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On February 7, 2019 Sanofi reported that it delivers 2018 business EPS growth of 5.1% at CER (Press release, Sanofi, FEB 7, 2019, View Source [SID1234533168]).

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Discover why more than 1,500 members use 1stOncology™ to excel in:

Early/Late Stage Pipeline Development - Target Scouting - Clinical Biomarkers - Indication Selection & Expansion - BD&L Contacts - Conference Reports - Combinatorial Drug Settings - Companion Diagnostics - Drug Repositioning - First-in-class Analysis - Competitive Analysis - Deals & Licensing

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Fourth-quarter sales(3) growth driven by Specialty Care and Vaccines

Net sales were €8,997 million, an increase of 3.5% on a reported basis, 3.9%(3) at CER and 2.6% at CER/CS (4).
Sanofi Genzyme sales were up 37.4% (16.1% at CER/CS(4)), led by Immunology and Rare Blood Disorder franchises.
Vaccines sales increased 9.7%, driven by successful influenza differentiation strategy and Menactra.
CHC sales increased 1.9%, supported by Emerging Markets.
DCV(5) GBU sales were down 11.3%; Global Diabetes franchise sales declined 10.5% in line with 2015-2018 guidance.
Emerging Markets sales(6) were up 6.0%, reflecting strong performance in Asia.
Full-Year 2018 sales growth from new products and Emerging markets more than offset impact of U.S. LoEs

Net sales in 2018 were €34,463 million, down 1.7% on a reported basis and grew 2.5% at CER (up 0.6% at CER/CS(4)).
Sanofi Genzyme grew 30.8% (+14.2% at CER/CS(4)) to €7,226 million.
Vaccines sales increased 2.4% to €5,118 million while CHC sales were up 3.0% to €4,660 million.
DCV(5) GBU sales declined 13.8% to €4,511 million.
Emerging Markets sales were up 7.5%, supported by strong performance in China (up 12.7%).
Sanofi delivers 2018 business EPS at the high end of its guidance range

Q4 2018 business EPS(1) up 4.7% at CER to €1.10.
Full-Year 2018 business EPS of €5.47 up 5.1% at CER and IFRS EPS of €3.45 (down 48.5%(2)).
Board proposes dividend of €3.07, the 25th consecutive increase in dividend.
Key achievements in sustaining innovation in R&D

Isatuximab met primary endpoint of ICARIA phase 3 study in Relapsed/Refractory Multiple Myeloma.
BIVV001 demonstrated sustained high factor levels at once-weekly dosing with data presented at ASH (Free ASH Whitepaper).
FDA Priority Review granted for Dupixent in adolescents with moderate-to-severe atopic dermatitis.
R&D strategy evolves towards prioritization of Specialty Care and Vaccines, leveraging technology platforms and data science.
2019 financial outlook
Sanofi expects 2019 business EPS(1) to grow between 3% and 5%(7) at CER, barring unforeseen major adverse events. Applying average January 2019 exchange rates, the positive currency impact on 2019 business EPS is estimated to be between 1% to 2%.

Sanofi Chief Executive Officer, Olivier Brandicourt, commented:
"In the fourth quarter, we continued the momentum of the previous quarter and we delivered 5% full-year business EPS growth, at the high end of our guidance. In 2018, we executed on important launches including Dupixent, Libtayo and Cablivi, as the headwinds from our U.S. LoEs began to moderate. Additionally, the acquisitions of Bioverativ and Ablynx provided the foundation to build a leading Rare Blood Disorder franchise and to enhance our biologic discovery capabilities. As we enter 2019, our focus remains on delivering our business priorities and transforming Sanofi to address the evolving business dynamics facing our industry."
(1) In order to facilitate an understanding of operational performance, Sanofi comments on the business net income statement. Business net income is a non-GAAP financial measure (see Appendix 10 for definitions). The consolidated income statement for Q4 2018 is provided in Appendix 3 and a reconciliation of reported IFRS net income to business net income is set forth in Appendix 4; (2) Excluding Animal Health gain on disposal, full-year IFRS net income was up 14.5% and full-year IFRS EPS was up 15.3%; (3) Changes in net sales are expressed at constant exchange rates (CER) unless otherwise indicated (see Appendix 10); (4) Constant Structure: Adjusted for Bioverativ acquisition and divestment of European Generics business; (5) DCV: Diabetes and Cardiovascular; (6) See definition page 8; (7) 2018 business EPS was €5.47.

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2018 fourth-quarter and full-year Sanofi sales

Unless otherwise indicated, all percentage changes in sales in this press release are stated at CER(8).
In the fourth quarter of 2018, Company sales were €8,997 million, up 3.5% on a reported basis. Exchange rate movements had a negative effect of 0.4 percentage points mainly driven by the movement of the Turkish Lira, Brazilian Real and Argentine Peso. At CER, Company sales increased 3.9%.

Full-year Company sales reached €34,463 million, down 1.7% on a reported basis. Exchange rate movements had an unfavorable effect of 4.2 percentage points. At CER, Company sales were up 2.5%.

Global Business Units

The table below presents sales by Global Business Unit (GBU). Please note that Emerging Markets sales for Specialty Care and Diabetes and Cardiovascular are included in the General Medicines and Emerging Markets GBU.

a) Does not include Emerging Markets sales – see definition page 8; (b) Includes Emerging Markets sales for Diabetes & Cardiovascular and Specialty Care; (c)+16.1% at CS; (d)+14.2% at CS; (e) -1.8% at CS; (f)-1.6% at CS

Global Franchises

The tables below present fourth-quarter and 2018 sales by global franchise, including Emerging Markets sales, to facilitate comparisons. Appendix 1 provides a reconciliation of sales by GBU and franchise.

Pharmaceuticals

Fourth-quarter Pharmaceutical sales were up 3.0% to €6,276 million mainly driven by the Immunology and Rare Blood Disorder franchises which were partially offset by Diabetes, Established Rx Products and the disposal of the European generics business. Full-year sales for Pharmaceuticals increased 2.4% to €24,685 million.

In the fourth quarter, Rare Disease delivered a solid performance with sales up 10.9% to €794 million, driven by Gaucher, Pompe and Fabry therapies. In the U.S. and Europe, fourth-quarter Rare Disease sales grew 8.5% (to €292 million) and 3.1% (to €262 million), respectively, while Emerging Markets sales were up 32.6% to €150 million. Full-year Rare Disease sales increased 8.3% to €2,958 million.

Fourth-quarter Gaucher (Cerezyme and Cerdelga) sales were up 13.0% to €234 million, supported by the increasing penetration of Cerdelga in Europe and the sustained growth of Cerezyme in Emerging Markets. Fourth-quarter Cerdelga sales increased 33.3% to €44 million. Full-year Gaucher sales were €870 million, up 10.0%.

Fourth-quarter Pompe (Myozyme/Lumizyme) sales grew 10.7% to €226 million, supported by positive trends in naïve patient accruals. Fourth-quarter Myozyme/Lumizyme sales increased 18.8% to €79 million in the U.S. and 1.1% to €96 million in Europe, respectively. Full-year Myozyme/Lumizyme sales increased 10.8% to €840 million.

Fourth-quarter Fabry (Fabrazyme) sales grew 14.4% to €206 million. Fourth-quarter sales in the U.S. and Europe increased 9.9% (to €104 million) and 4.8% (to €45 million), respectively. Full-year Fabrazyme sales were up 9.8% to €755 million.

Fourth-quarter Multiple Sclerosis (MS) sales were up 6.6% to €542 million, as double-digit Aubagio sales growth was partially offset by the decline in Lemtrada sales. Full-year MS sales increased 4.4% to €2,049 million.

Fourth-quarter Aubagio sales increased 12.6% to €446 million, driven by the U.S. (up 13.5% to €311 million) and Europe (up 12.5% to €108 million). Full-year Aubagio sales increased 9.3% to €1,647 million.

In the fourth quarter, Lemtrada sales decreased 14.3% to €96 million due to lower U.S. sales (down 19.6% to €45 million) and European sales (down 11.9% to €37 million), reflecting increased competition. Full-year Lemtrada sales decreased 11.6% to €402 million.

Dupixent (collaboration with Regeneron) for the treatment of moderate-to-severe atopic dermatitis in adults and moderate-to-severe adolescent and adult asthma generated sales of €280 million in the fourth quarter compared to €118 million in the fourth quarter of 2017. In the U.S., Dupixent sales reached €225 million in the fourth quarter (up 87.9%). Demand for the product remains strong and total prescriptions (source: IQVIA weekly TRx data) increased 25% sequentially in the fourth quarter, bolstered by the branded DTC campaign and the recent U.S. launch in asthma. Fourth-quarter sales in Europe were €29 million. Full-year Dupixent sales were €788 million compared to €219 million in the same period of 2017. By the end of 2018, Dupixent had been launched in 17 countries.

Kevzara (collaboration with Regeneron) for rheumatoid arthritis generated sales of €31 million in the fourth quarter, of which €23 million was in the U.S. reflecting improved commercial coverage. Kevzara was launched in 14 countries in Europe in 2018 (included France in the fourth quarter). Full-year Kevzara sales were €83 million.

Bioverativ was consolidated in Sanofi’s Financial Statements from March 9, 2018. Fourth-quarter sales of the Rare Blood Disorder franchise were €294 million (up 5.7% on a pro forma basis(9)), including non-U.S. sales of €58 million with Japan as the primary contributor. Full-year consolidated sales of the Rare Blood Disorder franchise were €897 million, up 12.5% on a pro forma basis(9).

Eloctate, a recombinant antihemophilic Factor VIII, indicated for the treatment of hemophilia A, generated sales of
€196 million in the fourth quarter, up 4.3% on a pro forma basis(10). The performance in the U.S., Japan and Australia was partially offset by a decline in sales in Canada following the previously announced tender loss. The competitive dynamics in the U.S. resulted in a deceleration in growth compared with the previous quarter. Full-year consolidated Eloctate sales were €608 million, up 15.0% on a pro forma basis(10).

Alprolix, a recombinant coagulation Factor IX, indicated for the treatment of hemophilia B, generated sales of €95 million in the fourth quarter, up 5.3% on a pro forma basis(10). Full-year consolidated Alprolix sales were €285 million, up 6.6% on a pro forma basis(10).

Cablivi (caplacizumab) for the treatment of adults with acquired thrombotic thrombocytopenic purpura (aTTP), received EU approval in September and was launched in its first market, Germany, in October. Sales in the fourth quarter were €3 million

(9) Growth comparing fourth-quarter 2018 sales versus fourth-quarter 2017 sales, and full 2018 sales versus full 2017 sales at CER. Excluding the Sobi contract manufacturing sales and including Cablivi sales in 2018. Unaudited data. (10) Growth comparing fourth-quarter 2018 sales versus fourth-quarter 2017 sales, and full 2018 sales versus full 2017 sales at CER. Excluding the Sobi contract manufacturing sales. Unaudited data.

Fourth-quarter Oncology sales increased 8.1% to €387 million. Consistent with the Company’s portfolio prioritization efforts, Sanofi sold Leukine on January 31, 2018. Excluding Leukine, Oncology fourth-quarter sales were up 10.2%. Full-year Oncology sales were up 2.1% to €1,494 million and up 6.3% excluding Leukine.

Jevtana sales were up 14.1% to €114 million in the fourth quarter supported by the performance in the U.S. (up 20.0% to €50 million). Full-year Jevtana sales increased 13.0% to €422 million. In the fourth quarter and full year, Thymoglobulin sales increased 9.9% (to €78 million) and 7.2% (to €297 million), respectively.

In September, Libtayo (cemiplimab-rwlc, collaboration with Regeneron) was approved in the U.S. for the treatment of patients with metastatic cutaneous squamous cell carcinoma (CSCC) or locally advanced CSCC who are not candidates for curative surgery or curative radiation. Libtayo is the only treatment for advanced CSCC approved by the FDA. U.S. Libtayo sales were $15 million and were consolidated by Regeneron.

In the fourth quarter, global Diabetes sales decreased 10.5% to €1,375 million, due to lower glargine (Lantus and Toujeo) sales in the U.S. Fourth-quarter U.S. Diabetes sales were down 26.3% to €555 million, reflecting the previously announced changes in coverage of the Part D business and a continued decline in average U.S. glargine net prices. Fourth-quarter sales in Emerging Markets increased 7.7% to €376 million. Fourth-quarter sales in Europe decreased 0.6% to €320 million, supported by Toujeo growth. Full-year global Diabetes sales decreased 10.4% to €5,472 million. This in turn resulted in a CAGR sales decline for the global Diabetes franchise over 2015-2018 of 7.4% at CER, in line with the guidance.

Fourth-quarter glargine (Lantus and Toujeo) sales decreased 16.8% to €1,077 million. U.S. glargine sales were down 35.7% to €460 million, reflecting the aforementioned changes in coverage in Part D and a continued decline in average U.S. glargine net prices. In Europe, glargine sales were stable ato €245 million reflecting strong Toujeo performance. Full-year glargine sales decreased 15.1% to €4,405 million. In 2019, Sanofi expects a further net pricing decline for its glargine products in the U.S. as a result of higher rebates needed to maintain broad payer coverage and the increased Part D coverage gap impact.

In the fourth quarter, Lantus sales were €866 million, down 19.7%. In the U.S., Lantus sales decreased 37.0% to €379 million, mainly reflecting lower average net price and changes in coverage in Part D. In Europe, fourth-quarter Lantus sales were €168 million, down 8.2% due to biosimilar glargine competition and patients switching to Toujeo. In Emerging Markets, fourth-quarter Lantus sales were up 7.7% to €242 million. Full-year Lantus sales decreased 19.0% to €3,565 million.

Fourth-quarter Toujeo sales were €211 million, down 2.3%. In the U.S., fourth-quarter Toujeo sales were €81 million, down 29.1%. In Europe and Emerging Markets, fourth-quarter Toujeo sales were €77 million (up 23.8%) and €31 million (up 32.0%), respectively. Full-year Toujeo sales increased 7.2% to €840 million.

Fourth-quarter Apidra sales decreased 6.2% to €89 million. Lower sales in the U.S. (down 36.0% to €17 million) offset growth in Emerging Markets (up 10.7% to €29 million). Full-year Apidra sales increased 0.3% to €357 million.

Amaryl sales were €77 million, down 1.3% in the fourth quarter, of which €66 million were generated in Emerging Markets (up 1.5%). Full-year Amaryl sales were up 4.8% at €335 million.

Admelog (insulin lispro injection) 100 Units/mL, which was launched in the U.S. in April, generated sales of €57 million in the fourth quarter mainly due to access in Managed Medicaid. Full-year Admelog sales were €93 million.

Fourth-quarter and full-year Soliqua 100/33 (insulin glargine 100 Units/mL & lixisenatide 33 mcg/mL injection) and Suliqua(TM) sales were €27 million and €73 million, respectively.

Fourth-quarter Praluent (collaboration with Regeneron) sales increased 50.9% to €82 million. U.S. sales of €52 million (up 45.7%) benefited from ESI coverage exclusivity which began in the third quarter. In Europe, sales were €23 million (up 53.3%). Full-year Praluent sales increased 56.1% to €261 million. In 2019, Sanofi expects higher U.S. rebates to impact Praluent sales.

Fourth-quarter and full-year Multaq sales were up 20.8% (to €95 million) and 7.1% (to €350 million), respectively.

Established Rx Products

In the fourth quarter, Established Rx Products sales decreased 6.8% to €2,126 million, reflecting lower U.S. sales of Renvela/Renagel (sevelamer) due to generic competition, together with lower sales of Lovenox in Europe and Plavix in Japan. Full-year Established Rx Products sales decreased 6.1% to €8,843 million.

Fourth quarter Lovenox sales decreased 9.0% to €346 million, reflecting biosimilar competition in the UK, Poland, Germany, Italy and France. Sales in Europe were down 13.9% to €199 million impacted mainly by price erosion in France and Germany triggered by biosimilar launches. In Emerging Markets, Lovenox sales grew 3.3% to €117 million. Full-year Lovenox sales were down 3.0% to €1,465 million

In the fourth quarter, Plavix sales were down 4.9% to €328 million. The decline was mainly driven by generic penetration in Japan (sales down 31.5% to €38 million) and procurement timing in the Middle East. Plavix sales continued to grow in China. Sales of the product decreased in the rest of Emerging Markets and increased 2.9% in Europe. Full-year Plavix sales were up 1.2% to €1,440 million.

Fourth-quarter Aprovel/Avapro sales decreased 2.5% to €151 million due to loss of exclusivity in Japan in December 2017. In Emerging Markets, performance continued to be strong with sales up 8.6% to €112 million. Full-year Aprovel/Avapro sales decreased 1.7% to €652 million.

Fourth-quarter Renvela/Renagel (sevelamer) sales decreased 39.4% to €96 million due to generic competition in the U.S. (down 53.0% to €57 million). Full-year Renvela/Renagel sales decreased 46.7% to €411 million.

Generics

In the fourth quarter, Generics sales decreased 33.8% to €270 million, reflecting the divestment of the European generics business Zentiva at the end of the third quarter. This divestiture was consistent with Sanofi’s strategy to simplify and reshape the company. At CS, fourth quarter Generic sales increased 6.7%. Emerging Markets Generics sales increased 3.8% to €173 million. Full-year Generics sales decreased 9.8% to €1,490 million and decreased 0.6% at CS.

In the fourth quarter, Consumer Healthcare (CHC) sales increased 1.9% to €1,194 million, driven by Emerging Markets and the U.S. Full-year CHC sales increased 3.0% to €4,660 million.

In Europe, fourth-quarter CHC sales were down 3.6% to €368 million. Lower sales in the Allergy Cough & Cold category (down 13.3%) resulted from a weak season coupled with a strong base for comparison in the fourth quarter of 2017, which featured an unusual spike in demand. Full-year CHC sales in Europe decreased 0.2% to €1,403 million.

In the U.S., fourth-quarter CHC sales increased 6.0% to €274 million, supported by the Digestive category (up 10.9%) and Gold Bond performance. Full-year U.S. CHC sales decreased 1.1% to €1,066 million.

In Emerging Markets, fourth-quarter CHC sales increased 6.4% to €405 million, mainly driven by a solid demand in Brazil (mainly Pain category). Full-year Emerging Markets CHC sales increased 8.9% to €1,588 million.

Fourth-quarter Vaccines sales were up 9.7% driven by the performance in the U.S. (up 10.4%) and Europe (up 21.9%). In Emerging Markets, fourth-quarter Vaccines sales increased 2.5%. Fourth-quarter performance was consistent with Sanofi’s expectation that sales of the Vaccines GBU would grow mid to high-single digits in the second half of 2018. Full-year Vaccines sales increased 2.4% to €5,118 million.

Fourth-quarter Influenza vaccines sales were up 17.1% to €596 million, reflecting slightly greater weighting of shipments in the fourth quarter versus the prior year as well as Sanofi Pasteur’s influenza differentiation strategy which included the successful launch of Flubok in the U.S. and the strong performance of Vaxigrip QIV in Europe. Full-year Influenza vaccines sales increased 7.2% to €1,708 million.

In the fourth quarter, Polio/Pertussis/Hib (PPH) vaccines sales were up 3.0% to €504 million, driven by higher Hexaxim sales in Emerging Markets. In China, Pentaxim supply returned to normal. In the U.S., PPH vaccines sales decreased 9.2% to €102 million reflecting lower sales of Polio and Hib vaccines. Full-year Polio/Pertussis/Hib vaccines sales were down 0.7% to €1,749 million.

Fourth-quarter Menactra sales increased 63.3% to €130 million, driven by sales in the U.S. and Middle-East. In the U.S., fourth-quarter Menactra sales were €80 million (up 45.3%) reflecting timing differences in CDC and wholesaler buying patterns. Full-year Menactra sales were up 4.5% to €608 million.

Fourth-quarter and full-year Adult Booster vaccines sales decreased 2.9% (to €135 million) and increased 1.3% (to €470 million), respectively.

Fourth-quarter Travel and other endemic vaccines sales were €130 million, down 18.8% reflecting lower Rabies and Typhoid vaccines sales. Full-year Travel and other endemic vaccines sales were up 1.8% to €488 million.

Fourth-quarter sales in the U.S. were up 8.7% to €3,195 million. This mainly reflected the strong performances of Dupixent and Aubagio, together with the consolidation of Eloctate and Alprolix sales, which were partly offset by lower sales of the Diabetes franchise (down 26.3%) and of sevelamer. In the U.S., full-year sales increased 0.7% to €11,540 million.

Fourth-quarter sales in Emerging Markets increased 6.0% to €2,591 million, mainly driven by Rare Diseases (up 32.6%), Diabetes (up 7.7%) and CHC (up 6.4%). In Asia, sales were up 8.4% to €941 million in the fourth quarter, sustained by the performance in China (up 8.3% to €566 million). In Latin America, fourth-quarter sales increased 2.6% to €710 million. Fourth-quarter sales in Brazil were up 10.0% to €254 million. In Africa and the Middle East region, fourth-quarter sales were €601 million, up 5.2%. Fourth-quarter sales in the Eurasia region increased 3.3% to €288 million, driven by the growth in Turkey which was partially offset by lower sales in Russia (€153 million, down 4.0%). Full-year sales in Emerging Markets increased 7.5% to €10,112 million. In 2018, sales in China, Brazil and Russia were €2,464 million (up 12.7%), €1,023 million (up 7.0%) and €605 million (up 4.6%), respectively.

Fourth-quarter sales in Europe were €2,342 million, down 4.8% due to the divestment of the European Generics business. At CS, fourth-quarter sales were up 2.0% driven by Vaccines (up 21.9%) and the roll-out of Dupixent which offset lower sales in Established Rx Products (down 6.8%). In Europe, full-year sales decreased 0.6% to €9,434 million and increased 1.1% at CS.

Sales in Japan decreased 1.4% to €423 million in the fourth quarter. The consolidation of Rare Blood Disorder sales was more than offset by the impact of Plavix and Aprovel generic competition and lower Vaccines sales. In Japan, full-year sales decreased 2.0% to €1,710 million.

R&D update

Consult Appendix 6 for full overview of Sanofi’s R&D pipeline
R&D strategy

Sanofi is today providing an update on the evolution of its R&D strategy. Consistent with its ambition to be an industry innovation leader, Sanofi has increased its R&D focus on Specialty Care therapy areas (Oncology, Immunology, Rare Disease and Rare Blood Disorder) while maintaining its commitment to Vaccines. Since 2017, the number of R&D programs in these areas has increased significantly, and they now represent over 90% of Sanofi’s clinical portfolio. This change reflects advances in the Company’s R&D capabilities and understanding of human biology.

In support of this strategy, Sanofi recently carried out a rigorous pipeline prioritization review to accelerate investment behind its most promising programs and to discontinue those with a less attractive expected return profile. As a result, the Company is accelerating the development of 17 programs, including 8 in Oncology. Thirteen development projects and 25 research projects are being discontinued to enhance the company’s focus on delivering first and best in class medicines. Overall, Sanofi could potentially submit 9 new medicines and 25 additional indications to regulatory authorities over 2019 to 2022.

Through the development of its own expertise and the establishment of partnerships with industry pioneers, Sanofi has access to a broad range of therapeutic modalities that enable a more customized, science-driven approach to targeting disease. This includes development of next-generation biologics, such as multi-specific antibodies and Nanobodies, which provide new opportunities relative to traditional monoclonal antibodies in areas such as oncology and immunology, as well as gene therapies. The Company is also employing data science and machine learning across the R&D organization to generate higher quality data, accelerate development and regulatory submissions, and reduce costs. Sanofi expects to maintain an annual R&D budget of approximately €6 billion through 2021.

Regulatory update

Regulatory updates since October 31, 2018 include the following:

In February, the European Medicine Agency’s Committee for Medicinal Products for Human Use (CHMP) has recommended approval of Praluent (collaboration with Regeneron) in European Union to reduce cardiovascular risk in people with established atherosclerotic cardiovascular disease.
In December, the FDA approved the hexavalent vaccine, Vaxelis(TM), for use in children from 6 weeks through 4 years of age. Vaxelis(TM) was developed as part of a joint partnership between Sanofi and Merck in the U.S. and Canada. Commercial supply will not be available in the U.S. prior to 2020.
In December, Dupixent ( collaboration with Regeneron) was submitted to the FDA for the treatment of adults with inadequately-controlled chronic rhinosinusitis with nasal polyps (CRSwNP).
In December, the European Commission granted marketing authorization for Dengvaxia to prevent dengue disease in individuals 9-45 years of age with a documented prior dengue infection and who are living in endemic areas.
In November, the CHMP recommended approval in European Union of fexinidazole the first all-oral treatment for sleeping sickness.
In November, the FDA accepted for Priority Review the supplemental Biologics License Application (sBLA) for Dupixent in adolescent patients 12 to 17 years of age with moderate-to-severe atopic dermatitis, whose disease is inadequately controlled with topical therapies or for whom topical treatment is medically inadvisable. The target action data for the FDA decision is March 11, 2019.
At the beginning of February 2019, the R&D pipeline contained 81 projects including 33 new molecular entities in clinical development. 35 projects are in phase 3 or have been submitted to the regulatory authorities for approval.

Portfolio update

Phase 3:

In February, Sanofi announced that Isatuximab phase 3 trial (ICARIA study) met primary endpoint of prolonging progression free survival in patients with relapsed/refractory multiple myeloma
In January, the New England Journal of Medicine (NEJM) published positive results of the Phase 3 trial of Cablivi (caplacizumab) in adults with acquired thrombotic thrombocytopenic purpura (aTTP).
In November, new analyses on mortality from the ODYSSEY OUTCOMES trial evaluating Praluent were presented at the American Heart Association (AHA) Scientific Sessions. In November, the New England Journal of Medicine (NEJM) also published detailed results of this trial.
Shan 6, a pediatric hexavalent vaccine, entered phase 3.
Phase 2:

A phase 2 study evaluating the combination of isatuximab (anti-CD38 mAb) and cemiplimab (collaboration with Regeneron) in lymphoma was intitiated.
A phase 2 study evaluating the combination of isatuximab and atezolizumab (PD-L1 inhibitor mAb) in solid tumors was initiated.
A phase 2 study evaluating SAR440340 (an anti-IL33 mAb, collaboration with Regeneron) in atopic dermatitis was initiated.
Positive primary analysis of the Phase 2b trial demonstrated the safety and efficacy of SP0232/MEDI8897 (anti RSV mAb – Respiratory Syncytial Virus, collaboration with Medimmune).
Several projects in phase 2 were stopped:
GZ389988, a TRKA antagonist, in osteo arthritis;
ALX0171, an anti RSV nanobody (from Ablynx) for Respiratory Syncitial Virus;
SAR425899, a GLP-1 / GCGR agonist, in obesity in type 2 diabetes patients;
SAR407899, a rho kinase inhibitor, for microvascular angina;
Phase 1:

SAR408701, an anti-CEACAM5, achieved positive proof of concept in a subgroup of lung cancer patients. A broad development program is expected to start by the end of 2019.
BIVV001, a recombinant Factor VIII for Hemophilia A, achieved positive proof of concept with demonstration of sustained high factor levels at once-weekly dosing.
SAR441000, a cytokine mRNA (collaboration withBioNTech AG) entered phase 1 in the treatment of melanoma.
SAR443060/DNL747 (collaboration with Denali), an oral brain-penetrant small molecule (RIPK1 inhibitor), entered phase 1 clinical study in Amyotrophic Lateral Sclerosis (ALS) and Alzheimer’s disease.
BIVV003, a Zinc Finger Nuclease (ZFN) gene editing technology issued from Bioverativ entered phase 1 in the treatment of sickle cell disease.
SAR441344, an anti-CD40L mAb (license from ImmuNext), entered phase 1 in the treatment of multiple sclerosis.
A next generation Pneumococcal Conjugate Vaccine (PCV) entered phase 1.
Several projects in phase 1 were stopped:
SAR439794, a TLR4 agonist immunomodulatory evaluated in peanut allergy;
SAR247799, a S1P1 agonist evaluated in cardiovascular area;
SAR438335, a GLP-1/GIP agonist in Type 2 diabetes;
SAR228810, an anti protofibrillar AB mAb for Alzheimer disease;
UshStat, a myosin 7A gene therapy for Usher Syndrome 1B, will be discontinued contigent upon identification of out-licensing partner.
Collaborations

In January 2019, Sanofi and Regeneron announced a restructuring of their global Immuno-Oncology Discovery and Development Agreement for new IO cancer treatments. The 2015 agreement was scheduled to end in approximately mid-2020. This revision provides for ongoing collaborative development of two clinical-stage bispecific antibody programs (BCMAxCD3 and MUC16xCD3 bispecific). It also provides Sanofi with increased flexibility to advance its early-stage IO pipeline independently while Regeneron retains all rights to its other IO discovery and development programs.

In January 2019, BioNTech announced that it has extended its research collaboration with Sanofi initiated in late 2015 in the field of mRNA cancer immunotherapy.

In January 2019, MyoKardia, Inc. announced that it regained worldwide rights to all programs covered under its license and collaboration agreement with Sanofi. The collaboration has not been extended beyond the initial research term, which ended on December 31, 2018. As a result, MyoKardia now has regained global rights to all programs in its portfolio, including mavacamten (a Myosin inhibitor evaluated in obstructive and non-obstructive hypertrophic cardiomyopathy) and MYK-491 (a Myosin activator evaluated in dilated cardiomyopathy) and the license and collaboration will conclude in its entirety effective April 1, 2019.

In December sanofi and Medicines for Malaria Ventures (MMV) agreed to transfer the operational responsibility for the development of Ferroquine/OZ439, to MMV in such a way that MMV would assume leadership while sanofi remains the sponsor of the studies, fulfilling drug supply, regulatory and legal obligations. Ferroquine/OZ439 is a first in class combination for malaria previously developed in collaboration with MMV.

In November, Sanofi announced that it plans to collaborate with Denali Therapeutics Inc. on the development of multiple molecules with the potential to treat a range of neurological and systemic inflammatory diseases.

2018 Fourth-quarter and full-year financial results(11)

Business Net Income(11)

In the fourth quarter of 2018, Sanofi generated net sales of €8,997 million, an increase of 3.5% (up 3.9% at CER). Full-year sales were €34,463 million, down 1.7% on a reported basis (up 2.5% at CER).

Fourth-quarter other revenues increased 13.4% (up 10.3% at CER) to €329 million, reflecting the VaxServe sales contribution of non-Sanofi products (€262 million, up 13.9% at CER) and the royalties received from Swedish Orphan Biovitrum AB. Full-year other revenues increased 5.7% (up 9.3% at CER) to €1,214 million of which €959 million were generated by VaxServe (up 15.6% at CER).

Fourth-quarter Gross Profit increased 5.2% to €6,188 million (up 5.2% at CER). The gross margin ratio was 68.8% (68.6% at CER) versus 67.7% in the fourth quarter of 2017. The positive mix impact of Specialty Care as well as the contribution from Bioverativ and Vaccines (impacted by Dengvaxia in the fourth quarter of 2017) more than offset the negative impacts from U.S. Diabetes net price evolution and sevelamer generic competition. In the fourth quarter of 2018, the gross margin ratio of segments was 72.1% for Pharmaceuticals (down 0.2 percentage points), 66.0% for CHC (up 1.6 percentage points) and 60.4% for Vaccines (up 4.9 percentage points). Full-year Gross Profit decreased 1.7% to €24,356 million (up 2.5% at CER). In 2018, the gross margin ratio increased 0.1 percentage point to 70.7% (70.6% at CER) versus 2017. In 2019, Sanofi expects its gross margin ratio to be around 70% at CER.

Research and Development (R&D) expenses increased 14.6% to €1,678 million in the fourth quarter of 2018. At CER, R&D expenses increased 13.5%, mainly reflecting the acquisitions of Bioverativ and Ablynx together with the investments in the immuno-oncology and diabetes programs. Excluding the impact of acquisitions, R&D expenses would have risen by 6.7% in the fourth quarter of 2018. Full-year R&D expenses increased 7.7% to €5,894 million (up 10.3% at CER).

Fourth-quarter selling general and administrative expenses (SG&A) increased 0.8% to €2,721 million. At CER, SG&A expenses were up 1.1% mainly reflecting consolidation of Bioverativ and Ablynx. Additional marketing investments in new launches were offset by lower Diabetes expenses in the U.S. In the fourth quarter, the ratio of SG&A to sales decreased 0.9 percentage points to 30.2% compared to the fourth quarter of 2017. Full-year SG&A expenses decreased 2.4% to €9,831 million (up 1.6% at CER). In 2018, the ratio of SG&A to sales was 28.5%, 0.2 percentage points lower than in 2017.

Fourth-quarter other current operating income net of expenses was -€148 million versus -€114 million in the fourth quarter of 2017 and included the share of profit/loss to Regeneron of the monoclonal antibodies Alliance net of associated marketing expenses incurred by Regeneron. In the fourth quarter of 2018, this line also included charges related to a legal contingency provision, as well as a capital gain on an associate company and other accruals, which in aggregate represented a net charge of €72 million. In the fourth quarter of 2017, this line included an impairment of tangible assets of €87 million related to Dengvaxia. In 2018, other current operating income net of expenses was -€64 million versus €4 million in 2017.

The share of profits from associates was €121 million in the fourth quarter versus €109 million for the same period of 2017, reflecting the increased contribution of the share of profits in Regeneron. In 2018, the share of profits from associates was €423 million versus €214 million in 2017.

In the fourth quarter, non-controlling interests were -€22 million versus -€30 million in the fourth quarter of 2017. Full-year non-controlling interests were -€106 million versus -€125 million in 2017.

Fourth-quarter business operating income increased 3.3% to €1,740 million. At CER, business operating income increased 4.5%. The ratio of business operating income to net sales decreased 0.1 percentage points to 19.3% versus the fourth quarter of 2017. Over the period, the business operating income ratio of segments was 27.1% for Pharmaceuticals (down 3.9 percentage points), 29.0% for CHC (up 2.2 percentage points) and 36.1% for Vaccines (up 14.2 percentage points). Full-year business operating income was €8,884 million, down 4.7% (or up 0.9% at CER). In 2018, the ratio of business operating income to net sales decreased by 0.8 percentage points to 25.8%.

Net financial expenses were -€60 million in the fourth quarter versus -€73 million in the same period of 2017. In the fourth quarter of 2018, net financial expenses included the cost associated with the Bioverativ and Ablynx acquisitions coupled with an increase of €22 million in the market value of a financial investment. Full-year net financial expenses were -€271 million versus -€273 million in 2017.

The fourth-quarter effective tax rate was 20.0% compared to 18.7% in the fourth quarter of 2017. In 2018, the effective tax rate was 21.6% compared to 23.5% in 2017. Sanofi expects its effective tax rate to be around 22% in 2019.
(11) See Appendix 3 for 2018 fourth-quarter consolidated income statement; see Appendix 10 for definitions of financial indicators, and Appendix 4 for reconciliation of IFRS net income reported to business net income.

Fourth-quarter business net income(11) increased 2.9% to €1,364 million and 4.3% at CER. The ratio of business net income to net sales was stable at 15.2% versus the fourth quarter of 2017. In 2018, business net income(11) decreased 1.8% to €6,819 million and increased 4.2% at CER. The ratio of business net income to net sales was stable at 19.8%.

In the fourth quarter of 2018, business earnings per share(11) (EPS) increased by 3.8% to €1.10 on a reported basis and by 4.7% at CER. The average number of shares outstanding was 1,245.6 million in the fourth quarter of 2018 versus 1,252.9 million in the fourth quarter of 2017.

In 2018, business earnings per share(11) was €5.47, down 0.9% on a reported basis and up 5.1% at CER. The average number of shares outstanding was 1,247.1 million in 2018 versus 1,256.9 million in 2017.
2019 Guidance

Sanofi expects 2019 Business EPS to grow between 3% and 5% at CER, barring unforeseen major adverse events. Applying average January 2019 exchange rates, the positive currency impact on 2019 Business EPS is estimated to be between 1% to 2%.

Dividend

The Board of Directors convened on February 6, 2019, and proposed a dividend of €3.07 per share.

Financial statements are not audited. The audit procedures by the Statutory Auditors are underway.

Reconciliation of IFRS net income reported to business net income (see Appendix 4)

In 2018, the IFRS net income was €4,306 million. The main items excluded from the business net income were:

An amortization charge of €2,170 million related to fair value remeasurement on intangible assets of acquired companies (primarily Aventis: €256 million, Genzyme: €760 million, Boehringer Ingelheim CHC business:
€242 million, Bioverativ: €430 million) and to acquired intangible assets (licenses/products: €213 million). In the fourth quarter, an amortization charge of €634 million related to fair value remeasurement on intangible assets of acquired companies (primarily Aventis: €56 million, Genzyme: €186 million, Boehringer Ingelheim CHC business: €61 million, Bioverativ: €136 million) and to acquired intangible assets (licenses/products: €114 million) was recorded. These items have no cash impact on the Company.
An impairment of intangible assets of €718 million (of which €426 million in the fourth quarter) mainly related to Lemtrada, intangible assets from the Ablynx acquisition in May 2018 (including the anticipated termination collaboration with Merck & Co), and other Intellectual Property R&D assets of which the rights related to programs in Myokardia portfolio. This item has no cash impact on the Company.

A charge of €114 million arising from the workdown of inventories of acquired companies (related to Bioverativ) remeasured at fair value due to the application of purchase accounting to acquisitions. This item has no cash impact on the Group.

An income of €117 million mainly reflecting a decrease of Bayer contingent considerations linked to Lemtrada (income of €109 million) and a charge related to CVR fair value adjustment.

Restructuring costs and similar items of €1,480 million (of which €765 million in the fourth quarter) which include the termination fee (€283 million) paid to Regeneron related to the research program under the original IO agreement, streamlining initiatives in Europe and Japan, the cost of transfer to Evotec of the early stage infectious diseases R&D portfolio and Research unit for an amount of €252 million and accelerated depreciation of industrial assets in the U.S.

(11) See Appendix 3 for 2018 fourth-quarter consolidated income statement; see Appendix 10 for definitions of financial indicators, and Appendix 4 for reconciliation of IFRS net income reported to business net income.

A €1,125 million tax effect arising from the items listed above, mainly comprising €692 million of deferred taxes generated by amortization and impairments of intangible assets, and €435 million associated with restructuring costs and similar items. The fourth-quarter tax effect was €503 million, including €241 million of deferred taxes on amortization and impairments charged against intangible assets and €220 million associated with restructuring costs and similar items (see Appendix 4).
A €188 million tax effect (of which €56 million in the fourth quarter) arising from the U.S. tax reform.
An income of €76 million net of tax (of which €180 million in the fourth quarter) related to restructuring costs of associates and joint ventures, and expenses arising from the impact of acquisitions on associates and joint ventures.
Capital Allocation

In 2018, net cash generated by operating activities was €5,061 million after capital expenditures of €1,674 million and an increase in working capital of €1,099 million. In 2018, restructuring costs and similar items were €894 million while expenditure on share repurchases was €1,104 million. Over the period, the dividend paid by Sanofi amounted to €3,773 million and acquisitions and partnerships net of disposals were €11,243 million (including €12,728 million related to the Bioverativ and Ablynx acquisitions and €1,598 million related to the European generics business divestment). As a consequence, net debt increased from €5,161 million at December 31, 2017, to €17,628 million at December 31, 2018 (amount net of €6,925 million in cash and cash equivalents).

On February 6, 2019 Blue Earth Diagnostics, a molecular imaging diagnostics company, reported the upcoming presentation of additional analyses from the LOCATE clinical trial (NCT02680041) (Press release, Blue Earth Diagnostics, FEB 6, 2019, View Source [SID1234533098]). The LOCATE trial is a prospective, U.S., multicenter, open-label study investigating the impact of 18F fluciclovine PET/CT imaging on patient management of biochemically recurrent prostate cancer after initial prostate cancer treatment and negative or equivocal findings on standard-of-care imaging. The presentation will be made at the ASCO (Free ASCO Whitepaper) 2019 Genitourinary Cancers Symposium (ASCO GU), from February 14-16, 2019 in San Francisco, Ca. Details of the presentation to be given by Blue Earth Diagnostics collaborators is listed below.

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Date: Thursday, February 14, 2019
Presentation: Identification of bone involvement in patients with prostate cancer recurrence using 18F-fluciclovine PET/CT and impact on subsequent management
Abstract Number: 248

Presenter: Michael S Kipper, MD, Genesis Healthcare, on behalf of the LOCATE study group
Session Title & Times: Poster Session A: Prostate Cancer
11:30 AM-1:00 PM and 5:30 PM-6:30 PM PT
Location: Moscone West Building, San Francisco, Ca.

Blue Earth Diagnostics invites participants at the ASCO (Free ASCO Whitepaper) Genitourinary (GU) Cancers Symposium 2019 to attend the above presentation and to learn more about the company at Exhibit 36.

U.S. Indication and Important Safety Information About Axumin

INDICATION

Axumin (fluciclovine F 18) injection is indicated for positron emission tomography (PET) imaging in men with suspected prostate cancer recurrence based on elevated blood prostate specific antigen (PSA) levels following prior treatment.

IMPORTANT SAFETY INFORMATION

Image interpretation errors can occur with Axumin PET imaging. A negative image does not rule out recurrent prostate cancer and a positive image does not confirm its presence. The performance of Axumin seems to be affected by PSA levels. Axumin uptake may occur with other cancers and benign prostatic hypertrophy in primary prostate cancer. Clinical correlation, which may include histopathological evaluation, is recommended.
Hypersensitivity reactions, including anaphylaxis, may occur in patients who receive Axumin. Emergency resuscitation equipment and personnel should be immediately available.
Axumin use contributes to a patient’s overall long-term cumulative radiation exposure, which is associated with an increased risk of cancer. Safe handling practices should be used to minimize radiation exposure to the patient and health care providers.
Adverse reactions were reported in ≤ 1% of subjects during clinical studies with Axumin. The most common adverse reactions were injection site pain, injection site erythema and dysgeusia.
To report suspected adverse reactions to Axumin, call 1-855-AXUMIN1 (1-855-298-6461) or contact FDA at 1-800-FDA-1088 or www.fda.gov/medwatch.

Full Axumin prescribing information is available at www.axumin.com.

About Axumin (fluciclovine F 18)

Axumin (fluciclovine F 18) injection is a novel product indicated for use in positron emission tomography (PET) imaging to identify suspected sites of prostate cancer recurrence in men. Recurrence of prostate cancer is suspected by an increase in prostate specific antigen (PSA) levels following prior treatment. PET imaging with Axumin may identify the location and extent of such recurrence. Axumin was developed to enable visualization of the increased amino acid transport that occurs in many cancers, including prostate cancer. It consists of a synthetic amino acid that is preferentially taken up by prostate cancer cells compared with surrounding normal tissues, and is labeled with the radioisotope F 18 for PET imaging. Fluciclovine F 18 was invented at Emory University in Atlanta, Ga., with much of the fundamental clinical development work carried out by physicians at Emory University’s Department of Radiology and Imaging Sciences. Axumin was approved by the U.S. Food and Drug Administration in May 2016, following Priority Review, and is the first product commercialized by Blue Earth Diagnostics, which licensed the product from GE Healthcare. The molecule is being investigated by Blue Earth Diagnostics for other potential cancer indications, such as glioma.

On February 6, 2019 Corvus Pharmaceuticals, Inc. (Nasdaq: CRVS), a clinical-stage biopharmaceutical company focused on the development and commercialization of precisely targeted oncology therapies, reported the presentation of updated biomarker and clinical results from its two lead programs that target the adenosine pathway, CPI-444, an adenosine A2A receptor antagonist, and CPI-006, an anti-CD73 antibody (Press release, Corvus Pharmaceuticals, FEB 6, 2019, View Source [SID1234533117]). The data were presented by Stephen Willingham, Ph.D., Senior Scientist at Corvus, at the Immuno-Oncology 360° Conference in New York during the "Discovery & Preclinical Science Plenary" session, which focused on tumor microenvironment changing technologies, pegylated cytokines and additional discovery and preclinical data.

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Key CPI-444 Biomarker Results
Dr. Willingham’s presentation, titled "Blockade of the Adenosine Pathway: Preclinical, Translational and Clinical Studies with CPI-444, an A2A Receptor Antagonist for Cancer Treatment," reviewed gene expression data of an adenosine gene signature recently announced by Corvus (or AdenoSig), in patients with renal cell carcinoma (RCC) who are participating in Corvus’ ongoing Phase 1/1b study of CPI-444, a selective and potent inhibitor of the adenosine A2A receptor. In particular, the data from the study showed a relationship of this novel biomarker to angiogenesis gene expression data (or angiogenesis signature). Such findings indicate that expression of AdenoSig was inversely related to the angiogenesis signature, which has been well studied by others and correlates with response to vascular endothelial growth factor receptor (VEGFR) inhibitors such as Sutent (sunitib malate) and other tyrosine kinase inhibitors. Low expression of angiogenesis genes predicts a lack of response to VEGFR inhibition. These data suggest that patients with a high AdenoSig are potentially more likely to respond to treatment with CPI-444 and less likely to respond to VEGFR inhibitors.

"Based on these translational data, we expect that we may be able to use the AdenoSig as a predictive biomarker to identify patients for adenosine pathway inhibition and select patients for future trials of CPI-444," said Dr. Willingham. "The gene expression data also may enable us to select the optimum patients for combination therapy with CPI-006, our anti-CD73 antibody, which has demonstrated unique immunologic activity in early clinical trials."

Key CPI-006 Clinical Results
Dr. Willingham also presented updated clinical results from the ongoing Phase 1/1b dose-escalation study of CPI-006 in patients with a variety of advanced cancers, including non-small cell lung cancer (NSCLC), RCC and other cancers who have failed standard therapies. The first arm of the study is evaluating CPI-006 as a monotherapy, a second arm is evaluating CPI-006 in combination with CPI-444, and a third arm is planned to evaluate CPI-006 in combination with pembrolizumab, an anti-PD-1 antibody. In particular, the updated results demonstrated that:

CPI-006 given as a monotherapy activated B cells and led to a redistribution of these cells along with changes in other immune cells (e.g., changes in T helper to T suppressor ratios). These data are consistent with immune stimulation induced by CPI-006.
CPI-006 reacted with an epitope on CD73 that led to blockade of adenosine production and expression of lymphocyte activation antigens that are independent of adenosine.
"We continue to advance our two lead therapeutic programs that target the adenosine-cancer pathway. We believe we are well positioned for a potential pivotal trial of CPI-444 in renal cell carcinoma and other tumors based on the biomarker signature we discovered, and CPI-006 is beginning to show early signs of immunologic activity that may be important in cancer therapy," said Richard A. Miller, M.D., an oncologist and co-founder, president and chief executive officer of Corvus. "Regarding our third pipeline program, we anticipate starting a Phase 1/1b trial of CPI-818, an ITK inhibitor for T-cell lymphoma, during the first quarter of 2019."

About CD73 and Adenosine
CD73 is a cell surface enzyme whose function is to convert adenosine monophosphate (AMP) to adenosine by removing phosphate from AMP. CD73 is expressed on cells of the immune system, including T-cells and B-cells. CD73 is also present on many tumors, including lung, renal, melanoma, colon, prostate, breast and others. In the tumor microenvironment, CD73 produces adenosine, which binds to the adenosine A2A receptor on immune cells and inhibits various immune responses including those directed against the tumor. Tumors utilize this immunosuppressive mechanism to escape attack by the immune system.

About CPI-006
CPI-006 is a potent humanized monoclonal antibody that reacts with the active site of CD73, blocking the conversion of AMP to adenosine. In vitro studies of CPI-006 have shown it is capable of substantially inhibiting the production of adenosine by blocking the CD73 enzyme and leads to activation of peripheral blood B cells.

About CPI-444
CPI-444 is a small molecule, oral, checkpoint inhibitor designed to disable a tumor’s ability to subvert attack by the immune system by blocking the binding of adenosine in the tumor microenvironment to the A2A receptor. Adenosine, a metabolite of ATP (adenosine tri-phosphate), is produced within the tumor microenvironment where it may bind to the adenosine A2A receptor present on immune cells and block their activity. CD39 and CD73 are enzymes on the surface of tumor cells and immune cells. These enzymes work in concert to convert ATP to adenosine. In vitro and preclinical studies have shown that dual blockade of CD73 and the A2A receptor may be synergistic.

On February 6, 2019 Eli Lilly and Company (NYSE: LLY) reported financial results for the fourth quarter and full year of 2018 (Press release, Eli Lilly, FEB 6, 2019, View Source [SID1234533082]).

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Certain financial information for 2018 and 2017 is presented on both a reported and a non-GAAP basis. Some numbers in this press release may not add due to rounding. Reported results were prepared in accordance with U.S. generally accepted accounting principles (GAAP) and include all revenue and expenses recognized during the periods. Non-GAAP measures exclude the items described in the reconciliation tables later in the release. The company’s 2019 financial guidance is also being provided on both a reported and a non-GAAP basis. The non-GAAP measures are presented to provide additional insights into the underlying trends in the company’s business. This press release does not constitute an offer of any securities for sale or exchange.

"Lilly’s performance in the fourth quarter of 2018 capped an important year for the company, as we continued to launch new medicines, invest in our pipeline and deliver solid financial results," said David A. Ricks, Lilly’s chairman and CEO. "The portfolio of medicines that we have launched over the past five years is providing a strong foundation on which to grow our business, while the pending acquisition of Loxo Oncology is the latest example of our commitment to develop new medicines that will transform the care of many serious illnesses. We are determined to raise the bar even higher in 2019 so that more people around the world can benefit from Lilly medicines."

Key Events Over the Last Three Months

Regulatory

The U.S. Food and Drug Administration (FDA) granted approval for a new indication for Alimta (pemetrexed for injection) in combination with Keytruda and platinum chemotherapy for the first-line treatment of patients with metastatic nonsquamous non-small cell lung cancer, with no EGFR or ALK genomic tumor aberrations.
The European Commission approved EmgalityTM for the prophylaxis of migraine in adults who have at least four migraine days per month.
Clinical

The company reported that the results of the Phase 3 study of Lartruvo (olaratumab), in combination with doxorubicin in patients with advanced or metastatic soft tissue sarcoma, did not confirm the clinical benefit of Lartruvo in combination with doxorubicin as compared to doxorubicin, a standard of care treatment. The company is suspending promotion of Lartruvo and is working with global regulators to determine the appropriate next steps.
The company and Incyte Corporation announced that baricitinib met the primary endpoint in two Phase 3 studies evaluating the efficacy and safety of baricitinib monotherapy for the treatment of adult patients with moderate to severe atopic dermatitis.
The company announced that Taltz (ixekizumab) met the primary and all major secondary endpoints in a Phase 3b/4 study, which evaluated the efficacy and safety of Taltz versus Humira (adalimumab) in patients with active psoriatic arthritis who are biologic disease-modifying anti-rheumatic drug (DMARD)-naive.
The company and Pfizer Inc. announced positive top-line results from a Phase 3 study evaluating tanezumab 2.5 mg or 5 mg in patients with moderate-to-severe osteoarthritis pain. Tanezumab is a humanized monoclonal antibody that is part of an investigational class of non-opioid pain medications known as nerve growth factor inhibitors.
Business Development/Other Developments

Lilly plans to launch an exchange offer to Lilly shareholders in the first half of 2019 in which Lilly would tender for Lilly shares in exchange for Elanco shares in order to divest its remaining ownership interest in Elanco Animal Health. The exact timing of the company’s decision to launch the exchange offer will depend upon market conditions, but the exchange offer could begin as early as the coming days.
The company announced a definitive agreement to acquire Loxo Oncology for $235.00 per share in cash, or approximately $8.0 billion. Loxo Oncology is a biopharmaceutical company focused on the development and commercialization of highly selective medicines for patients with genomically-defined cancers.
The company announced a research collaboration and exclusive license agreement with Aduro Biotech, Inc. for Aduro’s cGAS-STING Pathway Inhibitor program for the research and development of novel immunotherapies for autoimmune and other inflammatory diseases.
The company announced an agreement with Hydra Biosciences to acquire all assets related to Hydra’s pre-clinical program of TRPA1 antagonists, part of the Transient Receptor Potential (TRP) family of ion channels, that is currently being studied for the potential treatment of chronic pain syndromes.
The company announced a license and collaboration agreement with AC Immune SA to research and develop tau aggregation inhibitor small molecules for the potential treatment of Alzheimer’s disease (AD) and other neurodegenerative diseases.
Fourth-Quarter Reported Results

In the fourth quarter of 2018, worldwide revenue was $6.439 billion, an increase of 5 percent compared with the fourth quarter of 2017. The increase in revenue was driven by an 11 percent increase due to volume, partially offset by a 5 percent decrease due to lower realized prices and a 1 percent decrease due to the unfavorable impact of foreign exchange rates.

Revenue in the U.S. increased 7 percent, to $3.664 billion, driven by increased volume, partially offset by lower realized prices, primarily in the diabetes portfolio. U.S. volume growth of 12 percent was driven by newer pharmaceutical products, including Trulicity, Taltz and Basaglar, partially offset by decreased volume for products that have lost exclusivity, including Cialis and Effient.

Revenue outside the U.S. increased 1 percent, to $2.774 billion, driven by increased volume of 8 percent, which was primarily from newer pharmaceutical products, including Trulicity, Olumiant and Taltz. The increase in revenue was partially offset by lower realized prices for several pharmaceutical products, the unfavorable impact of foreign exchange rates and decreased volume for Cialis due to loss of exclusivity.

Gross margin increased 7 percent, to $4.845 billion, in the fourth quarter of 2018 compared with the fourth quarter of 2017. Gross margin as a percent of revenue was 75.2 percent, an increase of 1.9 percentage points compared with the fourth quarter of 2017. The increase in gross margin percent was primarily due to manufacturing efficiencies and lower amortization expense, partially offset by the negative impact of price on revenue.

Operating expenses in the fourth quarter of 2018, defined as the sum of research and development and marketing, selling, and administrative expenses, increased 1 percent to $3.315 billion compared with the fourth quarter of 2017. Research and development expenses decreased 2 percent to $1.454 billion, or 22.6 percent of revenue, driven by lower development expenses for lanabecestat following the discontinuation of its Phase 3 program in the second quarter of 2018, partially offset by higher development expenses for other late-stage assets. Marketing, selling, and administrative expenses increased 3 percent, to $1.861 billion, primarily due to increased expenses related to newer pharmaceutical product launches, including the U.S. launch of Emgality. Both research and development expenses and marketing, selling, and administrative expenses benefited from previously-announced actions taken to reduce the company’s cost structure.

In the fourth quarter of 2018, the company recognized acquired in-process research and development charges of $329.4 million related to previously announced business development transactions with Dicerna Pharmaceuticals, SIGA Technologies, Chugai Pharmaceutical Co., LTD, NextCure, Inc. and Hydra Biosciences. In the fourth quarter of 2017, the company recognized acquired in-process research and development charges of $50.0 million associated with a strategic collaboration with CureVac.

In the fourth quarter of 2018, the company recognized asset impairment, restructuring, and other special charges of $246.0 million. The charges are primarily associated with severance costs incurred as a result of actions taken to reduce the company’s cost structure. The charges also include expenses associated with the separation of the Elanco animal health business. In the fourth quarter of 2017, the company recognized asset impairment, restructuring and other special charges of $1.003 billion, primarily associated with efforts to reduce the company’s cost structure, including the U.S. voluntary early retirement program.

Operating income in the fourth quarter of 2018 was $954.2 million, compared to $172.2 million in the fourth quarter of 2017. The increase in operating income was driven primarily by lower asset impairment, restructuring, and other special charges and, to a lesser extent, higher gross margin, partially offset by higher expenses related to acquired in-process research and development.

Other income (expense) was expense of $15.3 million in the fourth quarter of 2018, compared with income of $111.9 million in the fourth quarter of 2017. The reduction in other income (expense) was primarily driven by lower net gains on sales of investments in the fourth quarter of 2018 as compared with 2017.

During the fourth quarter of 2018, the company recorded an income tax benefit of $186.2 million despite earning $938.9 million of income before income taxes. The income tax benefit was primarily due to the impact of U.S. tax reform. During the fourth quarter of 2017, the company recorded income tax expense of $1.941 billion, which included an estimated tax charge of $1.914 billion, despite earning $284.1 million of income before income taxes. The estimated tax charge in the fourth quarter of 2017 was based on U.S. tax reform enacted in December 2017.

In the fourth quarter of 2018, net income and earnings per share were $1.125 billion and $1.10, respectively, compared with a net loss of $1.657 billion and loss per share of $1.58 in the fourth quarter of 2017. The increases in net income and earnings per share in the fourth quarter of 2018 were driven by the impact of U.S. tax reform enacted in December 2017, and, to a lesser extent, higher operating income. Earnings per share growth also benefited from a reduction in weighted average shares outstanding resulting from the company’s share repurchase program.

Fourth-Quarter Non-GAAP Measures

On a non-GAAP basis, fourth-quarter 2018 gross margin increased 5 percent, to $4.931 billion compared with the fourth quarter of 2017. Gross margin as a percent of revenue was 76.6 percent, an increase of 0.5 percentage points. The increase in gross margin percent was primarily due to manufacturing efficiencies, partially offset by the negative impact of price on revenue.

Reflecting the company’s previously-announced actions to reduce its cost structure, operating expenses were 51.5 percent of revenue in the fourth quarter of 2018, a reduction of 1.9 percentage points compared with the fourth quarter of 2017.

Operating income increased $216.0 million, or 15 percent, to $1.617 billion in the fourth quarter of 2018 compared with the fourth quarter of 2017, due to higher gross margin.

The effective tax rate was 15.8 percent in the fourth quarter of 2018, compared with 20.2 percent in the fourth quarter of 2017. The lower effective tax rate for the fourth quarter of 2018 was primarily due to U.S. tax reform enacted in December 2017.

In the fourth quarter of 2018, net income increased 13 percent, to $1.358 billion, and earnings per share increased 17 percent, to $1.33, compared with $1.207 billion and $1.14, respectively, in the fourth quarter of 2017. The increases in net income and earnings per share were primarily driven by higher operating income. Earnings per share growth also benefited from a reduction in weighted average shares outstanding resulting from the company’s share repurchase program.

For further detail of non-GAAP measures, see the reconciliation below as well as the Reconciliation of GAAP Reported to Selected Non-GAAP Adjusted Information table later in this press release.

Fourth Quarter

2018

2017

% Change

Earnings (loss) per share (reported)

$

1.10

$

(1.58)

NM

Acquired in-process research and development

.26

.03

Asset impairment, restructuring and other special charges

.21

.75

Amortization of intangible assets

.07

.11

Income taxes(a)

(.31)

1.81

Other, net

—

.01

Earnings per share (non-GAAP)

$

1.33

$

1.14

17%

Numbers may not add due to rounding.

(a) Relates to adjustments for U.S. tax reform and tax expenses associated with the separation of the Elanco animal health business.

Full-Year Reported Results

For the full year 2018, worldwide revenue increased 7 percent compared with 2017 to $24.556 billion. The increase in revenue was driven by an 8 percent increase due to volume and a 1 percent increase due to the favorable impact of foreign exchange rates, partially offset by a 1 percent decrease due to lower realized prices.

Revenue in the U.S. increased 8 percent to $13.875 billion, driven by increased volume for newer pharmaceutical products, including Trulicity, Basaglar, Taltz, Verzenio and Jardiance. The increase in revenue was partially offset by decreased volume for products that have lost exclusivity, including Cialis, Effient and Strattera, as well as lower realized prices for several pharmaceutical products, including Trulicity, Basaglar, Forteo and Taltz.

Revenue outside the U.S. increased 6 percent to $10.681 billion, due to increased volume for several newer pharmaceutical products, including Trulicity, Olumiant, and Taltz and, to a lesser extent, the favorable impact of foreign exchange rates. The increase in revenue was partially offset by lower realized prices for several pharmaceutical products.

Gross margin increased 8 percent to $18.126 billion in 2018 compared with 2017. Gross margin as a percent of revenue was 73.8 percent, an increase of 0.7 percentage points. The increase in gross margin percent was primarily due to manufacturing efficiencies and lower amortization expenses, offset by the impact of foreign exchange rates on international inventories sold, the timing of manufacturing production and the negative impact of price on revenue.

Total operating expenses decreased 1 percent to $11.939 billion in 2018 compared with 2017. Research and development expenses decreased 1 percent to $5.307 billion, or 21.6 percent of revenue, driven by lower development expenses for lanabecestat following the discontinuation of its Phase 3 program in the second quarter of 2018, partially offset by higher development expenses for other late-stage assets. Marketing, selling and administrative expenses decreased 1 percent to $6.632 billion, due to lower expenses for late life-cycle products, partially offset by increased marketing expenses for newer products. Both research and development expenses and marketing, selling, and administrative expenses benefited from previously-announced actions taken to reduce the company’s cost structure.

In 2018, the company recognized acquired in-process research and development charges of $1.984 billion, primarily related to the previously announced acquisition of ARMO BioSciences and the previously announced business development transaction with Dicerna Pharmaceuticals. In 2017, the company recognized acquired in-process research and development charges of $1.113 billion resulting from business development activity, primarily related to the acquisition of CoLucid Pharmaceuticals.

In 2018, the company recognized asset impairment, restructuring and other special charges of $482.0 million. The charges are primarily associated with asset impairments related to the sale of the Posilac (rbST) brand and the related sale of the Augusta, Georgia manufacturing site, as well as the suspension of commercial activities for Imrestor. The charges also include expenses associated with the initial public offering and separation of the Elanco animal health business, as well as efforts to reduce the company’s cost structure. In 2017, the company recognized asset impairment, restructuring, and other special charges of $1.674 billion associated with efforts to reduce the company’s cost structure, including the U.S. voluntary early retirement program.

Operating income in 2018 increased 96 percent compared with 2017 to $3.721 billion, driven by lower asset impairment, restructuring, and other special charges and higher gross margin, partially offset by higher acquired in-process research and development expenses.

Other income (expense) was income of $74.8 million in 2018 compared to income of $300.5 million in 2017 driven by lower net gains on sales of investments.

During 2018, the company recorded income tax expense of $563.7 million, while earning $3.796 billion of income before income taxes, resulting in an effective tax rate of 14.9 percent. During 2017, the company recorded income tax expense of $2.402 billion, which included an estimated tax charge of $1.914 billion, despite earning $2.197 billion of income before income taxes. The estimated tax charge in 2017 was based on U.S. tax reform enacted in December 2017.

For the full year 2018, net income and earnings per share were $3.232 billion and $3.13, respectively, compared with a net loss of $204.1 million, and loss per share of $0.19, respectively, in 2017. The increases in net income and earnings per share were driven by the impact of U.S. tax reform enacted in December 2017, as well as higher operating income.

Full-Year Non-GAAP Measures

On a non-GAAP basis for the full year 2018, gross margin increased 7 percent, to $18.700 billion compared with the full year 2017. Gross margin as a percent of revenue was 76.2 percent, unchanged compared with the full year 2017.

Reflecting the company’s previously-announced actions to reduce its cost structure, operating expenses were 48.6 percent of revenue in 2018, a reduction of 4.0 percentage points compared with 2017. Operating income increased $1.365 billion, or 25 percent, to $6.766 billion driven primarily by higher gross margin and, to a lesser extent, lower operating expenses. The effective tax rate was 16.0 percent in 2018, compared with 20.5 percent in 2017. Net income increased 27 percent and earnings per share increased 30 percent to $5.735 billion and $5.55, respectively. The increases in net income and earnings per share were primarily driven by higher operating income.

For further detail of non-GAAP measures, see the reconciliation below as well as the Reconciliation of GAAP Reported to Selected Non-GAAP Adjusted Information table later in this press release.

Selected Established Pharma Products

Humalog

For the fourth quarter of 2018, worldwide Humalog revenue decreased 2 percent compared with the fourth quarter of 2017, to $770.4 million. Revenue in the U.S. decreased 2 percent, to $453.6 million, driven by lower realized prices primarily due to the impact of patient affordability programs. Revenue outside the U.S. decreased 1 percent, to $316.9 million, driven primarily by the unfavorable impact of foreign exchange rates and lower realized prices, largely offset by increased volume.

For the full year 2018, worldwide Humalog revenue increased 5 percent to $2.996 billion compared with the full year 2017. U.S. Humalog revenue for 2018 was $1.788 billion, a 4 percent increase, driven primarily by increased demand and, to a lesser extent, higher realized prices due to changes in estimates to rebates and discounts. Humalog revenue outside the U.S. was $1.209 billion, a 5 percent increase, driven by increased volume and, to a lesser extent, the favorable impact of foreign exchange rates, partially offset by lower realized prices.

Alimta

For the fourth quarter of 2018, Alimta generated worldwide revenue of $556.9 million, which increased 6 percent compared with the fourth quarter of 2017. U.S. revenue increased 16 percent, to$315.9 million, driven by higher realized prices and increased demand. Revenue outside the U.S. decreased 5 percent to $241.0 million, driven by lower realized prices and, to a lesser extent, the unfavorable impact of foreign exchange rates partially offset by increased volume.

For the full year 2018, worldwide Alimta revenue increased 3 percent to $2.133 billion compared with the full year 2017. U.S. Alimta revenue for 2018 was $1.131 billion, a 9 percent increase, driven by increased demand and higher realized prices. Alimta revenue outside the U.S. was $1.002 billion, a 3 percent decline, driven by lower volume due to competitive pressure and the loss of exclusivity in certain European countries, including Germany, and lower realized prices, partially offset by the favorable impact of foreign exchange rates.

Cialis

For the fourth quarter of 2018, worldwide Cialis revenue decreased 41 percent to $350.7 million. U.S. revenue was $174.2 million in the fourth quarter, a 52 percent decrease compared with the fourth quarter of 2017, driven by decreased demand due to the entry of generic tadalafil, partially offset by higher realized prices. Revenue outside the U.S. decreased 25 percent to $176.4 million, primarily driven by the loss of exclusivity in Europe.

For the full year 2018, worldwide Cialis revenue decreased 20 percent to $1.852 billion compared with the full year 2017. U.S. Cialis revenue for 2018 was $1.129 billion, a 17 percent decrease, driven by decreased demand primarily due to the entry of generic tadalafil, partially offset by higher realized prices. Cialis revenue outside the U.S. was $722.7 million, a 25 percent decline, driven by the loss of exclusivity in Europe.

Forteo

For the fourth quarter of 2018, worldwide revenue for Forteo was $437.1 million, a 15 percent decrease compared with the fourth quarter of 2017. U.S. revenue decreased 25 percent, to $228.2 million, primarily due to decreased demand, as well as lower realized prices. Revenue outside the U.S. remained flat at $208.9 million, driven by increased volume, offset by the unfavorable impact of foreign exchange rates and lower realized prices.

For the full year 2018, worldwide Forteo revenue decreased 10 percent to $1.576 billion compared with the full year 2017. U.S. Forteo revenue for 2018 was $757.9 million, a 21 percent decrease driven by decreased demand, and, to a lesser extent, lower realized prices. Forteo revenue outside the U.S. was $817.7 million, a 4 percent increase driven by increased volume and the favorable impact of foreign exchange rates, partially offset by lower realized prices.

Humulin

For the fourth quarter of 2018, worldwide Humulin revenue decreased 7 percent compared with the fourth quarter of 2017, to $337.4 million. U.S. revenue decreased 7 percent, to $232.9 million, driven by lower realized prices due to changes in estimates to rebates and discounts, partially offset by increased volume. Revenue outside the U.S. decreased 7 percent, to $104.6 million, primarily due to the unfavorable impact of foreign exchange rates and, to a lesser extent, decreased volume.

For the full year 2018, worldwide Humulin revenue remained flat at $1.331 billion compared with the full year 2017. U.S. revenue for 2018 was $910.2 million, a 3 percent increase, driven by increased volume, partially offset by lower realized prices primarily due to changes in segment mix and, to a lesser extent, the impact of patient affordability programs. Revenue outside the U.S. was $421.2 million, a 7 percent decline, driven primarily by decreased volume and, to a lesser extent, lower realized prices.

Select Products Launched Since 2014

Trulicity

Fourth-quarter 2018 worldwide Trulicity revenue was $924.7 million, an increase of 42 percent compared with the fourth quarter of 2017. U.S. revenue increased 40 percent, to $729.3 million, driven by higher demand, partially offset by lower realized prices primarily due to changes in estimates to rebates and discounts and changes in segment mix. Revenue outside the U.S. was $195.5 million, an increase of 51 percent, primarily driven by increased volume and, to a lesser extent, higher realized prices, partially offset by the unfavorable impact of foreign exchange rates.

For the full year 2018, worldwide Trulicity revenue was $3.199 billion, an increase of 58 percent compared with the full year 2017. U.S. revenue increased 56 percent, to $2.516 billion, driven by higher demand. Revenue outside the U.S. increased 63 percent, to $683.3 million primarily driven by increased volume and, to a lesser extent, the favorable impact of foreign exchange rates, partially offset by lower realized prices.

Taltz

For the fourth quarter of 2018, worldwide Taltz revenue was $307.0 million, an increase of 78 percent compared with the fourth quarter of 2017. U.S. revenue was $243.4 million, an increase of 71 percent, driven by higher demand and, to a lesser extent, the impact of specialty pharmacy and wholesaler buying patterns, partially offset by lower realized prices. Revenue outside the U.S. was $63.6 million, an increase of $33.6 million, driven by increased volume from recent launches, partially offset by lower realized prices.

For the full year 2018, Taltz generated worldwide revenue of $937.5 million, an increase of 68 percent compared with the full year 2017. U.S. revenue was $738.7 million, an increase of 52 percent primarily driven by increased demand, partially offset by lower realized prices. Revenue outside the U.S. was $198.7 million, an increase of $125.6 million, driven by increased volume from recent launches, partially offset by lower realized prices.

Cyramza

For the fourth quarter of 2018, worldwide Cyramza revenue was $220.6 million, an increase of 8 percent compared with the fourth quarter of 2017. U.S. revenue was $80.8 million, an increase of 9 percent, driven by increased demand and higher realized prices. Revenue outside the U.S. was $139.8 million, an increase of 7 percent, driven by increased volume, partially offset by lower realized prices and the unfavorable impact of foreign exchange rates.

For the full year 2018, worldwide Cyramza revenue was $821.4 million, an increase of 8 percent compared with the full year 2017. U.S. revenue increased 5 percent, to $291.5 million, driven by increased demand and, to a lesser extent, higher realized prices. Revenue outside the U.S. increased 10 percent, to $529.9 million, primarily due to increased volume and, to a lesser extent, the favorable impact of foreign exchange rates, partially offset by lower realized prices.

Basaglar

For the fourth quarter of 2018, Basaglar generated worldwide revenue of $232.2 million, an increase of 51 percent compared with the fourth quarter of 2017. U.S. revenue was $182.3 million, an increase of 59 percent, driven by increased demand, partially offset by lower realized prices due to increased volume in Medicare Part D. Revenue outside the U.S. was $49.9 million, an increase of 27 percent, primarily driven by increased volume, partially offset by lower realized prices and the unfavorable impact of foreign exchange rates. Basaglar is part of the company’s alliance with Boehringer Ingelheim, and Lilly reports total sales as revenue, with payments made to Boehringer Ingelheim for its portion of the gross margin reported as cost of sales.

For the full year of 2018, Basaglar generated worldwide revenue of $801.2 million. U.S. revenue was $622.8 million, an increase of $311.7 million compared with the full year 2017, driven by increased demand, partially offset by lower realized prices due to increased volume in Medicare Part D. Revenue outside of the U.S. was $178.5 million, an increase of $57.5 million, primarily driven by increased volume.

Jardiance

The company’s worldwide Jardiance revenue during the fourth quarter of 2018 was $193.2 million, an increase of 35 percent compared with the fourth quarter of 2017. U.S. revenue increased 25 percent, to $115.4 million, driven by increased demand. Revenue outside the U.S. was $77.8 million, an increase of 52 percent, primarily driven by increased volume, partially offset by the unfavorable impact of foreign exchange rates. Jardiance is part of the company’s alliance with Boehringer Ingelheim, and Lilly reports as revenue a portion of Jardiance’s gross margin.

For the full year 2018, worldwide Jardiance revenue was $658.3 million, an increase of 47 percent compared with the full year 2017. U.S. revenue increased 38 percent, to $400.2 million, driven by increased demand. Revenue outside the U.S. increased 64 percent, to $258.1 million, primarily driven by increased volume and, to a lesser extent, the favorable impact of foreign exchange rates.

Lartruvo

The company is suspending promotion of Lartruvo and is working with global regulators to determine the appropriate next steps. For the fourth quarter of 2018, Lartruvo generated worldwide revenue of $83.5 million, an increase of 41 percent compared with fourth quarter of 2017. U.S. revenue increased 20 percent, to $49.7 million, driven by increased demand. Revenue outside the U.S. was $33.8 million, an increase of $16.3 million, driven by increased volume from recent launches, partially offset by lower realized prices.

For the full year of 2018, Lartruvo generated worldwide revenue of $304.7 million, an increase of 50 percent compared with the full year 2017. U.S. revenue was $191.4 million, an increase of 18 percent compared with 2017, driven by increased demand. Revenue outside the U.S. increased $72.0 million to $113.3 million, primarily driven by increased volume, partially offset by lower realized prices.

Verzenio

For the fourth quarter of 2018, Verzenio generated worldwide revenue of $83.1 million, a decrease of $1.4 million compared with the third quarter of 2018. U.S. revenue was $76.5 million, a decrease of $8.0 million as increased demand was more than offset by the negative impact of wholesaler buying patterns and lower realized prices. Verzenio launched in several international markets in the fourth quarter of 2018 and generated revenue outside the U.S. of $6.6 million.

For the full year of 2018, Verzenio generated worldwide revenue of $255.0 million. U.S. revenue was $248.5 million and revenue outside of the U.S. was $6.6 million.

Olumiant

For the fourth quarter of 2018, Olumiant generated worldwide revenue of $70.1 million. U.S. revenue was $4.2 million. Revenue outside the U.S. was $65.9 million, an increase of $11.1 million compared with the third quarter of 2018, reflecting uptake of new launches in Europe.

For the full year of 2018, Olumiant generated worldwide revenue of $202.5 million, reflecting strong launch uptake in Germany. U.S. revenue was $6.7 million and revenue outside of the U.S. was $195.9 million.

Emgality

Emgality was launched in the U.S. in the fourth quarter of 2018 and generated U.S. revenue of $4.9 million.

Animal Health

In the fourth quarter of 2018, worldwide animal health revenue totaled $816.5 million, an increase of 3 percent compared with the fourth quarter of 2017, driven by increased volume and, to a lesser extent, higher prices, partially offset by the negative impact of foreign exchange rates. In terms of animal health product categories, higher sales of companion animal disease prevention products and future protein and health products were partially offset by lower sales of ruminants and swine products and, to a lesser extent, declines in companion animal therapeutics. For specific animal health product performance, refer to today’s Elanco Animal Health Incorporated press release.

For the full year of 2018, worldwide animal health revenue totaled $3.143 billion, an increase of 2 percent compared with the full year of 2017, driven by higher prices, partially offset by lower volume. In terms of animal health product categories, higher sales of companion animal disease prevention products, future protein and health products, and companion animal therapeutics were partially offset by lower sales of products that are being exited.

2019 Financial Guidance

The individual elements of the 2019 financial guidance outlined below include fully consolidated financial expectations for both the company’s human pharmaceutical business and Elanco Animal Health, with the exception of earnings per share, which excludes approximately $0.08 per share for the non-controlling interest in Elanco. Lilly plans to launch an exchange offer to Lilly shareholders in the first half of 2019 in order to divest its remaining ownership interest in Elanco. Once the exchange offer is completed, Lilly will restate 2019 financial guidance to reflect Elanco as discontinued operations.

The company has revised certain elements of its 2019 financial guidance on a reported basis and on a non-GAAP basis, primarily due to the anticipated impacts of both the pending acquisition of Loxo Oncology and the negative Phase 3 confirmatory trial for Lartruvo, partially offset by a more favorable underlying business outlook. On a reported basis, earnings per share for 2019 are now expected to be in the range of $4.57 to $4.67. On a non-GAAP basis, earnings per share are now expected to be in the range of $5.55 to $5.65.

The company now anticipates 2019 revenue between $25.1 billion and $25.6 billion. Revenue growth is still expected to be driven by volume from newer medicines including Trulicity, Taltz, Basaglar, Jardiance, Verzenio, Cyramza and Olumiant. Revenue growth is also expected to benefit from the recent launch of Emgality and the anticipated inclusion of Vitrakvi, and could benefit from the potential approval and launch of other medicines is 2019. Revenue growth is expected to be partially offset by lower revenue for Cialis and other products that have lost patent exclusivity. Revenue growth is also expected to be partially offset by the negative impact of foreign exchange rates, continued price pressures in the U.S. (including higher rebates in Medicare Part D) and some international markets, and the impact of the negative Lartruvo phase 3 study.

Gross margin as a percent of revenue rate is still expected to be approximately 75.0 percent on a reported basis and 76.5 percent on a non-GAAP basis.

Marketing, selling and administrative expenses are still expected to be in the range of $6.4 billion to $6.7 billion. Research and development expenses are now expected to be in the range of $5.8 billion to $6.0 billion, reflecting additional expenses associated with the pending acquisition of Loxo Oncology.

Other income (expense) is now expected to be expense between $150 million and $300 million, reflecting additional interest expense associated with financing of the pending acquisition of Loxo Oncology.

The 2019 effective tax rate is now expected to be approximately 16.5 percent on a reported basis and 15 percent on a non-GAAP basis.

Webcast of Conference Call

As previously announced, investors and the general public can access a live webcast of the fourth-quarter and full-year 2018 financial results conference call through a link on Lilly’s website at www.lilly.com. The conference call will be held today from 9 a.m. to 10:30 a.m. Eastern time (ET) and will be available for replay via the website.

Lilly is a global healthcare leader that unites caring with discovery to create medicines that make life better for people around the world. We were founded more than a century ago by a man committed to creating high-quality medicines that meet real needs, and today we remain true to that mission in all our work. Across the globe, Lilly employees work to discover and bring life-changing medicines to those who need them, improve the understanding and management of disease, and give back to communities through philanthropy and volunteerism. F-LLY

This press release contains management’s current intentions and expectations for the future, all of which are forward- looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The words "estimate", "project", "intend", "expect", "believe", "target", "anticipate" and similar expressions are intended to identify forward-looking statements. Actual results may differ materially due to various factors. There are significant risks and uncertainties in pharmaceutical research and development. There can be no guarantees that pipeline products will receive the necessary clinical and manufacturing regulatory approvals or that they will prove to be commercially successful. The company’s results may also be affected by such factors as the timing of anticipated regulatory approvals and launches of new products; market uptake of recently launched products; competitive developments affecting current products; the expiration of intellectual property protection for certain of the company’s products; the company’s ability to protect and enforce patents and other intellectual property; the impact of governmental actions regarding pricing, importation, and reimbursement for pharmaceuticals, including U.S. health care reform; regulatory compliance problems or government investigations; regulatory actions regarding currently marketed products; unexpected safety or efficacy concerns associated with the company’s products; issues with product supply stemming from manufacturing difficulties or disruptions; regulatory changes or other developments; changes in patent law or regulations related to data-package exclusivity; litigation involving current or future products; the extent to which third-party indemnification obligations relating to product liability litigation and similar matters will be performed; unauthorized disclosure of trade secrets or other confidential data stored in the company’s information systems and networks; changes in tax law and regulations, including the impact of tax reform legislation enacted in December 2017 and related guidance; changes in inflation, interest rates, and foreign currency exchange rates; asset impairments and restructuring charges; changes in accounting standards promulgated by the Financial Accounting Standards Board and the Securities and Exchange Commission (SEC); acquisitions and business development transactions and related integration costs, including that there can be no guarantee that the acquisition of Loxo Oncology, Inc. will be completed in the anticipated timeframe or at all, that Lilly will realize the expected benefits of the transaction, or that the potential products will be commercially successful; the impact of exchange rates and global macroeconomic conditions; and uncertainties and risks related to timing and potential value to both Elanco and Lilly of the planned full separation of the Elanco animal health business, including business, industry, and market risks, as well as risks involving realizing the anticipated tax-free nature of the separation. For additional information about the factors that could cause actual results to differ materially from forward-looking statements, please see the company’s latest Form 10-Q and Form 10-K filed with the SEC. You should not place undue reliance on forward-looking statements, which speak only as of the date of this release. Except as is required by law, the company expressly disclaims any obligation to publicly release any revisions to forward-looking statements to reflect events after the date of this release.

Additional Information Relating to the Elanco Exchange Offer and Where to Find It:
The terms and conditions of the exchange offer will be more fully described in the registration statement to be filed by Elanco with the SEC and a Schedule TO to be filed by Lilly with the SEC. The prospectus, which will be included in the registration statement, will contain important information about Lilly, Elanco, the planned separation of Elanco from Lilly and related matters. Lilly will mail the prospectus to its shareholders. Investors and security holders are urged to read carefully and in its entirety the prospectus and any other relevant documents filed with the SEC by Lilly and Elanco, if and when they become available and before making any investment decision. None of Lilly, Elanco, or any of their respective directors or officers or any dealer manager appointed with respect to the exchange offer makes any recommendation as to whether investors should participate in the exchange offer. Investors will be able to obtain a free copy of the prospectus and other related documents filed with the SEC by Lilly and Elanco at the SEC’s website at www.sec.gov. Those documents may also be obtained for free, as applicable, from Lilly at www.lilly.com or Elanco at www.elanco.com.

Additional Information about the Loxo Acquisition and Where to Find It:
This announcement is for informational purposes only and is neither an offer to purchase nor a solicitation of an offer to sell shares of Loxo Oncology, nor is it a substitute for the tender offer materials that Lilly and its acquisition subsidiary filed with the SEC upon commencement of the tender offer on January 17, 2019. At the time the tender offer was commenced, Lilly and its acquisition subsidiary filed tender offer materials on Schedule TO, and Loxo Oncology filed a Solicitation/Recommendation Statement on Schedule 14D-9 with the SEC with respect to the tender offer. THE TENDER OFFER MATERIALS (INCLUDING AN OFFER TO PURCHASE, A RELATED LETTER OF TRANSMITTAL AND CERTAIN OTHER TENDER OFFER DOCUMENTS) AND THE SOLICITATION/RECOMMENDATION STATEMENT CONTAIN IMPORTANT INFORMATION. HOLDERS OF SHARES OF LOXO ONCOLOGY ARE URGED TO READ THESE DOCUMENTS CAREFULLY (AS EACH MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME) BECAUSE THEY CONTAIN IMPORTANT INFORMATION THAT HOLDERS OF LOXO ONCOLOGY SECURITIES SHOULD CONSIDER BEFORE MAKING ANY DECISION REGARDING TENDERING THEIR SECURITIES. The Offer to Purchase, the related Letter of Transmittal and certain other tender offer documents, as well as the Solicitation/Recommendation Statement, are available to all holders of shares of Loxo Oncology at no expense to them. The tender offer materials and the Solicitation/Recommendation Statement are available for free at the SEC’s web site at www.sec.gov. In addition to the Offer to Purchase, the related Letter of Transmittal and certain other tender offer documents, as well as the Solicitation/Recommendation Statement, Lilly and Loxo Oncology file annual, quarterly and special reports and other information with the SEC. You may read and copy any reports or other information filed by Lilly or Loxo Oncology at the SEC public reference room at 100 F Street, N.E., Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for further information on the public reference room. Lilly’s and Loxo Oncology’s filings with the SEC are also available to the public from commercial document-retrieval services and at the website maintained by the SEC at www.sec.gov.