Eli Lilly execs on Q2 call discuss Japan opportunities, China slowdown

Eli Lilly CEO John Lechleiter

For the second quarter Eli Lilly ($LLY) on a July 23 earnings call heard John Lechleiter, chairman, president and CEO, and his team provided upbeat talk about opportunities in Japan. But there was also some of the same comments heard from Johnson & Johnson ($JNJ), Abbott ($ABT) and Novartis ($NVS) on China's slowdown.

Lechleiter and the other executives took time to give quite a bit of background on Japan, including that the company would soon submit ixekizumab for approval, which came on a solid quarter of approvals in the country across products.

Chief Financial Officer Derica Rice filled in the details on Japan and a little further afield.

Eli Lilly CFO Derica Rice

"You will also see that we updated the regulatory submissions category to reflect Japanese submission for ramucirumab for second-line metastatic colorectal cancer, and European submission of ixekizumab for psoriasis. As we announced on our ixekizumab investor call, we've added an event to our key event list for the simultaneous submission of ixekizumab in Japan for both psoriasis and psoriatic arthritis," he said.

"You will also see new check marks to reflect three approvals John discussed earlier, Japanese approval for ramucirumab in second-line gastric cancer and Dulaglutide for Type 2 Diabetes, and in the US approval for Humalog U-200 KwikPen. Finally, in the other section, you'll see a green check mark for the positive Alimta ruling from the U.K. Court of Appeal, and we now have a date for mid-November for the appeals hearing at the European Patent Office."

Lechleiter also noted the company has started promotion of Cyramza for gastric cancer in Japan, as well as submitted an application for a second indication in second-line metastatic colorectal cancer.

The company also received approval in the country for Trulicity, a once-weekly GLP-1 receptor agonist for the treatment of Type 2 diabetes, and has a sales collaboration agreement with Sumitomo Dainippon Pharma for the therapy.

Enrique Conterno, president of Lilly Diabetes, chimed in later that for Trulicity, the "overall expansion of the GLP-1 class is critical for us" and the initial numbers from the U.S. are promising.

"When it comes to Japan, this is even more true. Just because in Japan the GLP-1 class has the lowest penetration in Type 2 diabetes of any major market."

The overall moves in Japan are also reflected in the performance, according to Phil Johnson, head of investor relations.

"In Japan, pharma revenue increased 14% in total, while on a constant currency or performance basis, it increased 37%," Johnson said on the call.

"The size of this increase was influenced by a weak comparison period. Recall that in Q1 2014, we experienced substantial wholesaler buying in advance of an increase in the local consumption tax, which led to a corresponding reduction in wholesaler buying in Q2 2014. Consequently, the performance growth of 10% for the first half of this year is more reflective of the underlying trends in Japan."

In April 2014, Japan raised its sales tax as part which saw many companies see sales booms across industries before it took effect, and a slide in the immediate quarter afterwards.

But Johnson also noted that emerging markets did not do as well.

"We saw a revenue decline of 15%, driven by a negative foreign exchange effect of 12%," Johnson said of emerging markets.

"On a performance basis, emerging market sales declined 4%, driven by lower sales in China and the negative effect of the Brazil humulin tender we had last year. This quarter, our pharma revenue in China declined 16% driven by lower volume."

Chito Zulueta, senior vice president and president of emerging markets, then confirmed the news on China.

"I'm sure you've heard from other companies, there has been a pretty significant drop in the market growth in China," he said.

"I think as we all recall from the mid-teen growth in the last few years, year-to-date growth is somewhere around single-digit. And if you look at the multi-national cohort of companies, I think May was around 2% growth over the same period last year. Now I think the primary factor that's driving the slowdown is really some government initiatives and policies that are curtailing volume growth. And we're seeing more hospitals and institutions shifting to lower price generics. So we see this continuing at least in the short-term, as the risk pressure within the national government to curtail expenses."

And Zulueta said to expect more cost trimming to come.

"I think you'll see more pressure on pricing, particularly for off patent brands," he said.

"Now we need to balance that with a medium-term opportunities and long-term positive opportunities in China."

"If you look at our patented products, we're very pleased to see strong performance from Cialis growing at 23%, Forteo growing at over 50%. And our ... analog insulin business in China is growing 12% year-to-date. Now we're getting significant pricing pressure on the human insulin side, where local companies are beginning to win the provincial bids. But once again, we anticipate pressure in the short-term, but we're very confident that the medium- to long-term prospects remain very, very positive."

- here's the release and presentation