Eli Lilly and Company (NYSE:LLY) Q1 2024 Earnings Call Transcript

Eli Lilly and Company (NYSE:LLY) Q1 2024 Earnings Call Transcript April 30, 2024

Eli Lilly and Company beats earnings expectations. Reported EPS is $2.58, expectations were $2.47.

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Lilly Q1 2024 Earnings Call. At this time all participants are in a listen-only mode. Later we will be conducting a question-and-answer session and instructions will be given at that time. [Operator Instructions] I would now like to turn the conference over to your host, Joe Fletcher, Senior Vice President of Investor Relations. Please go ahead.

Joe Fletcher: Thank you, Paul, and good morning everyone. Thank you for joining us for Eli Lilly and Company’s Q1 2024 earnings call. I’m Joe Fletcher, Senior Vice President of Investor Relations. And joining me on today’s call are Dave Ricks, Lilly’s Chair and CEO; Anat Ashkenazi, Chief Financial Officer; Dr. Dan Skovronsky, Chief Scientific Officer and President of Lilly Immunology; Anne White, President of Lilly Neuroscience; Ilya Yuffa, President of Lilly International; Jake Van Naarden, President of Loxo at Lilly; and Patrik Jonsson, President of Lilly Diabetes and Obesity and Lilly USA. We’re also joined by Michaela Irons, Mike Springnether and Lauren Zierki of the IR team. During this conference call, we anticipate making projections and forward-looking statements based on our current expectations.

Actual results could differ materially due to several factors, including those listed on Slide 2. Additional information concerning factors that could cause actual results to differ materially is contained in our latest Form 10-K and subsequent filings with the SEC. The information we provide about our products and pipeline is for the benefit of the investment community. It’s not intended to be promotional and is not sufficient for prescribing decisions. As we transition to our prepared remarks, please note our commentary will focus on our non-GAAP financial measures. Now I’ll turn the call over to Dave

Dave Ricks: Okay. Thanks, Joe. We’re pleased with our Q1 results and the continued momentum in our business, which positions us well for accelerated growth as this year progresses. Our focus is to bring innovative medicines to people in need. And in 2024, we’re investing in our people, our launches, expanding our pipeline of new medicines, including through business development, and of course accelerating the needed capacity in our manufacturing network. Results this quarter represent a continuation of the strong growth we delivered in 2023. On Slide 4, you can see details of the financial performance and progress related to our strategic deliverables. Revenue grew 26% in Q1 with our new products growing nearly $1.8 billion compared with the same period last year.

We achieved several key pipeline milestones, including the positive Phase 3 results for tirzepatide in moderate-to-severe obstructive sleep apnea, the approval of our multi-dose KwikPen delivery device for Mounjaro in Europe, submission of mirikizumab in the U.S. and in EU for moderately to severely active Crohn’s disease, the resubmission of lebrikizumab in the U.S. for moderate-to-severe atopic dermatitis and the initiation of our Phase 3 study for lepodisiran, evaluating efficacy and reducing cardiovascular risk. Lilly’s top priority is to ensure we execute on our ambitious manufacturing expansion agenda. We recently signed an agreement to acquire an injectable medicine facility from Nexus Pharmaceuticals in Pleasant Prairie, Wisconsin. This state-of-the-art facility has been FDA approved, and we are targeting to initiate production at the end of 2025.

We broke ground earlier this month on our previously announced parenteral manufacturing site in Germany. And in existing facilities, we are working to maximize output and productivity to meet demand. The recent EMA approval and upcoming launch of our multi-dose KwikPen delivery life for Mounjaro will unlock new supply capacity for Europe and other international markets while we are also seeing meaningful progress in the ramp of new lines in existing Lilly and CDMO sites for the United States. We continue to make progress against our plans to increase manufacturing capacity, the most ambitious expansion plan in our company’s history. Lastly, we distributed over $1 billion in dividends during the first quarter. On Slide 5, you’ll see a list of the key events since our Q4 earnings call, including the milestones I mentioned earlier and several other important updates.

So now let me turn the call over to Anat to review our Q1 financial results.

Anat Ashkenazi: Thanks, Dave. Slide 6 summarizes financial performance in the first quarter of 2024. First quarter revenue growth of 26% was driven by new products, primarily Mounjaro and Zepbound. Gross margin as a percent of revenue increased from 78.4% in Q1 2023 to 82.5% in Q1 2024. Gross margin in the quarter benefited from higher realized prices, variable product mix and, to a lesser extent, improved production costs. Marketing, selling and administrative expenses increased 12% primarily driven by promotional efforts supporting current and future launches as well as increased compensation and benefit costs. R&D expenses increased 27%, driven by higher development expenses for late-stage assets, and additional investments in early-stage research, as well as a one-time charge of approximately $75 million associated with the termination of the Verzenio prostate program.

In Q1, we recognized acquired IPR&D charge of $111 million, which negatively impacted EPS by $0.10. Operating income increased 63% in Q1 driven by higher revenue from new products, partially offset by operating expense growth. Our Q1 effective tax rate was 11.9% compared to 12.8% in Q1 2023 driven by a larger net discrete tax benefit reflected in Q1 2024 compared with the same period in 2023. We delivered earnings per share of $2.58 in Q1, a 59% increase compared to Q1 2023, inclusive of the negative impact of $0.10 from acquired IPR&D charges in both periods. On Slide 7, we quantify the effect of price, rate and volume on revenue growth. U.S. revenue increased 28% in Q1 driven by growth of Mounjaro, Zepbound and Verzenio. Unprecedented demand for our incretin medicines led to wholesaler backorders of Trulicity, Mounjaro and Zepbound at quarter end.

Realized prices in the U.S. increased 16%, largely driven by Mounjaro access and savings card dynamics. Moving to Europe. Revenue growth was once again strong, increasing 29% in constant currency, driven primarily by volume from Verzenio and Mounjaro as well as payments associated with the distribution of divestiture agreement. Japan revenue grew 2% in constant currency. Volume growth of 7% was driven by Mounjaro and Verzenio, partially offset by decreased volume for Trulicity and a partnership milestone in the base period. Price declined 5% in the quarter. Moving to China, Q1 revenue increased 4% in constant currency. Volume growth was driven by Tyvyt, partially offset by Olumiant and Cialis. Revenue in the rest of the world increased 31% in constant currency, primarily driven by volume growth from Mounjaro and to a lesser extent, Verzenio and Jardiance.

Slide 8 provides additional perspective across our product categories. First, I would like to highlight Verzenio, which saw worldwide sales increased 40% in Q1, driven by continued volume growth in the early breast cancer indication. Jaypirca revenue increased to $50 million worldwide, representing an acceleration in sequential quarterly growth following the December 2023 approval for the CLO indication. We are looking forward to potentially making this medicine available to even more patients as future Phase 3 trials read out. Next in Q1, Mounjaro sales were $1.8 billion globally, and $1.5 billion in the U.S., up from $568 million and $536 million in Q1 2023, respectively. Sequential quarter-over-quarter revenue for Mounjaro in the U.S. was impacted by a onetime benefit from changes in estimates for rebates and discounts in Q4 2023 as well as lower inventory in the channel in Q4 2024 amidst strong demand.

Access level across commercial end parties were consistent with high levels as we communicated on our last earnings call and near parity with established injectable incretin medicines. The demand for tirzepatide is very strong. And each week, hundreds of thousands of people fill scripts from Mounjaro and Zepbound yet we understand the frustration from those facing prescription delays or uncertainties yet in their medicine. While we are working tirelessly to ramp supply and expect meaningful increases in shipment volumes in the second half of the year, demand continues to outstrip even increased supply. We remain on track to meet expectations we set earlier this year. The production of salable doses of incretin medicine in the second half of 2024 will be at least 1.5 times the salable doses in the second half of 2023.

In the short to midterm, we expect sales growth to primarily be a function of the quantities we can produce and ship. Outside the U.S., we are delighted that the multi-dose KwikPen delivery device from Mounjaro was recently approved in the EU, adding to the UK approval earlier this year. This approval applies to both Type 2 diabetes and product week management indications as they are under the single brand in Europe. While timing for launch will vary by country, we expect to start launching in the EU in coming weeks. In Q1, worldwide Trulicity revenue declined 26%. U.S. Trulicity revenue decreased 30% driven by lower volume, primarily due to supply constraints and competitive dynamics. In addition, sales in international markets were impacted by measures we have taken to minimize disruption to existing patients, including communicated to health care professionals to not start new patients on Trulicity.

Turning to Slide 9, we have seen exceptionally strong U.S. launch progress for Zepbound with over $0.5 billion in sales in Q1. We are rapidly building out access for Zepbound in the U.S. And as of April 1, we have approximately 67% access in the commercial segment. As a reminder, patients within this market is a two-step process typically require individual employers to opt in to an anti-obesity medicine rider following PBM coverage. We are continuing to focus on broadening access, both with PBMs and for employer opt-ins and early progress is encouraging. On Slide 10, we provide an update on capital allocation. Slide 11 shows updated 2024 financial guidance. Given the strength we’re seeing in our business and projections for continued acceleration expected in the second half of the year, we are increasing our full year revenue outlook by $2 billion on the top and bottom ends of the range to be between $42.4 billion to $43.6 billion.

This increase is primarily due to the strong performance of Mounjaro and Zepbound and greater visibility and confidence into our production extension for the remainder of 2024. With this update, year-over-year revenue growth of the company is now expected to be approximately 26% at the midpoint or approximately 35% for the core business, which excludes the impact from global divestitures. Given the update to revenue guidance, we now expect the ratio of gross margin, less OpEx, divided by revenue to be in the range of 32% to 34% on a reported basis and 33% to 35% on a non-GAAP basis, representing further margin expansion. We are reaffirming guidance for other income and expense and tax rate, which now takes into consideration Q1 results. Based on these updates, and inclusive of Q1 IPR&D charges of $0.10 per share, we now expect EPS to be in the range of $13.05 to $13.55 on a reported basis and $13.50 to $14 on a non-GAAP basis.

Now I’ll turn the call over to Dan to highlight progress in R&D.

Dan Skovronsky: Thanks, Anat. Let me start with our exciting announcement from earlier this month. That was a positive Phase 3 results from the SURMOUNT-OSA studies, which evaluated tirzepatide for treatment of adults with obesities and moderate-to-severe obstructive sleep apnea known as OSA. OSA is a sleep-related breathing disorder characterized by complete or partial collapse of the upper airway during sleep. OSA can have serious cardiometabolic complications contributing to hypertension, coronary heart disease, stroke, heart failure, atrial fibrillation and even Type 2 diabetes. The need is significant. OSA impacts 80 million people in the U.S. with more than 20 million people suffering from moderate-to-severe OSA. We also know that a substantial majority, approximately 70% of people with OSA also live with obesity.

While there are pharmaceutical treatments for the excessive daytime sleepiness associated with OSA, tirzepatide could potentially be the first pharmacological treatment for the underlying disease. As shown on Slide 12, SURMOUNT-OSA was comprised of two separate trials run under one master protocol. Study 1 evaluated tirzepatide in participants not currently on positive airway pressure or PAP therapy. While Study 2 evaluates tirzepatide in patients who had used PAP for at least three months prior to the study and plans to continue PAP therapy during the entire course of the trial. A total of 469 participants were enrolled across these studies. Each study randomized participants to either maximum tolerated dose approved for tirzepatide, which can be 10 milligrams or 15 milligrams or to placebo, and patients were followed on therapy for 52 weeks.

On Slide 13, we show the results of Study 1. For the efficacy estimate on mean Apnea-Hypopnea Index, or AHI, tirzepatide led to a mean reduction of 27.4 events per hour compared to a mean AHI reduction of 4.8 events per hour for placebo. This difference was highly statistically significant. AHI baseline values were 52.9% and AHI was reduced by 55% in the tirzepatide arm. We also saw a mean body weight reduction of 18.1%, which for tirzepatide, consistent with our expectations for this study. This was, of course, also statistically significant versus placebo. On Slide 14, we show the results of Study 2. In this population for the efficacy estimand, tirzepatide led to a mean AHI reduction of 30.4 events per hour compared to a mean AHI reduction of 6.0 events per hour for placebo.

The baseline AHI was 46.1% in the tirzepatide arm and mean AHI reduction was 62.8%. Again, we saw impressive weight loss with a mean body weight reduction of 20.1% from baseline. These results were also all highly statistically significant. In both studies, the overall safety profile was similar to previously reported SURMOUNT and SURPASS trials. The most commonly reported adverse events were gastrointestinal related and generally mild-to-moderate in severity, with the most commonly reported gastrointestinal adverse events for patients treated with tirzepatide being diarrhea, nausea, vomiting and constipation. Prior to the study readout, we noted investor questions about what level of weight loss we would see, given several factors that were uniquely combined in the study of tirzepatide.

First, the primary aim of the study was not treatment of obesity. Second, that the population was approximately 70% males, in whom weight loss can be harder to achieve with incretin medicines. Third, there’s a particularly high baseline BMI in this population. And finally, the use of the 10 milligram or 15 milligram maximum tolerated dose approach. We were therefore highly reassured to see weight loss observed across the two studies at 52 weeks was nearly 20% despite this difficult-to-treat population. Consistent with other Phase 3 studies, such as tirzepatide at the 52-week time point, we did not see weight loss plateau. We’ll present detailed results of SURMOUNT-OSA during a symposium at ADA on June 21. Additionally, we plan to submit to the FDA and other global regulatory agencies beginning midyear.

Moving to the other updates across our portfolio. Slide 15 shows select pipeline opportunities as of April 26, and Slide 16 shows potential key events for the year. We’re pleased to share that results were positive in QWINT-4, the first Phase 3 study of insulin efsitora alfa, our once-weekly basal insulin. This study evaluated efsitora compared to insulin glargine in adult participants with Type 2 diabetes who are on multiple daily insulin injections. In the coming weeks, we expect to report top line results from QWINT-4 as well as QWINT-2 which is evaluating efsitora compared to degludec in adults with Type 2 diabetes who are naïve to basal insulin. Together, these are the first two of five studies in the efsitora Phase 3 program. Additional updates in our late-stage diabetes and obesity pipeline include results of the EMPACT-MI study, showing Jardiance had a 10% relative risk reduction in the primary composite endpoint of time-to-first hospitalization due to heart failure or all-cause mortality versus placebo, which did not reach statistical significance.

We’ve completed enrollment for SURMOUNT-MMO with over 15,000 participants, and for both orforglipron studies in chronic weight management, ATTAIN-1 and ATTAIN-2, which together enrolled 4,500 participants. Finally, we’ve now initiated the TRANSCEND Phase 3 program studying retatrutide in Type 2 diabetes. In the cardiovascular disease area, we’re excited to have initiated the Phase 3 trial for lepodisiran, the subcutaneous injectable siRNA. This study will evaluate the efficacy in improving cardiovascular outcomes for participants with high lipoprotein(a), who have cardiovascular disease or at a risk of heart attack or stroke. We are evaluating the efficacy of lepodisiran in both secondary and high-risk primary prevention. And we hope this will one day offer health care providers a treatment option for a broad group of patients and increased cardiovascular risk due to high Lp(a) levels.

Earlier in our diabetes and obesity pipeline, we’ve now initiated a Phase 2 monotherapy study evaluating eloralintide, our selective amylin receptor agonist in obesity. Turning to oncology. We made the decision to terminate for futility, the Phase 3 CYCLONE-3 trial evaluating Verzenio in metastatic hormone-sensitive prostate cancer, following an interim analysis. This concludes development of Verzenio in prostate cancer following last quarter’s announcement that the CYCLONE-2 study did not meet its primary endpoint. In early oncology development, we’ve initiated Phase 1 trials for two new assets. The first is our Nectin-4 ADC, which came from our acquisition of Emergence Therapeutics. The second is PNT2001, which came from our acquisition of Point Biopharma.

We’re encouraged by what we’re seeing in our oncology portfolio and expect 2024 to be particularly productive. Along with the Nectin-4 ADC and PNT2001 start, we expect at least three other new molecules to enter the clinic this year. We look forward to sharing more details with the investment community at an oncology-focused investor event hosted by the Lilly Oncology team. This event will take place on the evening of Sunday, June 2 in Chicago in conjunction with the ASCO Annual Meeting and will also be available via webcast. We plan to provide an update on our oncology strategy and pipeline opportunities. Additional details will be available soon regarding this event. Turning to Neuroscience, last month, we announced that the FDA plans to convene a meeting of the peripheral and CNS Drugs Advisory Committee to discuss donanemab in early symptomatic Alzheimer’s disease.

We expect the Advisory Committee Meeting will take place in mid-2024, but the exact date will be confirmed when it appears in the Federal Register. We expect the focus to be around the safety and efficacy profile of donanemab, along with unique aspects of the clinical program. We remain confident in donanemab’s potential to offer very meaningful benefits to patients and look forward to addressing the FDA’s questions in this form. Additionally, we made the decision to discontinue investigation of GBA1, our gene therapy assets in Gaucher disease type 2. Phase studies in Parkinson’s disease and Gaucher disease type 1 are still underway and have not been impacted by this decision. Finally, in immunology, we’ve submitted mirikizumab to the FDA and EMA for approval for use in adults with moderately to severely active Crohn’s disease.

In the U.S., we’ve resubmitted lebrikizumab’s application to the FDA for moderate to severe atopic dermatitis. This is following a complete response letter based on inspection findings of the third-party manufacturer. As a reminder, the letter stated no concerns with the clinical data package safety or label. We expect regulatory action in the second half of this year. We’re also announcing that in the coming months, we’ll be initiating Phase 3 studies evaluating lebrikizumab in two new indications, chronic rhinosinusitis with nasal polyposis and allergic rhinitis due to perennial allergens. Lebrikizumab will be the first biologic to be evaluated in Phase 3 for allergic rhinitis. We’re optimistic about the potential of lebrikizumab to be an important treatment option in these patient populations as well as in atopic dermatitis.

In earlier-stage immunology development, we’ve advanced our CD19 antibody into Phase 2 for multiple sclerosis. I’ll now turn the call back to Dave for closing remarks.

Dave Ricks: Okay. Thanks, Dan. Before we go to Q&A, let me briefly sum up the progress in our first quarter. Strong revenue growth in Q1 was driven by our recent product launches, primarily Mounjaro and Zepbound. We expect acceleration in revenue growth through the second half of the year as supply of incretin medicines continues to ramp. Significant advances in our pipeline include top line data from tirzepatide and SURMOUNT-OSA, approval of the KwikPen delivery device from Mounjaro in the EU, submission mirikizumab and lebrikizumab as well as initiation of lepodisiran, sorry, Phase 3 study, as Dan just mentioned. We are continuing to invest in recent and upcoming launches, internal and external pipeline development and our manufacturing expansion agenda. This is to sustain our long-term growth outlook. So now, let me turn the call over to Joe to moderate the Q&A session.

Joe Fletcher: Thanks, Dave. We’d like to take questions from as many callers as possible and to conclude our call in a timely manner. So consistent with prior quarters, we’ll respond to one question for callers, so ask that you limit to one question per caller as we’ll end the call at 11:00 a.m. If you have more than one question, you can reenter the queue, and we’ll get your question if time allows. So Paul, please provide instructions for the Q&A session, and we’re ready for our first caller.

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Q&A Session

Operator: Thank you. At this time, we’ll be conducting a question-and-answer session. [Operator Instructions] And the first question today is coming from Chris Schott from JPMorgan. Chris, your line is live.

Chris Schott: Great. Thanks so much, and congrats on the progress here. I just had a question, just was hoping you could elaborate a bit more on the capacity dynamics that are leading to the guidance raise today. I specifically just looking for little more color, is this more U.S. or international? And should we read this as more capacity in the system than you expected or just a faster ramp of the new plant and may be the same overall capacity as you exit the year? Thanks so much.

Dave Ricks: Thanks, Chris. I’ll hand over to Anat to talk about the guidance raise.

Anat Ashkenazi: Thanks for the question, Chris. And as we’ve mentioned earlier in the year when we issued guidance, we said that the – we expect capacity and supply to ramp towards the second half of the year, and that’s what we’re seeing. Now as a reminder, we do have quite a large number of nodes across our supply chain that have to come online or ramp capacity. We are, if you look at everything work we have under construction, or ramping up, we have six sites right now between the two sites in North Carolina, a site in Ireland [ph], two sites in Indiana, a site in Germany and then the seventh one that we just purchased, they are all either ramping up or under construction. And there are multiple nodes across that supply chain that have to become operational, which requires approval, et cetera, for three products, depending on which product runs on which line, that are planned throughout the year.

Now that we’re four months into the year, we have greater visibility into these nodes of capacity and feel more confident. Just as one example, the approval of the KwikPen in Europe that just came in slightly ahead of our expectation gives us additional confidence in our ability to launch KwikPen for patients in Europe. So it is across our sites globally, as well as ramping up capacity with partners or CDMOs, as well as in existing sites where we’re making investments to expand where we can, or ramp up capacity so it’s across our supply chain. Thanks.

Dave Ricks: Thanks. Next caller, Paul.

Operator: Thank you. The next question is coming from Mohit Bansal from Wells Fargo. Mohit, your line is live.

Mohit Bansal: Great. Thank you very much for taking my question and congrats on the progress. I have a question regarding the pricing. So if you look at the script trend, it seems like there was a little bit of adverse relationship in the pricing versus fourth quarter. Can you comment on that? And how should we think about the cadence of price volume over the quarters for the year? Thank you.

Dave Ricks: Thanks, Mohit. You didn’t say it, but I assume you’re talking about Mounjaro and Zepbound, I’ll hand over to Patrik to make some commentary on net price.

Patrik Jonsson: Thank you very much, Mohit. When you look at the pricing of Mounjaro, I think it’s important to take into account that in the Q4 earnings, we announced onetime adjustment for Mounjaro in Q4, that was quite significant. So that was a onetime adjustment in the base of Q4. When we look forward for the first half of 2024, it’s important to have in mind that we also terminated the $25 saving card 6/30/2023, but patients that were on are grandfather until 6/30/2024. So there would probably be some benefits during the first half of 2024 for Mounjaro. But from the second half of this year, we should expect to see typical pricing headwinds for Mounjaro as well.

Dave Ricks: Thank you. Next question, Paul.

Operator: Thanks. The next question is coming from Umer Raffat from Evercore. Umer, your line is live.

Umer Raffat: Hi guys. Thanks for taking my question. I wanted to focus a quick second on Part D reimbursement dynamics, if I may. And my question is, will tirzepatide be considered differently than a “weight loss drug” to secure Part D reimbursement? And the new indications like sleep apnea, will they considered an applicable drug and not get lumped up as a broad “weight loss drug”? Thank you.

Dave Ricks: Thanks, Umer. I’ll go to Patrik for that question.

Patrik Jonsson: Thank you very much, Umer. I think with the announcement made by the CMS early April to reimburse comorbidities for obesity based on the SELECT trial, we’re also confident that with the new data that we presented just weeks ago in terms of obstructive sleep apnea, that’s going to be reimbursed in Medicare Part D. And we expect similarly for other comorbidities and the readout of HFpEF, assuming that’s positive and approved and later on with the mobility-mortality outcome study. Still, our true north is really to get the true of a treat and reduce obesity at cost, and we strongly believe it’s not a matter of if, but when. We don’t see it likely to pass in 2024, but it’s still a small likelihood that that’s going to happen.

Dave Ricks: Thanks, Patrik. Next question, Paul.

Operator: Thank you. The next question is coming from Seamus Fernandez from Guggenheim. Seamus, your line is live.

Seamus Fernandez: Great. Thanks for the question. So really just wanted to ask, Dan, as you have assessed the Phase 2 SURMOUNT data in NASH just interested to know how you are thinking about those data and the opportunity for tirzepatide in that setting or perhaps if retatrutide remains the right target molecule to move forward there? We’ve had a lot of speculation around some of the comments from the last quarter and just trying to firm that up and also when we’re likely to see those data, I believe, they’re expected at EASL but if that is possible to confirm. Thanks so much.

Dave Ricks: Dan?

Dan Skovronsky: Thanks, Seamus. I’ll start with the last part there. Yes, the abstract was accepted and will be presented at EASL in early June. So that will be the opportunity to see the full NASH package from that Phase 2 trial. Like we said in the last call, really exciting data. We shared some of the top line. I think tirzepatide can have a profound effect on this disease. It’s a Phase 2 trial. Next steps here are to discuss with the FDA what the best path forward could be for tirzepatide. You’re pointing out, though, that we have another choice in retatrutide, which based on biomarker data from earlier studies could also have a profound effect of this disease. That molecule has the addition of glucagon, which is likely to have additional benefits in the liver.

So important opportunities ahead and good to have options as we go into these discussions with regulators. I think for MASH, like other obesity-related or metabolic related diseases, Lilly has a pretty broad portfolio, and we’ll just continue to push the science to make the best possible medicines for patients.

Dave Ricks: Thanks, Dan. Paul, next question.

Operator: The next question will be from Tim Anderson from Wolfe Research. Tim, your line is live.