that's not yet known. So we'll watch how the field evolves. If it turns out that there are great opportunities, I think we have the best in class incretin in the form of tirzepatide and we'd be opened to future opportunities for it.

Thanks Dan, Mike.

David, thanks for your question on our favorite subject. It proves we had another great quarter, growing by 32% on volume of 29% on revenue. We are still quite excited about the overall GLP market growth. The 52 week rate was at 29.7 while the monthly rate in December was at 31.5. So the market continues to grow and Trulicity continues to hold up in a very strong market share leadership position outpacing TRS class growth in the phase of some of the type of product launches. So we expect that both the new Trulicity rewind, as well as the high dose label enhancements will continue to drive class growth as well as certify our market leadership position place. So we're excited about that. I think as you take a look at the results of that, take a look at increased are A1C results, as well as the weight loss results. And what we think is the strength of Trulicity is the fact that you get little more benefits by having powerful efficacy simply delivered and this will just give people using Trulicity another reason to stay on it.

Thanks Mike. David, thanks for your question. Next caller please.

Thank you. Our next question will come from the line of Terence Flynn from Goldman Sachs. Please go ahead.

Great, good morning and thanks for taking the questions. The first one is on tirzepatide and the CVOT trial. I was wondering if you can share any more details on this states or powering assumptions there, as well as the discontinuation rate that you're assuming in the arms of the trial. And then for Emgality you mentioned you know look into the next phase of growth here in the primary care market. What are some of the markers beyond obviously sales that we should look to you know gauging successful uptake there and then any thoughts on potential impact from oral CGRP? Thank you.

Okay thanks. We’ll go to Dan for tirzepatide and then Mike and then Patrick for the oral CGRP question.

Yeah, thinks for your question asking for more detail on the tirzepatide SURPASS-CVOT trial design. I think at this moment we don't sort of comment on any of the finer details around clinical trial design and dropout rates. But I would say that having a trial like this where it’s a head to head with two great active drugs, one on each arm should be a very compelling opportunity for enrolling physicians and a great opportunity for treatment for patients as well. So I think those kinds of factors should help with both enrollment and retention in the trial.

Go ahead Mike.

I think as we look at the opportunity and really learn from what providers and payers want, they want active competitors. I think this provides a lot of value and lot of insights into the incremental value of one product over another product. And so obviously doing a head to head trial versus Trulicity is a bold bat, but I think it really reinforces the confidence we have in tirzepatide in its population. So we're very excited about the study. It is a bold bat, but one that we are very excited about the potential of product and CVOT.

Thanks Patrick.

Thank you. If you look at on the prevention market with currency 6 million patients eligible for prevention treatment in the U.S., but only 3 million of those are being treated. So that's a big opportunity for us with increased competition in the market place as well to drive patient activation. And specifically for Emgality, if you look from the prescriber base today, its relatively limited and only 15% of our targets are currently, regularly prescribing Emgality, so that's why were we see a tremendous opportunity both in specialty care, as well as in primary care. In terms of the oral CGRP, I think it’s important to have in mind that they are only approved or will be approved for the treatment of acute migraine this year and the prevention indications coming later on. We are very confident with the profile of Emgality, particularly taking into account that we are now the market leader and the preferred CGRP in the marketplace and particularly with a differentiation, we have been labeled with both efficacy 57 till 5 and 100% level and also the convenience at the device offers from the same device platform as Trulicity. The oral CGRPs will be competing at a huge pace and we are also very excited about the announcement that was the pre-publication notice from the DEA that was publicly displayed this morning and will result in an announcement in the Federal Register tomorrow, enabling us to bring Reyvow to the marketplace, probably late next week. And that’s where we have a tremendous opportunity to bring more value in the space of acute migraine and for the first time we’ll be able to talk about complete pain elimination already after two hours with one single dose of Reyvow and not just compete pain elimination, but also complete elimination of bothersome symptoms such as sun phobia, light sensitivity and nausea. So we believe that we have very well positioned us in the preventive space as well as the acute phase but patient activation will be key and that's something that would be beneficial with also new entrants in the marketplace.

Thank you, Patrick. Terence, thanks for your questions. Next caller please.

Our next question comes from the line of Steve Scala from Cowen. Please go ahead.

Thank you. I have a couple of questions. I'll take the other side of an earlier question and suggest it would be surprising if DIAN-TU didn't hit it end point given the signal you saw in the expedition trials and the fact that DIAN-TU is testing a higher dose in a more homogeneous population for a longer time with the tailor made end-point. So Dan, I'm trying to understand your pessimism and maybe you could please tell us on which of the points that I stated you disagree? And then there are four components to the primary endpoint. Do you need to hit all four to achieve success? Thank you.

Thanks Steve, Dan.

Okay Steve. So look most of the commons you said are right. The importance of those factors in the outcome of the study is what we don't now, and there are other factors as I said earlier going against us here. The one that should give anyone the most pause I think is the small sample size and Alzheimer's trials are – I think even in large trials notorious for surprising us because of the heterogeneity of the fact and variability in the outcome measures. So its factors like that that could make it difficult to really know what is true. Look I still think it's regardless an interesting scientific question, a partner experiment we'll look forward to seeing the data. With respect to the specifics around the composite, I think the nature of a composite is that you have to hit the overall composite score as the primary endpoint, which could be driven by the various sub-measures or not, but as you point out this was custom made for this trial.

Thanks Dan. Steve thank for your questions. Next caller please.

We have a question from the line of Navin Jacob from UBS. Please go ahead.

Hi yes, thanks for taking the questions. Just on Verzenio, Pfizer has slightly delayed its IBRANCE adjuvant trial PALLAS to early 2021. Wondering – and they highlight the event rate progressing much slower. Wondering how relative to your expectations the event rate has been progressing and MONARCH? And is the time line still for an early 2021 readout, and any color on the potential for an interim would be appreciated? That's on Verzenio. And then just on Humalog, I think your press release suggested that pricing in the U.S. benefit from a better segment mix. Is that because of the volume shift to the Humalog authorized generic and that’s assuming that the authorized generic is being recorded within the Humalog revenue line. I just wanted any if you can provide any clarity on that. Thank you so much.

Great, thank you. We’ll go to Anne for the question on Verzenio and Mike for the question on Humalog.

Navin, thanks for the question on Verzenio. So as you know we have not disclosed any interim analysis. Now this is an event driven trial similar to PALLAS, but our estimates make us quite confident that we are looking at a readout in the first half of 2021. So we continue to expect that and as you know the trial unrolled remarkably well and so we're able to roll ahead of schedule, which helps obviously drive [inaudible] rates for that. And again we specifically designed this trial with a high risk population and that was both a strategy of where we believe that Verzenio would really different, but as well it drove the speed of the trial. So again we feel quite confident in that. As you know the positive MONARCH-2 overall trial results, particularly as we saw those with primary resistance and visceral disease, really an eight month survival benefit in the patients with visceral disease really reinforce our confidence and the potential, the success of MONARCH. So we designed it with that high risk population and really used what we think are thoughtful selection factors the physicians use today to make prescribing decisions in that adjuvant setting. So things like the number of nodes involved, the tumor size and the measure of proliferation and so we feel quite confident in the design of the study and again look forward to the readout in 2021.

Thanks Anne, Mike.

Thanks for your question on Humalog. The biggest drive in Humalog segment mix is the fact that with Humalog uptake they are taking volume away from Humalog in Medicaid since our Medicaid rebate rates are essentially 100%, that TRx decline actually doesn't have – had a flat to positive impact on that revenues for Humalog.

And just to confirm the AG products are consolidated into the Humalog.

Thanks Mike. Navin, thanks for your questions. We’ll go to Dave for the close.

Okay, thank you all. I appreciate the participation in today's earnings call and your interest in Eli Lilly and Company. 2019 was a strong year for the company and we anticipate another great year in 2020. We remain focused on executing our innovation based strategy to bring new medicines to patients and create value for our shareholders. With our strong commercial portfolio complemented by our pipeline of exciting opportunities, Lilly continues to be a compelling investment. Thanks again for dialing in. Please follow-up with our Investor Relations team if you have any additional questions we weren’t able to address on today’s call. Hope you have a great day.

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