Dave Ricks Shares Thoughts on 2019
Dave Ricks ?|?March 20, 2020
To our Lilly shareholders:
I am pleased to report that 2019 was a strong year for Eli Lilly and Company. We delivered solid financial results, developed and launched important new medicines, and made progress on our productivity agenda. The most meaningful metric for Lilly – the number of people our medicines are helping – totaled more than 40 million in the past year alone.
While this figure is remarkable, the ease with which people can access innovative medicines varies widely around the world. In the U.S., broad access to the latest treatments can be constrained by complicated or narrow insurance benefits that reduce affordability. In other advanced economies, countries sometimes ration new treatments to fund the obligations of government-run health programs. And in developing countries, nascent health systems struggle to allocate limited resources between care for acute and chronic diseases.
These issues are complex, but we have solved difficult challenges before. As a company that has been in business for 144 years and invests more than $5 billion annually in research and development (R&D), we are in this for the long haul. We understand the importance of adapting, evolving and improving while remaining firmly grounded in our core values: integrity, excellence and respect for people. With these standards as our guide, we will continue to find effective ways to partner within and across health systems with the aim of facilitating patient access to the latest treatments, regardless of income level or geography.
We have made progress, but we know there is still much to do. As we transition to a new decade, our pipeline and commercial successes will serve as a springboard for sustained growth and productivity. With strong new product growth and limited patent exposure, upcoming data readouts for key growth drivers, and additional potential approvals and productivity improvements in the works, it is an exciting time for Lilly and the people we serve.
Thanks to the work of our more than 33,000 employees, Lilly’s revenue grew 4% to $22.3 billion in 2019, driven by volume. Despite the lingering impact of the loss of exclusivity for Cialis, sales volume rose 8% while net selling price declined 3%. Our key growth products, including Trulicity, Taltz, Verzenio, Jardiance and Emgality, continued to drive impressive worldwide volume growth.
During the past year, we’ve made strides toward leadership in each of our therapeutic research areas: diabetes, oncology, immunology, pain and neurodegeneration. We continued our unprecedented pace of launching new medicines and improved manufacturing productivity. We’re on track to meet our goal of 31% non-GAAP operating margin by the end of 2020, even as we increase investments in R&D.
To this end, we are focused on strengthening the efficiency of our R&D engine. 2019 produced significant advancements, as we:
received U.S. approval for two new medicines, Reyvow and Baqsimi;
obtained new indication approvals for Trulicity, Taltz, Emgality and Cyramza;
added four new Phase 3 clinical programs to our pipeline, all with potential to be first-in-class or best-in-class;
reported 12 positive Phase 3 or registrational trial readouts, including a mix of new molecular entities (NMEs), new indications or data for launched products; and
submitted 12 NMEs or new indications for regulatory review in geographies around the world.
In 2019, Lilly invested more than $13 billion to drive our future growth through a combination of business development, capital expenditures and after-tax investment in R&D. We returned approximately $7 billion to shareholders via dividends and share repurchases and announced a 15% dividend increase for the second consecutive year. And over the past five years, our annualized total shareholder return has averaged 16.7%, compared to 11.7% for the S&P benchmark.
From our company’s earliest days, we have actively engaged with our partners in health systems around the world to ensure that our medicines can reach the people who need them. One way we do that is through value-based contracts, in which the price we receive depends on how much our medicines help patients. In the U.S., 20% of revenue flowing through access-based contracts has a value-based component, and we have more than 300 alternative access contracts in other global markets, many of which are value-based.
In the U.S., our success in working with payers and government entities to expand access to insulin and other therapies has been tempered by the realization that the widening difference between list and net prices is not sustainable. Of particular concern are high-deductible insurance plans, which can financially burden patients with chronic diseases. For people who use insulin, we’ve launched lower-priced versions of Humalog, complementing our comprehensive patient assistance programs that seek to lower out-of-pocket cost for people with diabetes like Doug Liebman. You can read his story here.
While these programs are helping, it’s clear that broader, system-wide changes are needed to shift costs away from patients. A potential first step in resetting the financial incentives for each entity in the pharmaceutical supply chain would be to increase the transparency of net pricing and explore its use as the basis for all transactions, including patient cost sharing. The Transparency section of this report contains further insight into how we’re addressing this issue, especially for people with diabetes.
In Europe and Japan, we’re partnering with governments to gather evidence of our medicines’ value to support appropriate use and a fair price. We’re accelerating availability, cutting months to reimbursement in major European markets by more than 50% since 2017. In developing countries, we’re actively enhancing existing health systems while supplying our most essential products in ways that ensure affordable access. You can read more about our important initiatives to improve global health, including Lilly 30x30 and our health worker training program, in the Corporate Responsibility section on page 26 of this report.
2020 is shaping up to be another exciting year at Lilly. We expect to achieve high single-digit revenue growth, exceeding our five-year goals, with more than half of our sales driven by volume of our newer products. We remain committed to further margin expansion while we continue to invest in our innovation-based strategy.
In addition to Reyvow for the acute treatment of migraine, we expect to launch two more new medicines this year: URLi, a fast-acting mealtime insulin for diabetes, and selpercatinib for non-small cell lung cancer and thyroid cancers. Selpercatinib, part of our 2019 acquisition of Loxo Oncology, shrank tumors in the vast majority of study participants, like Tanner Noble, whom you can read more about here.
We’re closely tracking the potential breakthroughs represented by other late-phase assets, including tirzepatide, which has generated encouraging data for blood glucose control and weight loss in people with diabetes, and mirikizumab, which we’re studying in ulcerative colitis, Crohn’s disease and psoriasis. Our early phase pipeline provides a good foundation for future growth, highlighted by new cancer medicines such as our BTK inhibitor (LOXO-305) and our KRAS G12C inhibitor.
Given the life-changing potential of medicines, we consider breakthroughs that lead to greater access just as critical as those that lead to innovative treatments. We bring a strong sense of urgency to ensuring that our medicines are available and affordable for patients who need them.
As we enter the next decade, we see an exceptional opportunity to create new standards of care and accessibility in some of the world’s most serious diseases, advance the boundaries of possibility in biopharmaceuticals, and deliver extraordinary value to patients, other health care customers, shareholders, employees and communities. We will do all we can to realize that potential.
With sincere appreciation for your ongoing interest and support,
Chairman and CEO