Eli Lilly and Company Earnings Call Nuggets: Enzastaurin Outlook and Animal Health Business

Eli Lilly and Company (NYSE:LLY) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Enzastaurin Outlook

Unidentified Analyst – Sanford C. Bernstein: This is (indiscernible) for Tim Anderson. I have two questions please. Your tax rate guidance for 2013 is now on 19%. Previously you have said that your tax rate would rise to a mid-20% in the 2012 to 2014 timeframe because of patent expiries? Is that mid 20% tax rate guidance still relevant for 2014? My second question is you mentioned that you expect to have Phase III data for enzastaurin this year. Can you give us your overall thoughts on the product?

Philip Johnson – VP, IR: We’ll have Derica take your first question. Jan would like to go into the second one then. Derica?

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Derica W. Rice – EVP, Global Services and CFO: In regard to our tax rate guidance, just a reminder we said that in our mid-term guidance that our tax rate would be no higher than the mid-20s, meaning that’s the maximum we are expected to go. Fortunately, we’ve been very successful thus far and through the management of operations as well as where our cash has been generated, our income has been generated around the world, to be able to stay in that low 20s. As you see here in the first quarter, we are also benefiting from how the impact of the U.S. R&D tax credit both in terms of the full effect of ’12 being recorded in the first quarter of ’13 as well as the resumption of the R&D tax credit in the Q1 itself. So we still believe that we’ll be able to say below that mid-20s at least and we are also at the same time well able to bring back sufficient cash to the U.S. to fund our U.S. operations.

Philip Johnson – VP, IR: Thanks, Derica, Jan?

Jan M. Lundberg, Ph.D – EVP, Science and Technology and President, Lilly Research Laboratories: Right. So, we are evaluating hence the story in the Phase III trial for diffuse large B-cell lymphoma, and the aim here is to test for the potential to revenant relapse in patients following standard of care, which is called R-CHOP for this particular form of lymphoma. We have completed enrollment and are expecting data very soon and primary endpoint is disease-free survival, if positive, we could potentially have an NDA submission later this year.

Animal Health Business

Mark Schoenebaum – ISI Group: I think animal health is in the room correct?

Philip Johnson – VP, IR: Absolutely. We’ve got Jeff Simmons here with us. We’ve got the expert.

Mark Schoenebaum – ISI Group: So, maybe I’ll ask an animal health question, if I may. I saw in the press release, it looks like your ex-U.S. growth slowed down considerably this quarter and as you said, it was consistent with industry trends our of a couple of other companies. I was wondering if you could go into any detail specifically what’s driving the ex-U.S. weakness, whether or not you think that’s kind of one-time-ish or where or not you think we should kind of be rethinking ex-U.S. growth rates in general. Then, the second part of the question is, a little bit off the beaten path, but obviously in China, a lot going on with the bird flu. Do you anticipate this having any impact on the animal health business over the near term or over the long-term?

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Jeffrey Simmons – SVP and President, Elanco Animal Health: I would say overall, if you look at our business – the animal health business, especially the food animal side, OUS, we are operating in a business that is cyclical in nature. Meat, milk and eggs cycle related to demand. Those cycles have now become a lot more global as there’s more global companies connected to the supply and demand, and you see this every three to five years, you see a cycle happen and you see that with public meat companies as well. Today currently meat supply is exceeding demand in certain parts of the world and that’s creating and we believe a driver in the slowing of this industry growth. I don’t want to forecast the severity of it or the length of it but we do see this emerge relative to Q1 ’13 versus Q1 of ’12. I will speak on behalf of Elanco and say that even despite this we continue to see our strategy that’s built on diversity, that’s built on (indiscernible) animal, food animal therapy and productivity on the food animal side. We continue to expect that Elanco will deliver robust growth for ’13 and in the coming years and exceed industry growth rates as we have in the past five years. Now, if we look at bird flu, I would say that similar nature you see in these different flus, in different emerging diseases occur, we had bluetongue in Europe a few years, we had a bird flu occur in Mexico a few years ago, and this one in China. What we need to look for is does that do anything to soften the demand of key protein groups like poultry and pork in markets like China. So, this will be something that we will be watching and assessing. Our recent investment in China Animal Healthcare will bring us closer to that marketplace, which will help us understand that marketplace, which is a key marketplace. So, the big impact is – watching the impact that it has on overall consumer demand.

Philip Johnson – VP, IR: The impact this quarter Mark would have been nil to our business.

Jeffrey Simmons – SVP and President, Elanco Animal Health: No impact on bird flus.

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