Eli Lilly and Company (NYSE:LLY) Q2 2024 Earnings Call Transcript

Eli Lilly and Company (NYSE:LLY) Q2 2024 Earnings Call Transcript August 8, 2024

Eli Lilly and Company beats earnings expectations. Reported EPS is $3.92, expectations were $2.74.

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Lilly Q2 2024 Earnings Call. [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: Thanks, Paul. Good morning, everyone. Thanks for joining us for Eli Lilly and Company’s Q2 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 Chairman and CEO; and Dr. Dan Skovronsky, Chief Scientific Officer and President of Lilly Immunology; Gordon Brooks, Interim Financial — Chief Financial Officer; Anne White, President of Lilly Neuroscience; Ilya Yuffa, President of Lilly International; Jake Van Naarden, President of Lilly Oncology; and Patrik Jonsson, President of Lilly Cardiometabolic Health and Lilly USA. And we’re also joined by Makela Irons, Mike Springate, Lauren Zurke of the IR 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 several factors, including those listed on Slide 4. 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 that our commentary will focus on non-GAAP financial measures. Now I’ll turn the call over to Dave.

Dave Ricks : Thanks, Joe. It’s an exciting time here at Lilly as our growth trajectory accelerated in the second quarter. Our investments in advancing innovative medicine are focused on manufacturing expansion are bringing Lilly medicines to more people around the world. On Slide 5, you can see details of the financial performance in the second quarter and progress related to our strategic deliverables. Revenue grew 36% in Q2 with our new products growing nearly $3.5 billion compared to the same period last year. U.S. demand for Mounjaro and Zepbound is strong and growing as access and supply continue to expand. While weekly prescription volume was volatile in the first half of the year due to challenges fulfilling high demand, our progress on supply gives us confidence in our outlook.

Q2 saw impressive performance across other areas of the business as well. Excluding the sale of the rights to Baqsimi last year, non-incretin growth was 17% worldwide with growth spread across geographies, including 25% growth in the United States. And our $3 billion increase in revenue guidance reflects our expectation that momentum will accelerate through the balance of the year. We achieved several key pipeline milestones, including the approval of Kisunla, the brand name for donanemab in the U.S. for the treatment of Alzheimer’s disease, the approval of Jaypirca in Japan for people with relapsed or refractory mantle cell lymphoma who are resistant or intolerant to other BTK inhibitors, the submission of tirzepatide in the U.S. and the EU for the treatment of moderate to severe obstructive sleep apnea in adults with obesity and the positive top line results from the SUMMIT Phase 3 trial evaluating tirzepatide in adults with heart failure with preserved injection fraction and obesity.

Lilly now has a significant opportunity to create new medicines through a broad internal portfolio and active business development to support our long-term growth. In obesity, our strategy is to comprehensively address this global public health crisis, pursuing opportunities against every rational mechanism, indication and dosage form. We are investing broadly in this disease and now have 11 new molecules currently in the clinic across multiple indications. We’re also investing in a wide range of late-stage Phase 3 programs. We recently shared the positive data of tirzepatide in OSA and — Orforglipron, our oral GLP-1 small molecule, has a comprehensive Phase 3 program underway in diabetes and obesity with nine trials currently running and readout starting next year.

With tirzepatide, our GIP/GLP-1 glucan try agonist. We have initiated a broad Phase 3 development program studying the molecule in obesity, OSA, osteoarthritis, cardiovascular and renal outcomes as well as type 2 diabetes. These readouts start in 2026. Our top priority remains executing on our ambitious manufacturing expansion agenda. In May, we announced plans to invest an additional $5.3 billion in our Lebanon, Indiana manufacturing sites, bringing our total investment there to $9 billion. We believe this is the largest single investment in synthetic medicine active pharmaceutical ingredient manufacturing in the history of the United States. Importantly, this expansion will enhance capacity to manufacture active pharmaceutical ingredients for Zepbound and Mounjaro.

Since 2020, we have committed more than $18 billion to build, upgrade or acquire facilities in the U.S. and Europe, and we began to see the benefit of these investments. We are making near-term progress to ramp production, including at new sites like Research Trial Park, existing Lilly sites and contract manufacturing organizations. Our Concur North Carolina site is progressing well. We’re in the process of running validation and expect this facility will initiate production by the end of 2024 with product available to ship in 2025. We also continue to make progress on different presentations for tirzepatide. We have now launched our multidose quick pen in multiple markets outside the U.S. with positive early indicators of patient adoption.

And in Gordon’s remarks, he will preview our plans to launch vials here in the U.S. Lastly, in terms of external innovation. In July, we announced a definitive agreement to acquire Morphic, a biopharma company developing oral — therapies for treatment of serious chronic diseases, including a Phase 2 asset being evaluated in inflammatory bowel disease. On Slide 6, you’ll see a list of key events since our Q1 call, including the milestones I mentioned earlier and several other important updates. As we announced in June, Anat Ashkenazi resigned as Lilly’s Chief Financial Officer to become the CFO of Alphabet. We wish Anat well in her new role and thank her for your partnership and leadership of our financial organization in the last 3 years. We have named Gordon Brooks Interim CFO as an internal and external search for Anat successor is currently underway.

Gordon has been with the company for 29 years and also serves as our controller and the leader of the corporate strategy group for the company. In other leadership news, Alonzo Weems, our Executive Vice President of Enterprise Risk Management and our Chief Ethics and Compliance Officer, will retire at the end of the year after 27 years of service. And Melissa Seymour has joined the company as Executive Vice President of Global Quality and a member of the company’s executive committee following John Norton’s recent retirement. I want to thank Alonzo for his many years of service and welcome Melissa to the Lilly team. Now let me turn the call over to Gordon to review our Q2 financial results.

Gordon Brooks: Thanks, Dave. So, I’m on Slide 7, which summarizes the financial performance in the second quarter of 2024. Second quarter revenue growth of 36% was primarily driven by Mounjaro and Zepbound as well as Verzenio. When excluding revenue from the sale of rights to Baqsimi in Q2 of last year, revenue grew 46%. Gross margin as a percent of revenue increased from 79.8% in Q2 of ’23 to 82% in Q2 of ’24. Gross margin in the quarter benefited from favorable product — and higher realized prices, partially offset by higher production costs. R&D expenses increased 15% driven by continued investment in our portfolio and in our people. Marketing, selling and administrative expenses increased 10%, primarily driven by promotional efforts associated ongoing and future launches as well as investments in our people.

Operating income increased 90% in Q2, driven by higher revenue from new products, partially offset by operating expense growth. The effective tax rate on a non-GAAP basis was 16.5% in Q2 of ’24 compared with 16.1% in Q2 of ’23. The Q2 ’24 tax rate reflects a mix of earnings in higher tax jurisdictions, while the Q2 ’23 rate reflected the impact of earnings from the sale of rights for Baqsimi. At the bottom line, we delivered earnings per share of $3.92 in Q2, an 86% increase compared to the prior year. Q2 ’24 results include a negative impact of $0.14 from acquired IPR&D charges compared to $0.09 in the prior quarter, Q2 of ’23. On Slide 9, we quantify the effect of price, rate and volume on revenue growth. U.S. revenue increased 42% in Q2.

Volume growth of 27% was driven by Zepbound, Mounjaro and Verzenio, partially offset by sale of rights for Baqsimi in Q2 of ’23 and declines in Trulicity. Realized prices increased 15%, largely driven by Mounjaro access and savings card dynamics. As noted in our Q4 — Q1 2024 earnings call, unprecedented demand for our incretin medicines led to wholesaler back orders at the end of Q1. In Q2, we fulfilled the majority of these back orders, improving wholesaler stocking levels. We estimate that U.S. Mounjaro and Zepbound aggregate sales in the second quarter were positively impacted by channel stocking that we estimate totaled high teens to mid-20s as a percent of U.S. sales as we rebuilt inventory from extremely low levels in the spring and to account for the growth of these brands.

We are pleased that the group’s supply situation is reflected on the FDA shortage website, which currently shows all doses of Mounjaro and Zepbound, listed as available and the two lower doses of Trulicity as available. While wholesaler back orders in the U.S. have been reduced substantially, it’s important to note that the pharmaceutical supply chain is complex, more so for medicines that require refrigeration and offer at several different doses. These factors may continue to result in variability in the patient experience at the pharmacy counter. While supply and demand has come into better balance, we expect increase in demand may result in periodic supply tightness for certain presentations and dose levels. We have a continued broad agenda to further increase supply, and we’ll continue to look at all options.

Today, we are excited to announce plans to further expand access to Zepbound with the launch of the 2.5-milligram and 5-milligram single-dose files in the coming weeks with more details to come at that time. In Europe, revenue grew 20% in constant currency, primarily driven by Mounjaro launch uptake in the U.K. and Germany. We also had strong volume growth from Verzenio, Jardiance, which was partially offset by decreased volume from Trulicity. Japan performance was strong in the second quarter with 15% revenue growth in constant currency. Volume growth of 21% was driven by uptake of Mounjaro and Verzenio. Moving to China. Q2 revenue increased 1% in constant currency. Growth was driven by — Olumiant and Taltz, partially offset by Trulicity and Cialis.

Mounjaro was recently approved in China for type 2 diabetes and chronic weight management. We have not yet announced expected launch timing in this market. Revenue in Rest of World increased 61% in constant currency, primarily driven by Mounjaro volume growth from demand and channel dynamics. Slide 10 provides additional perspective on performance across our product categories. Verzenio solid growth in the second quarter across major geographies with worldwide sales increasing 44%, driven by the early breast cancer indication. Jaypirca revenue increased to $92 million worldwide, which included a $19 million partner milestone payment related to Japan. Jaypirca continued impressive quarter-over-quarter growth, building on the brand’s uptake from both the MCL and CLL patient populations.

OMVOH is launched in the U.S. and 14 international markets with sales of $26 million in Q2. These launches continue to progress well with increasing patient starts. And in the U.S., we expect sales to accelerate as the product-specific code went live on July 1. Mounjaro sales in Q2 were $3.1 billion globally with $2.4 billion in the U.S. Revenue growth in the U.S. reflected continued strong demand as well as the improved channel dynamics discussed earlier. We’re seeing solid uptake in Mounjaro outside the U.S., with sales in Q2 totaling $677 million. In the first half of the year, we launched the quick pen presentation in the U.K., Germany and the UAE. So far in Q3, we’ve also launched Mounjaro Quick Pen in Spain and plan to launch an additional market throughout 2024.

In Q2, worldwide Trulicity revenue declined 31%. U.S. Trulicity revenue decreased 36% driven by lower volume, primarily due to competitive dynamics and supply constraints, partially offset by improved wholesaler stocking levels on services. Turning to Slide 11. We have an update on the U.S. launch of Zepbound. We’ve seen exceptional growth trends for Zepbound that have accelerated as production has ramped leading to sales of over $1.2 billion in Q2. We are rapidly building our formulary coverage for Zepbound in the U.S. and as of July 1 had approximately 86% access in the commercial segment. We estimate over 50% of employers have opted into anti-obesity medicine coverage and see that modestly growing as we work to expand coverage. On Slide 12, we provide an update on our capital allocation.

Slide 13 shows our updated 2024 financial guidance. We are raising our full year revenue outlook by $3 billion to be between $45.4 million and $46.6 billion. This increase is due to strong performance across our non-incretin medicines as well as Mounjaro and Zepbound. Additionally, we have improved clarity into the timing and pace of our production expansion and Mounjaro launches outside the U.S. We achieved a number of supply-related milestones in Q2 and have increased confidence regarding our expectation that production of salable doses of incretin medicines in the second half of 2024 will be at least 1.5 times the salable doses taken half of 2023. Based on the midpoint of the range, our updated guidance implies revenue growth of 38% in the second half of the year, below 31% in the first half.

In the second half of the year, we expect a more significant growth in Q4 compared to Q3. 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 36% to 38% on a reported basis and 37% to 39% on a non-GAAP basis. For other income and expense, we now expect between $525 million and $425 million of expense on a reported basis, and between $400 million and $300 million of expense on a non-GAAP basis. Both ranges reflect lower expected net interest expense and the reported range reflects net losses on investments in equity securities through Q2 of ’24. We have increased our estimated effective tax rate to be approximately 15%, driven by changes in our forecasted mix of earnings in higher tax jurisdictions.

Earnings per share is now expected to be in the range of $15.10 to $15.60 on a reported basis $16.10 to $16.60 on a non-GAAP basis. Both ranges — the updates mentioned earlier as well as acquired IPR&D charges through Q2 of $0.24. The reported range includes a charge in Q2 of ’24 associated with anticipated litigation payments. Now I’ll turn the call over to Dan to highlight our progress on R&D.

Dan Skovronsky: Thanks, Gordon. It’s been another busy quarter. I’ll start with comments on the Kisunla FDA approval, then the tirzepatide heart failure Phase 3 readout. Then finally, I’ll cover the rest of the updates for the quarter. We are, of course, very excited about the FDA approval of Kisunla for treatment of Alzheimer’s disease. This followed the June Advisory Committee meeting where we had another chance to present and discuss the compelling data package characterizing the safety and efficacy of this medicine. We were pleased by the discussion of the FDA advisers, particularly with regard to our data supporting stopping of Kisunla therapy when amyloid plaques are removed to minimal levels. In our trial, nearly half of study participants completed their course of treatment with Kisunla in 12 months.

We believe limited duration therapy, along with a once monthly infusion schedule, could result in lower patient out-of-pocket treatment costs and fewer infusions required. The vote was unanimously positive on all questions presented. Then a few weeks later, the FDA approved Kisunla, including labeling that physicians may consider stopping dosing of Kisunla based on reduction of amyloid plaques. Following the July approval, we launched Kisunla, and we’re delighted to see that patients have already begun receiving this new Lilly medicine as part of clinical practice. We note that Kisunla is broadly covered for Medicare patients through approved CED registries. Regulatory reviews continue around the world with potential action yet this year in several countries.

We’re pleased to have recently received a positive opinion for genenimab from the Pharmaceuticals and Medical Devices Agency in Japan. And finally, our Phase 3 prevention study, TRAILBLAZER ALS 3, continues to progress as planned. Moving to tirzepatide. On Slide 14, you’ll see the recent positive results of our SUMMIT Phase 3 trial, which evaluated tirzepatide for the treatment of heart failure with preserved detection fraction and obesity. This study demonstrated statistically significant improvements in both primary endpoints for tirzepatide, maximum tolerated dose compared to placebo. In the first primary endpoint, tirzepatide reduced the risk of worsening heart failure by 38% compared to placebo as measured by a composite outcome of heart failure urgent visit or hospitalization, oral diuretic intensification or cardiovascular death.

The median follow-up for this endpoint was 104 weeks. In the second primary endpoint, tirzepatide significantly improved heart failure symptoms and physical limitations compared to placebo as measured by the Kansas City Cardiomyopathy Questioner, KCCQ Clinical Summary score. Main changes from baseline in this measurement is 24.8 points for tirzepatide, while placebo was 15 points based on the efficacy as demand at 52 weeks. All key secondary endpoints were met in the study, including mean body weight reduction of 15.7% compared to 2.2% for placebo. The overall safety profile of tirzepatide in the SUMMIT trial was consistent with previously reported tirzepatide studies, including SURMOUNT and SURPASS. We will present detailed results at an upcoming medical — and submit to a peer-reviewed journal.

We plan to submit results to the FDA and other regulatory agencies starting later this year. In other updates across our portfolio, Slide 15 shows select pipeline opportunities as of August 6. Slide 16 shows potential key events for the year. I’ll start with updates in cardiometabolic health, which is the new name of our internal business, formerly known as Lilly diabetes and obesity. In June, we published detailed results for our Phase 3 trials of tirzepatide for the treatment of moderate to severe obstructive sleep apnea and obesity in the New England Journal of Medicine, and we presented results at the American Diabetes Association Meeting. All primary and key secondary endpoints were achieved in these studies. Notably, in one of our key secondary endpoints, as shown on Slide 17, tirzepatide demonstrated that up to 51.5% of participants met the criteria for disease resolution of sleep apnea.

We’ve now submitted tirzepatide for the treatment of moderate to severe obstructive sleep apnea and obesity to the FDA as well as the EMA. We are pleased that the FDA has granted breakthrough therapy designation, and we expect U.S. regulatory action as early as the end of 2024, which will be dependent on the FDA granting priority review. Also, in June, we published results in the New England Journal from our Phase 2 trial of tirzepatide for metabolic dysfunction associated steatohepatitis, or MASH, with Stage 2 or Stage 3 fibrosis and we presented these results at the European Association for the Study of Donanemab. We are pleased to show that in a secondary endpoint, more than half of the patients taking tirzepatide achieved improvement in fibrosis at 52 weeks as shown on Slide 18.

We’re engaged with regulatory authorities on a potential Phase 3 registration strategy, and we’re also encouraged by the potential read-through of these results to retatrutide, which also showed significant improvements in liver fats in Phase 2. This quarter, we also announced top-line data from two Phase 3 trials for our once weekly insulin called efsitora alfa, the QWINT-2 and QWINT-4 trials for the treatment of type 2 diabetes each met their primary endpoints of non-inferior A1c reduction. QWINT-2 compared to efsitora once-daily insulin degludec for 52 weeks in insulin naive adults. QWINT-4 compared efsitora to insulin glargine for 26 weeks in adult previously treated with daily basal insulin and at least two injections per day of meal time line.

In both QWINT-2 and QWINT-4 efsitora, was safe and well tolerated. Detailed trial results will be presented in September at the European Association for the Study of Diabetes Annual Meeting. We look forward to sharing additional data from the QWINT program later this year. We are pleased with our progress to provide breakthrough innovation to patients who require insulin, progressing our glucose-sensing insulin receptor agonist molecule in Phase 1 and investing in approaches aimed at disease modification for type 1 diabetes, such as — cell therapy. In other late-phase updates, we’ve initiated Triumph outcomes, a Phase 3 trial evaluating cardiovascular outcomes and renal function for patients taking retatrutide. Earlier in our cardiometabolic pipeline, you’ll see additional incretin molecules in Phase 1.

Incretins are an important part of our portfolio strategy and having multiple molecules in clinical development offers us potential optionality as we look at opportunities to help patients across mechanisms, indications, dosages, formulations and treatment schedules. To highlight a few. GLP-1 NPA2 is a small molecule non-peptide agonist of the GLP-1 receptor designed for once daily oral administration. We expect this asset to move to Phase 2 later this year, so we now identify it on our pipeline slide whereas it had previously been listed as not disclosed. Given the diversity of indications to potentially pursue with incretins, we are excited about the possibility of having another oral option to help more patients with different diseases. We also highlight today the GLP-1 coagonist III, which is a next-generation dual agonist molecule and we are planning to explore weekly and monthly dosing given its longer halfway.

Elsewhere in our cardiometabolic health portfolio, we have stopped development of our NRG4 agonist as the profile was insufficient for further clinical development. Turning to oncology. We are pleased that Jaypirca has now been approved in Japan for people with relapsed or refractory mantle cell lymphoma who are resistant or intolerant to other BTK inhibitors. In early phase oncology, we’ve initiated the Phase 1 trial for a second Nectin-4 ADC. We view this as an important target and having two compounds in the clinic provides more opportunities to improve outcomes for patients. We’ve also initiated a Phase 1 trial for our ADC targeting the folate receptor. This asset, which came from our acquisition of Mablink is the next-generation construct design — efficacy at all fully receptor expression levels and with an improved therapeutic index relative to existing agents.

We’re also announcing that we’ve terminated the LOXO-783 program, which targeted PI3 kinase alpha. We evaluated the ongoing clinical data from the program and compared the molecule to next-generation candidates that we have progressed from our discovery efforts. We believe our next molecules have greater potential to benefit patients and we look forward to putting our next candidate into the clinic in 2025 and sharing more about its profile later this year. In immunology, we’ve now submitted mirikizumab for the treatment of moderately to severely active Crohn’s disease in Japan. We’ve terminated development for our GITR agonist, antagonists due to insufficient efficacy. We also announced our acquisition of Morphic. And pending completion of the deal we plan to reflect the oral alpha-4-beta-7 integrin inhibitor, MORF-057, in Phase 2 for ulcerative colitis and Crohn’s disease.

Finally, in neuroscience, our anti-tau small molecule OGA inhibitor, recently concluded its Phase 2 study in early symptomatic Alzheimer’s disease. OGA failed to meet the primary endpoint of decreasing the change of baseline as measured by — in either of the two dose levels tested. We’re reviewing the data for presentation of detailed results of the study at the clinical trials in Alzheimer’s conference later this year. While this negative outcome is disappointing, we remain committed to TAP as a high conviction target in Alzheimer’s disease and plan to continue studying Taobao. I’ll now turn the call back to Dave for closing remarks.

Dave Ricks : Thanks, Dan. Before we go to Q&A, let me briefly sum up our progress in the second quarter. Exceptional revenue growth in Q2 was driven by Mounjaro, Zepbound and Verzenio. We are pleased with the ramp in production in the first half of the year and expect continued expansion ahead. Significant advances in our pipeline include the approval of Kisunla for Alzheimer’s disease, the submission of tirzepatide for moderate to severe obstructive sleep apnea and obesity in the U.S. and Europe and positive results from the Phase 3 study of tirzepatide for heart failure with preserved injection fraction and obesity. We are investing in product launches, the advancement of our pipeline as well as our ambitious manufacturing expansion agenda.

All of this and the incredible work of our teams around the world give Lilly leadership confidence that we have a very bright future ahead and better opportunity than at any time in our company’s history to impact human health on a global scale. Now I’ll 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. [Operator Instructions]. So, Paul, please provide the instructions for the Q&A, and we’re ready for the first caller.

Q&A Session

Operator: [Operator Instructions]. And the first question today is coming from Seamus Fernandez from Guggenheim. Seamus your line is live.

Seamus Fernandez: Great. Thanks so much. And just I’ll stick with my one question. It really is on your awareness of ASP movements in the market, so the average selling price. By our calculations, when we sort of look at the ASP averages, removing rebates, inventory, et cetera, relative to comments made yesterday on Novo’s call, I’m just trying to get a better understanding of what you’re seeing in the market with regard to average selling price. The prices look actually reasonably close to us with the tirzepatide franchise having higher sort of ASP per script, but not dramatically higher given concerns of real pricing deterioration. I guess the only question that I have here is, what are you seeing from an ASP perspective? And do you see this as kind of a natural evolution of this market as competition emergence as we saw with Ozempic historically and Trulicity in 2019? Thanks so much.

Joe Fletcher : Thanks, Seamus. I think I’ll go to Gordon. Do you want to touch on that, or Patrick?

Gordon Brooks: Sure. I’ll hang — with that. Seamus, thanks for the question. Yes. So just on price streams, initial favorability in the first half of the year was driven by Mounjaro. That goes away in the second half of the year as the co-pay program moves out of the base period. In terms of pricing, we see stable pricing sequentially across quarters in ’24. So, nothing unusual, Q1 to Q2 and our guidance Q3 and Q4 continue stable sequential pricing. For the second half of the year when you don’t have the Mounjaro dynamic pricing in the second half will be similar to prior year pricing. So those are kind of the dynamics we see in pricing.

Operator: The next question will be from Terence Flynn from Morgan Stanley. Terence your line is live.

Terence Flynn: Great. Thanks for taking my question. Congrats on all the progress on the manufacturing. Maybe just a two-part for me on that one. Just wondering if you’re unit guidance for the at least 1.5-fold increase in sellable doses include the Zepbound bound star vials that you’re rolling out in the U.S. or if that’s a potential driver of upside? And then as we think about RTP, I know you continue to make progress there. The scripts suggests you’re at about 1/3 of the way through the ramp to peak. But this inventory restock that you talked about today suggests maybe more of a meaningful step-up. So just can you quantify for us where you are in the ramp in RTP? Thank you.

Joe Fletcher : Yes, sure. I think, Dave, do you want to hop in and…

Dave Ricks: Yes, I can just can — So I think what we’re saying today is just reiterating the 1.5 is sort of like a floor on how we think about second half volume. I would say the vials are part of that. But given the — we have about 20 weeks left in the year. So, there’s a limit to how much of that will ship anyway. But they certainly open up a node of the most constrained part of the supply chain, which is still finish in the final container closure and it uses different lines obviously, then syringes or cartridges. So, it just adds to our capacity, probably the most meaningful part of that will show up in the early ’25 to be honest, as that new form ramps and details on that rollout will be coming in the coming weeks. As it relates to RTP, I wouldn’t read through that the Q2 step-up in volume we shipped was primarily to RTP.

That site is on track, and we are steadily escalating production per our goals. I also mentioned Concord is doing well against its time schedule, and we expect product out of that site end of this year, early next year. But rather, maybe performance out of the totality of the network that allowed us to recover wholesaler inventory levels in Q2 and now come off the FDA shortage list. It’s more just overall performance across many, many nodes of our supply network.

Operator: The next question will be from Chris Schott from JPMorgan. Chris your line is live.

Chris Schott: And congrats all the progress. There seems to be a broader debate on the role emerging earlier-stage competition in the obesity market could play where that fits in the market broadly. I’m sure you’re not surprised by the breadth of agents being developed in the space. But just interested in your latest views in terms of barriers to entry you see for some of these newer competitors and how you think about defending Lilly’s market position over time? Thank you.

Joe Fletcher : Maybe, Dan, do you want to start on that? And then…

Dan Skovronsky: Yes, I’ll start some R&D comments on BarCentry. The first, I think, is having a successful drug in Phase 3 clinical trials and getting it approved. You can see that we’ve invested thoroughly, I would say, in our Phase 3 portfolio is often pursuing multiple indications in multiple populations at once. Just being able to get to that point, I know investors have gotten excited about various releases of Phase 1 data. But it’s still a challenging space to develop drugs and we usually wait until we’ve seen pretty robust Phase 2 data before we get too excited about a particular molecule. So that’s the first thing. And I think a lot of the news we’ve seen from different companies only sort out as we get to see Phase 2 data and which molecules make it and which have the right profile and which don’t. But I wouldn’t be expecting 100% success here.

Patrik Jonsson: A few additional comments. I think when we look at the marketplace, about two are very important barriers. We have been extremely successful in gaining access across both Mounjaro, where we are currently 93% access in commercial and 89% in Part D. And similarly, for Zepbound, 86% after 7 months in the marketplace, that’s quite significant. The second piece is the amount of outcome indications. We are investing heavily in both Mounjaro and Zepbound, and similarly for the Phase 3 assets of our Zepbound and retatrutide. So, I think, overall, we think that we are extremely well positioned to compete here. And we are not surprised to see that most of the firms are actually leaning into this very important space. But with the cost we have not had in the market today, the Phase 3 assets and what we referred in the prepared remarks, we are well positioned to compete today and tomorrow.

And that — both different indications, assets Gene [ph] therapy, et cetera, all hands-on deck on our side.

Dave Ricks: Maybe one last thing — follow-on. But here, we’re highlighting our [indiscernible] 11 assets, all different targets. And maybe just a reminder, Chris, we had our Phase 1 MAD data for tirzepatide in 2016, that was 8 years ago. And that’s a massive lead, I think, over other GIP/GLP agonists that are behind us. On the oral side, you can get more in category differentiation based on target engagement, safety profile, et cetera. But here, again, we have the most advanced program, and as Dan highlighted today, a follow-on program to add to that sort of portfolio we have there. And finally, one other, I don’t know if it’s barrier, but certainly is work to do is scaling manufacturing. The volume is really high in this category, probably will end up being one of the highest volume categories in the history of the industry.

And you’re talking about making things on the $1 billion scale, which takes time and it’s technically difficult and very capital intensive. So of course, competitors will come. But there’s a road ahead for all these that — the two leading companies have already walked in large part.

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

Tim Anderson: I have a question on compounders of GLP-1s, including, but not limited to, your tirzepatide. So, companies like IMS or anyone else. How can this not infringe patent protection? And is this something that is likely to get adjudicated in the courts, meaning the you and presumably Novo, too? So, an article just yesterday in New York Times talked about patients getting upside down with compounded GLP-1s. I think they used the term overdosing on these compounded formulations. So not only do compounders take away sales from you guys, but it could also turn — reputation of the class. So, what can we expect Lilly to do about it?

Joe Fletcher : Thanks, Tim. Dan, you want to start with some comments?

Dan Skovronsky: Yes. Thanks for raising this important topic, Tim. Of course, we’ve been watching this carefully, not really out of concern that they’re taking away our business. We’ve been largely supply constraint here, but rather the impact it’s having on patient health. We often are able to secure samples from these kinds of compounding labs and analyze them in our own labs. And what we found for the most part, in most instances is this isn’t kind of tirzepatide at all. Our drug is not available to compounders, rather they’re purchasing either other chemicals entirely, which we often find or make producers of tirzepatide that is often full of impurities sometimes contaminated by bacteria. This is a safety risk to patients that we take seriously and try to think we can to make patients aware of the potential dangers here so that we can help.

Dave Ricks: Yes. And just from a policy standpoint, I mean, you can expect us to be active here. We’ve taken public positions. We’re obviously engaged with regulators and considering all kinds of legal actions and filed some. Of course, compounding is a long-standing practice under the 503A provisions of FDA, which is meant to customize doses for individual patient needs that we don’t — it’s not clear to me medically what that would be for tirzepatide. But I guess that’s legal in a sense. It’s the mass production that’s concerning. And we don’t see a lot of that with our medicine more with the other one. But I think if we just step back and reflect them why the — there’s shortages because of parenteral manufacturing constraints in the industry and the lead companies.

A lot of that constraint is investing and proving those processes are compliant with the GMP standards that the FDA and Europe or NX1 have enforced. And we agree, by the way, with that strict enforcement. So, it’s a little odd that the answer to that constraint, which is about raising the standards of the industry to a sterile product is to create another industry that is non-sterile product. So, we’re just pointing that out. And I think you can see Lilly on the front foot here over the coming months to address this. But ultimately, the real thing to address is the increasing coverage on insurance and increasing supply. We — drive on supply. We’ll step that up another notch with the availability of vials, and we need to work with primarily the government as well as employers to expand coverage.

So OBC medicines are affordable. People when we get to those points, this will be an issue. But in the meantime, people can get hurt. And as Dan said, it’s pretty concerning what’s happening.

Operator: Next question will be from Umer Raffat from Evercore. Umer your line is live.

Umer Raffat: Thanks for taking my question. I want to ask on operating leverage, if I may. I know in the first quarter, when you guys raised the guidance by $2 billion on top line, it dropped down to EPS by $1.30. This quarter, guidance went up by $3 billion, but it dropped down at a much higher leverage at $2.16 EPS, almost a 90% incremental margin. And my question is not so much what your operating leverage is going to be in 2025 or a forward year guidance. But instead, I’m basically asking if you annualize the momentum of your 4Q numbers per this year’s guidance, the EPS upside implied to consensus could be almost as much as half of Lilly’s entire full year EPS where it stands right now. So, I’m just trying to think through, how do you plan on spending on various functions and what the incremental margins could look like as the revenue momentum really kicks in with the improving supply?

Joe Fletcher : Thanks, Umer. There’s a lot of financial mechanics. So, I’ll hand to Gordon to comment on, I think, effectively capital allocation considerations.

Gordon Brooks: Good. Thanks. Appreciate the question. Yes, I mean, we’ve been speaking for a long time about operating margins and getting to the mid- to high 30% range. As we’ve seen this year, Mounjaro and Zepbound are taking an inflection point upwards and so we’re seeing ourselves at the top end of that range. For the first half, margins are a little inflated. We haven’t yet lend in to all of our promotional channels and incretins. You don’t see, for instance, TV commercials in the incretins. We haven’t done that looking at the — given the supply situation. And in R&D, it takes time to scale R&D thoughtfully. So, it doesn’t always move exactly in sync quarter-by-quarter with revenue. That said, our guidance for the year does indicate we will stay in the upper 30% range for the full year, with growth first half, if you look at the first half, as the two quarters’ growth into the second half.

And you should also expect to see within that mix, stronger sales and marketing growth as we get to new launches in the second part of the year and the R&D continue to scale the growth from what we’ve seen thus far. So those are the dynamics we see on operating margin for 2024.

Operator: The next question will be from Mohit Bansal from Wells Fargo. Mohit your line is live.

Mohit Bansal: Great. Thank you, very much for taking my question. Congrats on the quarter. My question is regarding the rest of the world sales for incretins. It seems like Mounjaro is doing quite well there. And if I take out the — like 15% or so for stocking in the U.S., it seems like ex-U.S. is already about 33% this early in the launch. So, I would love to understand how has been your experience so far? And is there going to be any different uptake for ex-U.S. versus your prior generation incretins for both Mounjaro and Zepbound given that these are really efficacious drugs?

Joe Fletcher : Yes. Thanks, Mohit, for the question. Ilya, do you want to comment on OUS rollout for Mounjaro?

Ilya Yuffa: Sure. Thanks, Mohit, for the question. We’ve seen some great progress with the launch of Mounjaro outside of the U.S. I think what you’ve seen in terms of growth in the earlier launch countries, such as the U.K., UAE and Saudi, UAE and Saudi are both key markets that make up rest of world, have already achieved a leading share and continue to drive momentum and overall market growth. And so, as you take a look at Q2, the main driver of that growth has been in Mounjaro in markets where we’ve already launched earlier in the cycle and majority of that coming from the Quick Pen presentation with a lot of that in the UAE. Some of that is channel dynamics similar to the U.S. At the same time, if you take a look at Q2 and the trajectory for Q2 relative to historical peak sales of any of our brand, has already surpassed that with a limited number of markets where we’ve launched.

And so, as we look at the coming quarters, obviously, we just recently launched in Germany and now also Spain with Quick Pen presentation. We’ll also look and monitor the demand and also supply capacity and expect to launch in new markets. The near-term growth, I would expect predominantly coming from already launched markets of Mounjaro.

Operator: The next question will be from Alex Hammond from Bank of America. Alex your line is live.

Alex Hammond : Thanks for taking my question. In the prepared remarks, Dan mentioned engagement with regulatory authorities on a potential pivotal trial in NASH. Can you provide any color on these discussions and how Lilly is thinking about tirzepatide versus — for this indication? When could we receive updates? Thank you.

Joe Fletcher : Dan?

Dan Skovronsky: Yes. Thanks for the question. We’re really excited about the opportunity to help patients suffering from NASH. I think the data that we shared in Phase 2 for tirzepatide appetite is really quite profound in terms of the size of effect we can have. There’s a couple of issues in mass drug development that we’re trying to tackle, probably the most significant of which is current standard of liver biopsy to identify the patients to enroll in these trials and also then measure the outcome. Liver biopsy is obviously an invasive procedure and difficult to find patients to consent to these trials and of course, there’s risk to patients. We’re working hard to develop noninvasive biomarkers that can be used to identify the right patients to enroll in mass studies and also potentially could be used as an outcome to know if a drug is working.

My hope is that we could develop those kinds of biomarkers that could be used both purposes and could be suitable for accelerated or approval of mass drugs in the future. Of course, long-term traditional approval for Astra still requires demonstration of outcomes. So, in that environment, we have two drugs that I think could both be great mass drugs and we’ll have to decide whether to invest in one or both of those drugs, depending on the regulatory path we see. We’ll keep investors updated as we make decisions about these molecules in mesh.

Operator: The next question will be from Evan Seigerman from BMO Capital Markets. Evan your line is live.

Evan Seigerman: Hi, guys. Thank you so much for taking my question. I wanted to touch on manufacturing and specifically, on the concern that you raised back in February around the proposed acquisition of Catalent by Novo Holdings and the subsequent sale to Novo Nordisk. Are you still as concerned as you were in February? Or given what you’ve been able to do with your own footprint? Is this less of an issue?

Dave Ricks: Yes, I can take it. We remain concerned about that transaction. I don’t think it was ever really about the trajectory of our ramp, although as we’ve disclosed, we do rely on one of the Catalent sites for GLP-1 and other diabetes production. It’s more the oddity of your main competitor being also your contract manufacturer and how to resolve that situation. There’s also an industry structure issue. CDMOs are important for managing capacity across the sector. And if we ended up in an outcome where that sector didn’t really exist, they all became captive of large pharma would really constrain, I think, availability in the development of medicines, particularly out of biotech. So, we’ve aired those concerns publicly and privately since the proposed transaction was announced, and we’re waiting to see what happens.

But in terms of the long-term outlook for our company, as you may have noticed, we’re building aggressively ourselves. Our primary strategy is self-run sites. And we’ve got $18 billion we’ve announced in the last several years, probably not done there. And we’re quite comfortable building operating sites and as the newest large sites of begun to come online, we know we can execute that drill and repeat it, and that’s our base plan.

Operator: The next question will be from Dave Risinger from Leerink. Dave your line is live.

David Risinger : Let me add my congrats on the results as well and the corporate updates. So Zepbound’s breadth of health and work or productivity benefits seem to be underappreciated by many. There are articles from time to time, let’s say, that patients need an off-ramp from therapy, et cetera. And my question is, what is Lilly doing to encourage patients to stay persistent with therapy? And how does Lilly intend to better communicate not just Zepbound’s health benefits, but its worker productivity benefits to employers in order to drive much greater employer inclusion of obesity drugs as part of employee benefits?

Joe Fletcher : Thanks, Dave. Patrik, do you want to comment on persistency and benefits?

Patrik Jonsson : Absolutely. I think first overall, when we look at persistency, it’s very early after the launch. But based on the feedback we have from providers, and from patients as well, this is a drug that patients want to stay on because they experience the benefits — weight loss and also the downstream implications on comorbidities. You’re right, the employee opt-in efforts are extremely key, and we believe that our outcome data, OSA, now have — will help us tremendously and more readout to come over the coming years. We’re also having value-based agreement with several other payers where we are looking into the benefits of tirzepatide in the workplace in terms of reduced absentees, increased productivity, et cetera, as well and that has gained a lot of interest.

In terms of the consumer, yes, the ease to start and stay on is a key priority for us. And then we’re working with consumer, improving our consumer platforms and also digital channels to really enable patients to experience the benefits that Zepbound provides over time.

Operator: The next question will be from Kerry Holford from Berenberg. Kerry your line is live.

Kerry Holford : Just coming back to the margin question earlier, given another expense in the 2024…

Operator: Apologies team. We will get Kerry reconnected with a better line momentarily. And we’ll move on to the next question, in the meantime, if that’s okay from Chris Shibutani from Goldman Sachs. Chris your line is live.

Chris Shibutani : With all the different oral mechanisms in particular, variations on it from yourselves as well as competitors, can you update us on your thinking on what the basis of competition is going to be? And what kind of opportunities do you really envision? I think there has been for a while now a comparison on the basis of percent weight loss, particularly for the injectables. But as we move into orals, it seems as if tolerability profiles really matter. So how are you thinking about it? And how do you recommend investors think when we compare datasets across these other oral products in development? Even if the mechanisms are different, how do we get smarter about differentiating and interpreting data?

Joe Fletcher : Dan, you want to chime in?

Dan Skovronsky: Yes. Thanks. I’ll start, and then we’ll see Patrik to anything to add on commercial differentiation. But in the clinical trials, I think first of all, as I’m saying before, just take some caution on the small short Phase I trials. There’s more to see. Most of the drugs that we’ve seen actually aren’t different mechanisms that are GLP-1 agonists. In this class, I don’t expect there to be differentiation in terms of efficacy, weight loss. You can pretty much dial in the amount of weight loss you want depending on how aggressively you dose it and what population. Tolerability is another issue that usually comes along with the efficacy. The faster you ramp to higher doses, the less tolerability you have. Then the different companies have to work through their own escalation of dosing to match the desired efficacy with some reasonable tolerability.

The variable that links those two things together is often the half-life of the molecule. So shorter half-life molecules will give you bigger peak trough — in the pharmacokinetics of the drug. And we think that’s what — that drives the tolerability issues. So, what you want is a long half-life molecule that can be dose escalated more smoothly. So that probably will be the differentiation rather than anything that companies are currently talking about in terms of efficacy. As I said before, it’s a long road from early data to Phase 3 clinical trials like we have with orforglipron and we can expect some attrition. I’m pretty excited also about next-generation molecule. All of these ones that we’ve been talking about now are GLP-1s and will offer efficacy sort of in the range of injectable semaglutide.

I think ultimately, we’d like to see drugs that offer efficacy and tolerability that exceeds that things that could combine multiple incretins like tirzepatide does and we are certainly working on orals that could also agonize GIP-1, for example. So exciting progress there and more to come on that in the future for us.

Patrik Jonsson: Just from a commercial point of view, we are regularly conducting both consumer and provider market research. And when we’re looking into the preferences, the true drivers today is still the degree of weight loss and safety and tolerability. And when we look at the needs beyond that, it’s actually the need of an oral, and an oral with an injectable-like efficacy. So that’s probably the new that comes beyond what we’re currently serving today and particularly to serve those patients that have a fear of injections. When we look at over aspects, I think what comes beyond that would be the compensation of weight loss, lean mass versus fats and durability. And I think we are looking into all of those aspects as well.

Joe Fletcher : I know we’re running short on time. So, we’ll do our best to kind of compress our answers as we get through as many questions as possible.

Operator: And we have Kerry Holford from Bernberg reconnected. Kerry your line is live.

Kerry Holford: Hopefully, you can hear me better this time around.

Joe Fletcher : Much better.

Kerry Holford: Lovely. My question was on margins. So, given you are now landing — expecting to land in that mid- to high 30s range this year — after the Zepbound launches, where can we expect your midterm operating margin plan? Is the margin in the mid-40%, perhaps higher achievable? And Dave, I know you previously suggested that an operating margin above 40% is not sustainable from an innovation-focused company. But given your progress so far, I wonder if you’ve changed your view on that.

Joe Fletcher : Gordon, do you want to touch on that briefly?

Gordon Brooks: Will do. Thanks, Kerry. I appreciate the question. Yes. I think as we said, like dance, as I said earlier, we do expect to end in that upper 30s range this year. There’s still a lot at play here. Yes, on the top line, we see inflection points on revenue. But through the first half, you’ve had an inflated position. We haven’t yet leaned in to any of our promotional channels. That’s going to be a dynamic that we lean to more starting in the second half. And R&D, we do intend to scale that, and that’s not going quarter-by-quarter exactly in line with revenue. So, all of those things are still going to play through. I think that said, at this point, we’re just talking about 2024. And when we do guidance for ’25, we’ll chat about the longer-term picture there.

Operator: The next question will be from Akash Tewari from Jefferies. Akash your line is live.

Akash Tewari : So, we’re starting to see that — may not be the only way to kind of preserve lean muscle mass. In particular, it looks like Amlin GLP combos are showing the potential for maybe 90% versus 10% fat versus muscle loss. Can you talk about what you think Aloralintide to Zepbound combo could show both in terms of absolute weight loss, but also the quality of that weight loss? And then where would — fit in a world where next-gen — triplet could show that level of muscle preservation?

Joe Fletcher : Dan can focus on that first question about oral [indiscernible].

Dan Skovronsky: So, we have multiple mechanisms in play here, starting maybe with the amylin. We have a molecule Phase 2 called Aloralintide, which is a pure AML agonist, and we’re evaluating that both as monotherapy and in combination with tirzepatide GLP clip. So that will be interesting to see. I don’t have a strong preconceived notions about what to expect in terms of lean versus fat mass loss with that particular combination. Probably the people who have the most data about that would be the scientists at Novo since they’ve investigated cricalutide in combination with semaglutide. I think that brings us probably to another mechanism, which is dual amylin calcitonin agonism, which crugilatide probably is a dual agonist, and we have a molecule like that in Phase 1 called DACRA and we’ll also investigate that and composition of biomass will be one of the aspects in which we evaluate it.

And then finally, you talk of myostatin, we have a molecule in this family, and that’s the bimagrumab that we acquired from Versatis, which is an antibiotic — and that’s proceeding in a Phase 2 trial in combination with semaglutide. And we look forward to having data to share with that in the future. All of these mechanisms, I think, could have variable effects on body mass composition. I point out that so far, we’ve not seen any disadvantages to the types of weight loss that we get with tirzepatide. In fact, patients show improved functional outcomes on a variety of things, including fruit function and heart failures we just demonstrated. So, could we have further improvements with even more higher ratio of fat to lean mass? That’s the question of these trials makes

Operator: The next question will be from Trung Huynh from UBS. Trung your line is live.

Trung Huynh : Thank for taking my question. Just following on from the previous question on ex-U.S. GLP-1. You saw Mounjaro ex-U.S. sales this quarter jumped to $677 million from $286 million. Can you give us some color on how ex-U.S. reimbursement is going with the bigger countries? And is this more of an out-of-pocket drug in these countries? And what percentage of the 677 million is obesity sales versus diabetes?

Joe Fletcher : Okay. On that second one, I don’t think we’ll probably give much of a good answer on that. So, I’ll maybe ask Ilya to weigh in just on that first question around how ex-U.S. reimbursement is going.

Ilya Yuffa: Sure. Well, of course, I think the momentum overall is progressing quite nicely in both the reimbursed as well as the out-of-pocket segments. We have achieved reimbursement in the U.K. We have reimbursement in Germany, and we’re continuing to look for reimbursement and expand reimbursement in other markets that we’ve launched. We have some reimbursement in UAE in Saudi as well in type 2 diabetes. And we continue to expand on that in the markets that we will enter. But a lot of that momentum is covering both the Type 2 and chronically management market and both in the reimbursed and out-of-pocket segment, and we’re seeing both the progress in share as well as market expansion in the markets that we’ve been in.

Joe Fletcher : Thanks, Ilya. Paul, I know we have a lot in the queue. Maybe we just have two more questions and then wrap things up.

Operator: The next question is coming from Steve Scala from TD Cowen. Steve your line is live.

Steve Scala : Thank you so much. The FDA definition of shortage seems clear and tirzepatide no longer meeting the definition of shortage seems to imply Lilly is meeting demand. I assume you will say that that’s not the case, but the definition at least in black and white is quite clear. I assume this is FDA’s determination. So, does Lilly agree with FDA’s conclusion? How is demand being met? How is demand being measured? And what does demand look like?

Dave Ricks : Yes. Thanks for the important question. As we think about the compounding question is important as well. As we’ve said earlier, we’re available in all dosage forms in the U.S. What that means is, as you know, we can fill orders as they receive versus what we’re doing. That does not mean that any pharmacy or certainly every pharmacy has all 12 dosage forms sitting on their shelf. That’s infeasible economically probably for a lot of them and even logistically. So, I think we’ll continue to see because there’s not an abundance of supply. It’s more of a real-time fulfillment situation, patients going to pharmacy counters and being told to wait a few days while their orders filled. But product is flowing and it’s flowing at a pretty high rate.

We’re shipping part of it, and you can see that in these results from the quarter. So, files will add to that picture, but demand will increase as well. So, I think we’re doing well given the situation. But the end pharmacy experience will continue to be choppy. We point that out to the FDA. So that means people may call and say, I couldn’t get what I want on the moment I wanted it at the pharmacy I choose to. That’s not the definition that we think applies here. So, we’ll continue to with channel partners and the agency to try to clear up the confusion and improve the consumer experience, which is our responsibility along with theirs.

Operator: Last question today will be from Louise Chen from Cantor. Louise your line is live.

Louise Chen : Thank you for taking my question. I wanted to ask you how excited you are about this muscle preserving obesity drugs and if you see that as a true unmet need?

Joe Fletcher : Thanks. Dan, anything to add on?

Dan Skovronsky: Yes. No, thanks for the question, Lisa. I think it’s an interesting area of science for sure. Too soon to know exactly how these kinds of mechanisms will translate into benefits for patients. At a high level, we know that the ratio of lean mass to fat mass is really important in determining metabolic health, probably more important as an indicator of overall metabolic health than, for example, BMI. And so that’s what spurs these kinds of efforts to increase lean mass while causing fat mass loss and we’ll wait to see data from our own donanemab and wait to see how that translates into health benefits for patients.

Joe Fletcher : Great. So, I think we’ll wrap up. Dave, closing remarks.

Dave Ricks : Great. Thanks, Joe, and thanks to the team here. We appreciate your participation in today’s earnings call and your interest in Eli Lilly and Company. Please follow up with the Investor Relations team if you have any questions we didn’t address, and it sounds like there’s a few that are holding. Happy to answer all of those. Have a great day, everyone.

Operator: Thank you. And ladies and gentlemen, this does conclude our conference for today. This conference will be made available for replay beginning at 1:00 p.m. today running through September 12 at midnight. You may access the replay system at any time by dialing (800) 332-6854 and entering the access code 297484. International dollars can call (973) 528-0005. [Operator Instructions]. Thank you for your participation. You may now disconnect your lines.