Q3 2026 ER Call - ELI LILLY & CO

Explicit Guidance:

• 2026 Full-Year Revenue: Raised to a range of $91–$92 billion, reflecting a ~$10 billion increase from the initial year-start guidance.
• 2026 Non-GAAP Performance Margin: Revised upward to a range of 52%–52.5%.
• 2026 Non-GAAP EPS: Projected at $35–$36 per share.
• 2027 Outlook: Full financial guidance will be provided in Q4 2027; however, management expects sustained U.S. incretin volume growth, full-year impact of the Medicare GLP-1 Bridge Program, and the launch of Fondeo for type 2 diabetes in Q4 2026.
• 2027 Pricing/Mix: Expectations for 2027 include modest, disciplined commercial pricing stability, though a mix shift toward lower net prices is anticipated due to expanded Medicare/Medicaid coverage and self-pay segments.
• One-Time Adjustments: 2026 revenue included ~$2 billion of one-time items (milestone payments and rebate estimates) not expected to recur; excludes a $410 million milestone payment from Beringer Ingelheim.

Business-Segment Outlook:

• Cardiometabolic (Incretins): Anticipates sustained volume growth in the incretin market with continued penetration; global rollouts of Fondeo (oral obesity medicine) expected in all major markets in 2027.
• Oncology: Launch of new indications for Imlunestrant (with abemaciclib) and Pertabrutinib; expects Ember-4 (early breast cancer adjuvant trial) to read out in 2027. Eight new oncology medicines or major indications are in Phase 3 or nearing start.
• Neuroscience: Kisunla (amyloid therapy) expected to drive growth via increased diagnostic testing (beta-217 blood tests); Trailblazer-3 (prevention trial in cognitively unimpaired individuals) is a key near-term catalyst.
• Immunology: Leverkizumab data submitted to FDA for hand/foot atopic dermatitis; Nexokizumab/Terzepatide combination data highlights immunometabolic opportunity; Mer-511 (Merida acquisition) advancing in Phase 1 for Graves' disease/thyroid eye disease.
• Product Launches: Fondeo regulatory review for type 2 diabetes in the U.S. expected in Q4 2026; global launch of Fondeo in type 2 diabetes targeted for 2027.
• Portfolio Diversification: Long-term strategy focuses on three non-obesity pillars (Oncology, Neuroscience, Immunology), aiming to deliver diversified growth as the cardiometabolic portfolio matures.

Market and Competitive Outlook:

• U.S. Demand: Incretin market prescriptions for obesity grew 82% in Q3 2026; Lilly portfolio holds >60% share of Type 2 Diabetes incretins and ~58% global share of international incretins.
• Price Trends: U.S. net realized prices expected to remain a headwind in 2027 due to mix shifts (Medicare/Medicaid), but commercial pricing expected to remain stable with a "disciplined approach." International pricing seen as more stable due to differentiated product value.
• Competitive Landscape: Fondeo capturing ~45% of new oral GLP-1 growth in the U.S. in Q3 2026; Monjaro maintaining leadership in international markets (e.g., >50% new patient share in Japan).
• Adherence: Zepbound persistency expected to match historical Trulicity benchmarks (16–18 months) in covered segments; oral formulations expected to show lower adherence than injectables long-term.
• Market Expansion: Oral obesity medicines viewed as expanding the total addressable market (TAM) rather than just cannibalizing existing injectable demand.

Macro / Industry Outlook:

• Medicare GLP-1 Bridge Program: Strong early uptake (75% of enrollees choosing injectables, 7/10 choosing Lilly); estimated to generate $20 billion cumulative savings for Medicare over 10 years. Management is "pretty optimistic" about permanent expansion to the Part D benefit structure by 2028.
• Employer Coverage: Expect overall commercial coverage access to remain relatively stable in 2027, with growth shifts driven by Medicare/Medicaid expansion rather than employer opt-in changes.
• Regulatory Environment: Anticipates continued focus on safety and efficacy data for new combination therapies (e.g., triple agonists); FDA approvals for Onsweek (weekly insulin) and Pertabrutinib signal favorable regulatory climate for innovative mechanisms.
• International Expansion: Strong momentum in emerging markets (Korea, Turkey, Brazil) with Monjaro exceeding $1 billion in China in its first full year.

Strategic Initiatives:

• M&A/BD: Completed acquisitions of Atai-Beckley (neuroplasticity assets) and Merida Biosciences (precision immunology). Strategy focused on balancing risk/reward with clinical-stage assets to fuel growth for the next decade.
• Manufacturing: Groundbreaking on two new facilities: $6.5B in Houston, TX, and $5B in Richmond, VA, to support long-term growth capacity.
• Leadership Changes: Patrick Johnson retiring end of 2026; role merged into a new "President of Lilly Global Markets" position for Ilya Yufa.
• Social Impact: Launched "Lilly Change the Course" commitment to provide obesity treatment to resource-limited settings by 2040.
• R&D Innovation: "Baking off" multiple platforms for longer-acting incretins; development of triple agonists (Retatrutide, Elora-TZP) and amylin-based combinations to address unmet medical needs.

Risks and Headwinds to Outlook:

• Execution Variability: Future guidance depends on the successful ramp-up of the Medicare Bridge Program and consumer uptake in international markets (middle-income cash-pay segments).
• Pricing Pressure: Net realized price declines are expected to continue in the U.S. due to mix shifts toward lower-price government programs, though commercial pricing is expected to be disciplined.
• Clinical/Regulatory Uncertainty: Outcomes of Phase 3 trials (e.g., Ember-4, Retatrutide, Elora-TZP) and potential delays in regulatory approvals (e.g., Fondeo for Type 2 diabetes) remain key variables.
• Competitive Intensity: Potential for increased competition from oral GLP-1s and future entrants in the obesity and neuroscience spaces.
• Supply Chain: Manufacturing capacity constraints could limit growth if demand exceeds current facility output (mitigated by new $11.5B investment).
• One-Time Events: Exclusion of non-recurring milestone payments and rebate adjustments in future comparisons.

Management Tone on the Future:

• Confidence: High confidence in delivering "industry-leading growth" and beating prior guidance expectations (roughly $10 billion upside vs.年初 guidance).
• Strategic Clarity: Leadership expresses certainty in the "Anchorton" franchise's durability while emphasizing the "next decade" of growth driven by diversification into Oncology, Neuroscience, and Immunology.
• Risk Appetite: Willingness to take calculated risks in early-stage M&A due to strong current cash flow, viewing risk as a value-creation tool.
• Guidance Philosophy: Prefers a "reliable" posture over speculative projections given the unprecedented scale of the obesity category expansion; asymmetry favors missing on the upside.
• Long-Term Vision: Commitment to "redefine how a pharmaceutical company can improve human health at a global scale" with a focus on treating earlier disease stages (e.g., Alzheimer's prevention).

Miscellaneous:

• Investor Day: Lilly Innovation Day scheduled for December 7, 2026, focusing on R&D and pipeline updates.
• Dividends/Buybacks: Distributed $1.5B in dividends and executed $400M in share repurchases in Q3 2026.
• Pipeline Highlights: Retatrutide demonstrated 20-21% weight loss in Phase 3 (vs. 9.4% for semaglutide); Elora-TZP showed 23.3% weight loss in Phase 2; Orpherglyprin met CV safety endpoints with potential mortality benefits.
• Commercial Metrics: Fondeo prescriptions doubled in Q3 2026; ~25% of patients on maintenance doses (higher than competitor GobiPill); U.S. revenue grew 34% in Q3, driven by volume.