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(1) In collaboration with Almirall, S.A. in Europe.
(2) Fast Track designation is designed to facilitate the development and expedite the review of medicines to treat serious conditions and fill an unmet medical need.
(3) Continued approval may be contingent on verification and description of clinical benefit in confirmatory Phase 3 trials.
There are many difficulties and uncertainties inherent in pharmaceutical research and development, the introduction of new products and indications, business development activities to enhance or refine our product pipeline, and commercialization of our products. There is a high rate of failure inherent in drug discovery and development. To bring a product from the discovery phase to market takes considerable time and entails significant cost. See Item 1A, "Risk Factors—Risks Related to Our Business and Industry—Pharmaceutical research and development is very costly and highly uncertain; we may not succeed in developing, licensing, or acquiring commercially successful products sufficient in number or value to replace revenues of products that have lost or will lose intellectual property protection or are displaced by competing products or therapies," for additional information.
We manage research and development spending across our portfolio of potential new medicines and indications. A delay in, or termination of, any one project will not necessarily cause a significant change in our total research and development spending. Due to the risks and uncertainties involved in the research and development process, we cannot reliably estimate the nature, timing, and costs of the efforts necessary to complete the development of our research and development projects, nor can we reliably estimate the future potential revenue that will be generated from any successful research and development project. Each project represents only a portion of the overall pipeline, and none is individually material to our consolidated research and development expense. While we do accumulate certain research and development costs on a project level for internal reporting purposes, we must make significant cost estimations and allocations, some of which rely on data that are neither reproducible nor validated through accepted control mechanisms. Therefore, we do not have sufficiently reliable data to report on total research and development costs by project, by pre-clinical versus clinical spend, or by therapeutic category.
Other Matters
Patent Matters
We depend on patents or other forms of intellectual property protection for most of our revenue, cash flows, and earnings.
See Note 16 to the consolidated financial statements for a description of legal proceedings currently pending regarding certain of our patents.
See Item 1, "Business—Patents, Trademarks, and Other Intellectual Property Rights," for a discussion of the impacts of trends involving intellectual property on our business and results.
Trends Affecting Pharmaceutical Pricing, Reimbursement, and Access and Certain Other Regulatory Developments
Reforms, including those that may stem from political initiatives, periods of uneven economic growth or downturns, or as a result of inflation or deflation, the emergence or escalation of, and responses to, international tension and conflicts, or government budgeting priorities, are expected to continue to result in added pressure on pricing and reimbursement for our products.
Global concern over access to, and affordability of, pharmaceutical products continues to drive regulatory and legislative debate and action, as well as cost containment efforts by governmental authorities. Such measures include the use of mandated discounts, price reporting requirements, mandated reference prices, restrictive formularies, changes to available intellectual property protections, as well as other efforts. In 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (IRA). Among other measures, the IRA requires the U.S. Department of Health and Human Services (HHS) to effectively set prices for certain single-source drugs and biologics reimbursed under Medicare Part B and Part D. Generally, these government prices apply beginning at nine years (for medicines approved under a New Drug Application) or thirteen years (for medicines approved under a Biologics License Application) following FDA approval or licensure for the molecule and are set at a price that generally represents a significant discount from existing prices to wholesalers and direct purchasers. While the law specifies a maximum price that HHS can set, it does not set a minimum price. The Medicare price HHS determines may impact the product's best price determination under the Medicaid Drug Rebate Program and the 340B Drug Pricing Program, potentially leading to a negative impact on both Medicaid and 340B prices. In August 2023, HHS selected Jardiance, which is part of our collaboration with Boehringer Ingelheim, as one of the first ten medicines subject to government-set prices effective in 2026. In August 2024, HHS announced the government-set prices for these medicines with Jardiance subject to a 66% discount compared to the 2023 U.S. calendar year list price for a 30-day supply and discounts for the other nine medicines ranging from approximately 38% to 79% below list price. Given our product portfolio, we expect additional significant products will be selected in future years, which would have the effect of accelerating revenue erosion prior to expiry of exclusivities. The effect of reducing prices and reimbursement for certain of our products could significantly impact our business and consolidated results of operations.
Other IRA provisions require drug manufacturers to provide rebates for Medicare Part B and Part D medicines under certain circumstances. Also, on January 1, 2025, the Part D benefit redesign replaced the Part D Coverage Gap Discount Program with a new manufacturer discount program. Manufacturers that fail to comply with the IRA may be subject to various penalties, including civil monetary penalties, which could be significant.
The IRA has, and will continue to, meaningfully influence our business strategies and those of our competitors. In particular, the nine-year timeline to set prices for medicines approved under a New Drug Application reduces the attractiveness of investment in small molecule innovation. The IRA can cause changes to development approach and timing and investments at-risk. The full impact of the IRA on our business and the pharmaceutical industry, including the implications to us of a competitor's product being selected for price setting, remains uncertain.
Additional policies, regulations, legislation, or enforcement, including those proposed or pursued by lawmakers, regulators, and other authorities in the U.S. and worldwide, could adversely impact our business and consolidated results of operations. For example, the U.S. House of Representatives recently passed the BIOSECURE Act, which is under consideration in the U.S. Senate. This legislation, if passed, could affect elements of the pharmaceutical supply chain; although as currently drafted we do not anticipate the bill would have a material impact on our business.
Consolidation and integration of private payers and pharmacy benefit managers in the U.S. has also significantly impacted the market for pharmaceuticals by increasing payer leverage in negotiating manufacturer price or rebate concessions and pharmacy reimbursement rates. Furthermore, restrictive or unfavorable pricing, coverage, or reimbursement determinations for our medicines or product candidates by governments, regulatory agencies, courts, or private payers may adversely impact our business and consolidated results of operations. We expect that these actions may intensify and could particularly affect certain products, which could adversely affect our business. In addition, we are engaged in litigation and investigations related to the 340B program, access to insulin, pricing, product safety, and other matters that, if resolved adversely to us, could negatively impact our business and consolidated results of operations. It is not currently possible to predict the overall potential adverse impact to us or the general pharmaceutical industry of continued cost containment efforts worldwide.
In addition, regulatory issues concerning compliance with current Good Manufacturing Practices, quality assurance, safety signals, evolving standards, and increased scrutiny around excipients and potential impurities such as nitrosamines, and similar regulations and standards (and comparable foreign regulations and standards) for our products in some cases lead to regulatory and legal actions, product recalls and seizures, fines and penalties, interruption of production leading to product shortages, import bans or denials of import certifications, inability to realize the benefit of capital expenditures, or delays or denials in new product approvals, line extensions or supplemental approvals of current products pending resolution of the issues, or other negative impacts, any of which result in reputational harm or adversely affect our business.
See Item 1, "Business—Regulations and Private Payer Actions Affecting Pharmaceutical Pricing, Reimbursement, and Access," Item 1A, "Risk Factors," and Note 16 to the consolidated financial statements for additional information.
Incretin Medicines
At various times during 2024, demand for our incretin medicines exceeded production. Supply and channel dynamics have also contributed to variability in quarter-over-quarter revenue growth rates for tirzepatide. Tirzepatide supply currently exceeds demand in the U.S. Demand in launched markets remains dynamic, and increases or changes in demand, by dose or overall, as well as the complex supply chain, may result in periodic unavailability of certain presentations and dose levels at certain locations even when total tirzepatide supply can meet demand. Supply considerations will continue to influence the timing and approach (including available presentations) of tirzepatide launches in new markets. We continue to expand manufacturing capacity and progress efforts to bring tirzepatide to patients via different delivery presentations, such as single-use vials and multi-use pens. Production increases will continue, and additional capacity is expected to be operational over the next several years.
We have seen an increase in the production, marketing, and sale of counterfeit, misbranded, adulterated, and compounded incretins. These practices may impact patient safety and undermine regulatory drug approval processes. Lilly will continue to consider all options, including filing lawsuits where appropriate, to address unlawful practices and the patient safety risks of unapproved, untested, and manipulated drugs.
See Item 1, "Business—Government Regulation of Our Operations and Products” and Item 1A, "Risk —Risks Related to Our Business and Industry—We and our products face intense competition, including from multinational pharmaceutical companies, biotechnology companies, and lower-cost generic and biosimilar manufacturers, and such competition could have a material adverse effect on our business," for additional information.
Tax Matters
We are subject to income taxes and various other taxes in the U.S. and in many foreign jurisdictions; therefore, changes in both domestic and international tax laws or regulations have affected and may affect our effective tax rate, results of operations, and cash flows. The U.S. and countries around the world are actively proposing and enacting tax law changes. Further, actions taken with respect to tax-related matters by associations such as the Organisation for Economic Co-operation and Development (OECD) and the European Commission could influence tax laws in countries in which we operate. Tax authorities in the U.S. and other jurisdictions in which we do business routinely examine our tax returns and are expected to increase their scrutiny of cross-border tax issues. Changes to existing U.S. and foreign tax laws and increased scrutiny by tax authorities in the U.S. and other jurisdictions could have a material adverse impact our future consolidated results of operations and cash flows.
Effective January 1, 2024, several EU and non-EU countries enacted legislation (known as "Pillar Two") that provided for a minimum level of taxation of multinational companies. The increase to income tax expense as a result of the global minimum tax was not material in 2024 and is not expected to be material in current and future years. Our assessment of the impact for 2025 and subsequent years could be affected by legislative guidance and future enactment of additional provisions.
Acquisitions
We invest in external research and technologies and manufacturing capabilities that we believe complement and strengthen our own efforts. These investments can take many forms, including acquisitions, collaborations, investments, and licensing arrangements. We view our business development activity as a way to enhance or refine our pipeline and strengthen our business.
See Note 3 to the consolidated financial statements for further discussion regarding our recent acquisitions.
Continued regulatory focus on business combinations in our industry, including by the Federal Trade Commission and competition authorities in Europe and other jurisdictions, could continue to delay, jeopardize, or increase the costs of our business development activities and may negatively impact our consolidated financial position or results of operations. For discussion of risks related to business development activities, see Item 1A, "Risk Factors—Risks Related to Our Business and Industry—Pharmaceutical research and development is very costly and highly uncertain; we may not succeed in developing, licensing, or acquiring commercially successful products sufficient in number or value to replace revenues of products that have lost or will lose intellectual property protection or are displaced by competing products or therapies."
Foreign Currency Exchange Rates
As a global company, we face foreign currency risk exposure from fluctuating currency exchange rates, primarily the U.S. dollar against the euro, Japanese yen, and Chinese yuan. While we seek to manage a portion of these exposures through hedging and other risk management techniques, significant fluctuations in currency rates can have a material impact, either positive or negative, on our consolidated results of operations in any given period. There is uncertainty in the future movements in foreign currency exchange rates, and fluctuations in these rates have and could adversely impact our consolidated results of operations and cash flows.
Other Factors
Other factors have had, and may continue to have, an impact on our consolidated results of operations. These factors include cost and wage inflation, supply chain and labor market complexities, international tension and conflicts, uneven economic growth or downturns or uncertainty, and an increase in overall demand in our industry for certain products and materials.
See Item 1A, "Risk Factors," for additional information on risk factors that could impact our business and operations.
RESULTS OF OPERATIONS
Operating Results—2024
Revenue
The following table summarizes our revenue activity by region:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | |
| 2024 | | 2023 | | Percent Change |
| U.S. | $ | 30,375.2 | | | $ | 21,791.0 | | | 39 |
| Outside U.S. | 14,667.5 | | | 12,333.1 | | | 19 |
| Revenue | $ | 45,042.7 | | | $ | 34,124.1 | | | 32 |
Numbers may not add due to rounding.
The following are components of the change in revenue compared with the prior year:
| | | | | | | | | | | |
| 2024 vs. 2023 |
| U.S. | Outside U.S. | Consolidated |
| Volume | 31 | % | 20 | % | 27 | % |
| Price | 8 | % | — | % | 5 | % |
| Foreign exchange rates | — | % | (1) | % | — | % |
| Percent change | 39 | % | 19 | % | 32 | % |
Numbers may not add due to rounding.
In the U.S. the increase in volume in 2024 was primarily driven by Zepbound and Mounjaro, partially offset by Trulicity. In the U.S. the higher realized prices in 2024 were primarily driven by Humalog, Mounjaro, Verzenio, and Zepbound.
Outside the U.S. the increase in volume in 2024 was primarily driven by Mounjaro and, to a lesser extent, Verzenio, as well as a one-time payment received of $300.0 million related to Jardiance associated with an amendment to our collaboration with Boehringer Ingelheim. Outside the U.S. the increase in volume in 2024 was partially offset by the 2023 sale of rights for the olanzapine portfolio.
The following table summarizes our revenue, including net product revenue and collaboration and other revenue, by product in 2024 compared with 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | |
| | 2024 | | 2023 | | Percent Change |
| U.S. | | Outside U.S. | | Total | | Total |
| Mounjaro | $ | 8,949.9 | | | $ | 2,590.2 | | | $ | 11,540.1 | | | $ | 5,163.1 | | | 124 |
| Verzenio | 3,420.6 | | | 1,886.0 | | | 5,306.6 | | | 3,863.4 | | | 37 |
| Trulicity | 3,693.8 | | | 1,559.7 | | | 5,253.5 | | | 7,132.6 | | | (26) |
| Zepbound | 4,925.7 | | | — | | | 4,925.7 | | | 175.8 | | | NM |
Jardiance(1) | 1,597.5 | | | 1,743.4 | | | 3,340.9 | | | 2,744.7 | | | 22 |
| Taltz | 2,152.3 | | | 1,108.1 | | | 3,260.4 | | | 2,759.6 | | | 18 |
Humalog(2) | 1,502.6 | | | 822.2 | | | 2,324.8 | | | 1,663.3 | | | 40 |
| Cyramza | 442.2 | | | 531.0 | | | 973.3 | | | 974.7 | | | — |
Olumiant | 228.7 | | | 728.7 | | | 957.4 | | | 922.6 | | | 4 |
| Humulin | 643.4 | | | 273.7 | | | 917.1 | | | 852.1 | | | 8 |
| Emgality | 559.7 | | | 310.7 | | | 870.4 | | | 678.3 | | | 28 |
Basaglar(3) | 375.4 | | | 301.5 | | | 676.9 | | | 728.3 | | | (7) |
| Erbitux | 562.1 | | | 65.3 | | | 627.4 | | | 596.5 | | | 5 |
| Tyvyt | — | | | 526.0 | | | 526.0 | | | 393.4 | | | 34 |
Zyprexa(4) | 2.0 | | | 114.3 | | | 116.3 | | | 1,694.8 | | | (93) |
| Baqsimi | 2.5 | | | 26.7 | | | 29.1 | | | 677.6 | | | (96) |
| Other products | 1,316.8 | | | 2,080.0 | | | 3,396.8 | | | 3,103.3 | | | 9 |
| Revenue | $ | 30,375.2 | | | $ | 14,667.5 | | | $ | 45,042.7 | | | $ | 34,124.1 | | | 32 |
Numbers may not add due to rounding.
NM - not meaningful
(1) Jardiance revenue includes Glyxambi, Synjardy, and Trijardy XR.
(2) Humalog revenue includes insulin lispro.
(3) Basaglar revenue includes Rezvoglar.
(4) Zyprexa revenue includes sale of the rights for the olanzapine portfolio in 2023.
Revenue of Mounjaro increased 85 percent in the U.S., primarily driven by strong demand and increased supply. Revenue outside of the U.S. was $2.59 billion in 2024 compared to $328.9 million in 2023, primarily driven by volume growth in launched markets.
Revenue of Verzenio increased 36 percent in the U.S., driven by increased demand, wholesaler buying patterns and, to a lesser extent, higher realized prices. Revenue outside the U.S. increased 39 percent, driven by increased demand.
Revenue of Trulicity decreased 32 percent in the U.S., driven by decreased volume primarily due to competitive dynamics and supply constraints during the first half of 2024. Revenue outside the U.S. decreased 8 percent, driven by decreased volume primarily due to competitive dynamics and actions we have taken to manage demand.
Revenue of Zepbound in the U.S. in 2024 was $4.93 billion, compared to $175.8 million in 2023. Zepbound launched in the U.S. for the treatment of adult patients with obesity or overweight with weight-related comorbidities in November 2023.
Revenue of Jardiance remained relatively flat in the U.S. as increased demand was offset by lower realized prices. Revenue outside the U.S. increased 52 percent, driven by increased volume and a one-time payment received of $300.0 million associated with an amendment to our collaboration with Boehringer Ingelheim. Pursuant to the amendment, we and Boehringer Ingelheim adjusted commercialization responsibilities for Jardiance within certain smaller markets. See Note 4 to the consolidated financial statements for information regarding our collaboration with Boehringer Ingelheim involving Jardiance.
Revenue of Taltz increased 18 percent in the U.S., driven by higher realized prices due to changes in estimates for rebates and discounts, as well as increased demand. Revenue outside the U.S. increased 19 percent, primarily driven by increased demand.
Gross Margin, Costs, and Expenses
The following table summarizes our gross margin, costs, and expenses:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | Percent Change |
| 2024 | | 2023 | |
| Gross margin | $ | 36,624.4 | | | $ | 27,041.9 | | | 35 |
| Gross margin as a percent of revenue | 81.3 | % | | 79.2 | % | | |
| Research and development | $ | 10,990.6 | | | $ | 9,313.4 | | | 18 |
| Marketing, selling, and administrative | 8,593.8 | | | 7,403.1 | | | 16 |
Acquired in-process research and development | 3,280.4 | | | 3,799.8 | | | (14) |
| Asset impairment, restructuring, and other special charges | 860.6 | | | 67.7 | | | NM |
| Other—net, (income) expense | 218.6 | | | (96.7) | | | NM |
| Income taxes | 2,090.4 | | | 1,314.2 | | | 59 |
| Effective tax rate | 16.5 | % | | 20.1 | % | | |
NM - not meaningful
Gross margin as a percent of revenue in 2024 increased 2.1 percentage points compared with 2023, primarily driven by favorable product mix and higher realized prices.
Research and development expenses increased 18 percent in 2024, primarily driven by continued investments in our early and late-stage portfolio.
Marketing, selling, and administrative expenses increased 16 percent in 2024, primarily driven by promotional efforts supporting ongoing and future launches.
Acquired in-process research and development (IPR&D) charges recognized in 2024 primarily related to the acquisition of Morphic. Acquired IPR&D charges recognized in 2023 primarily related to acquisitions of DICE Therapeutics, Inc., Versanis Bio, Inc., Emergence Therapeutics AG, and Mablink Biosciences SAS and from a business development transaction with Beam Therapeutics Inc. See Note 3 to the consolidated financial statements for additional information.
Asset impairment, restructuring, and other special charges recognized in 2024 primarily related to a $435.0 million litigation charge and an intangible asset impairment for Vitrakvi, driven by expected commercial projections. See Notes 5 and 16 to the consolidated financial statements for additional information.
Our effective tax rate was 16.5 percent in 2024, compared with an effective tax rate of 20.1 percent in 2023. The effective tax rates for 2024 and 2023 were both unfavorably impacted by non-deductible acquired IPR&D charges, with a larger impact occurring in 2023. See Note 14 to the consolidated financial statements for additional information.
For additional information for other–net, (income) expense, see Note 18 to the consolidated financial statements.
Operating Results—2023
For a discussion of our results of operations pertaining to 2023 and 2022 see Item 7, "Management's Discussion and Analysis of Results of Operations and Financial Condition" in our Annual Report on Form 10-K for the year ended December 31, 2023.
FINANCIAL CONDITION AND LIQUIDITY
We believe our available cash and cash equivalents, together with our ability to generate operating cash flow and our access to short-term and long-term borrowings, are sufficient to fund our existing and planned capital requirements, which include:
•working capital requirements, including related to employee payroll and benefits, clinical trials, manufacturing materials, and taxes;
•capital expenditures;
•share repurchases and dividends;
•repayment of outstanding short-term and long-term borrowings;
•milestone and royalty payments;
•potential business development activities, including acquisitions, collaborations, investments, and licensing arrangements; and
•contributions to our defined benefit pension and retiree health benefit plans.
Our management continuously evaluates our liquidity and capital resources, including our access to external capital, to ensure we can adequately and efficiently finance our capital requirements. As of December 31, 2024, our material cash requirements primarily related to purchases of goods and services to produce our products and conduct our operations, income tax payments, capital expenditures, dividends, milestone and royalty payments, business development activities, share repurchases and repayment of outstanding borrowings (see Notes 14, 4, 3, 13, and 11 to the consolidated financial statements). We anticipate our cash requirements related to ordinary course purchases of goods and services will be consistent with our past levels relative to revenues.
Capital expenditures were $5.06 billion during 2024, compared to $3.45 billion in 2023. We are making investments in global facilities to manufacture existing and future products. These investments, and other capital investments that support our operations, have increased our capital expenditures and will result in meaningfully higher capital expenditures over the next several years.
As we expand our manufacturing capacity in order to meet existing and expected demand of our medicines, we have entered, and expect to continue to enter, into various agreements for contract manufacturing and for supply of materials. The executed agreements could, under certain circumstances, require us to pay up to approximately $14 billion if we do not purchase specified amounts of goods or services primarily related to our incretin medicines, including medicines in development, over the durations of the agreements, which are generally up to 8 years.
Cash and cash equivalents increased to $3.27 billion as of December 31, 2024, compared with $2.82 billion at December 31, 2023. Net cash provided by operating activities increased to $8.82 billion in 2024, compared with $4.24 billion in 2023. Refer to the consolidated statements of cash flows for additional information on the significant sources and uses of cash for the years ended December 31, 2024 and 2023.
In addition to our cash and cash equivalents, we held total investments of $3.37 billion and $3.16 billion as of December 31, 2024 and 2023, respectively. See Note 7 to the consolidated financial statements for additional information.
We paid $3.35 billion in 2024 for acquired IPR&D primarily related to the acquisition of Morphic. We paid $947.7 million in 2024 primarily related to the acquisition of a manufacturing site in Wisconsin. See Note 3 to the consolidated financial statements for additional information.
As of December 31, 2024, total debt was $33.64 billion, an increase of $8.42 billion compared with $25.23 billion at December 31, 2023. In February 2025, we issued $6.5 billion of fixed-rate notes. We expect to use the net cash proceeds from the offering to fund potential business development activities, as well as general business purposes, including the repayment of outstanding commercial paper. See Note 11 to the consolidated financial statements for additional information.
As of December 31, 2024, we had a total of $8.45 billion of unused committed bank credit facilities, $8.00 billion of which is available to support our commercial paper program. See Note 11 to the consolidated financial statements for additional information. We believe that amounts accessible through existing commercial paper markets should be adequate to fund short-term borrowing needs.
Dividends of $5.20 per share and $4.52 per share were paid in 2024 and 2023, respectively. The quarterly dividend was increased to $1.50 per share effective for the dividend to be paid in the first quarter of 2025, resulting in an indicated annual rate for 2025 of $6.00 per share.
In 2024, we repurchased $2.50 billion of shares, which completed our $5.00 billion share repurchase program that our board authorized in May 2021. Our board authorized a $15.00 billion share repurchase program in December 2024. No shares were repurchased under this new program as of December 31, 2024. See Note 13 to the consolidated financial statements for additional information.
See "—Executive Overview—Other Matters—Patent Matters" for information regarding losses of patent protection.
Both domestically and abroad, we monitor the potential impacts of the economic environment and international tension and conflicts; the creditworthiness of our wholesalers and other customers, including foreign government-backed agencies and suppliers; the uncertain impact of healthcare legislation; and various international government funding levels.
In the normal course of business, our operations are exposed to fluctuations in interest rates, currency values, and fair values of equity securities. These fluctuations impact the costs of financing, investing, and operating our business. We seek to address a portion of these risks through a controlled program of risk management that includes the use of derivative financial instruments. The objective of this risk management program is to limit the impact on earnings of fluctuations in interest and currency exchange rates. All derivative activities are for purposes other than trading.
Our primary interest rate risk exposure results from changes in short-term U.S. dollar interest rates. In an effort to manage interest rate exposures, we strive to achieve an acceptable balance between fixed and floating rate debt positions and in some cases we enter into interest rate derivatives to help maintain that balance. As of December 31, 2024, all of our total long-term debt is at a fixed rate. We have converted approximately 5 percent of our long-term fixed-rate notes to floating rates through the use of interest rate swaps. Based on our overall interest rate exposure at December 31, 2024 and 2023, including derivatives and other interest rate risk-sensitive instruments, a hypothetical 10 percent change in interest rates applied to the fair value of the instruments as of December 31, 2024 and 2023, respectively, would not have a material impact on earnings, cash flows, or fair values of interest rate risk-sensitive instruments over a one-year period.
Our foreign currency risk exposure results from fluctuating currency exchange rates, primarily the U.S. dollar against the euro, Japanese yen, and Chinese yuan. We face foreign currency exchange exposures when we enter into transactions arising from subsidiary trade and loan payables and receivables denominated in foreign currencies. We also face currency exposure that arises from translating the results of our global operations to the U.S. dollar at exchange rates that have fluctuated from the beginning of the period. We in some cases enter into foreign currency forward or option derivative contracts to reduce the effect of fluctuating currency exchange rates (primarily the euro, Chinese yuan, and Japanese yen). Our corporate risk-management policy outlines the minimum and maximum hedge coverage of such exposures. Gains and losses on these derivative contracts offset, in part, the impact of currency fluctuations on the existing assets and liabilities. We periodically analyze the fair values of the outstanding foreign currency derivative contracts to determine their sensitivity to changes in foreign exchange rates. A hypothetical 10 percent change in exchange rates (primarily against the U.S. dollar) applied to the fair values of our outstanding foreign currency derivative contracts as of December 31, 2024 and 2023, would not have a material impact on earnings, cash flows, or financial position over a one-year period. This sensitivity analysis does not consider the impact that hypothetical changes in exchange rates would have on the underlying foreign currency denominated transactions.
Our fair value risk exposure relates primarily to our public equity investments and to our equity investments that do not have readily determinable fair values. As of December 31, 2024 and 2023, our carrying values of these investments were $1.35 billion and $1.32 billion, respectively. A hypothetical 20 percent change in fair value of the equity instruments would have impacted other-net, (income) expense by $269.9 million and $263.9 million as of December 31, 2024 and 2023, respectively.
We have no off-balance sheet arrangements that have a material current effect or that are reasonably likely to have a material future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources. We acquire and collaborate on potential products still in development and enter into research and development arrangements with third parties that often require milestone and royalty payments to the third-party contingent upon the occurrence of certain future events linked to the success of the asset in development. Milestone payments may be required contingent upon the successful achievement of an important point in the development life cycle of the pharmaceutical product (e.g., approval for marketing by the appropriate regulatory agency or upon the achievement of certain sales levels). If required by the arrangement, we may make royalty payments based upon a percentage of the sales of the product in the event that regulatory approval for marketing is obtained.
Individually, these arrangements are generally not material in any one annual reporting period. However, if milestones for multiple products covered by these arrangements were reached in the same reporting period, the aggregate expense or aggregate milestone payments made could be material to our results of operations or cash flows, respectively, in that period. See Note 4 to the consolidated financial statements for additional information. These arrangements often give us the discretion to unilaterally terminate development of the product, which would allow us to avoid making the contingent payments; however, we are unlikely to cease development if the compound successfully achieves milestone objectives. We view these payments as positive because they signify that the product is successfully moving through development and is now generating or is more likely to generate cash flows from sales of products.
APPLICATION OF CRITICAL ACCOUNTING ESTIMATES
In preparing our financial statements in accordance with accounting principles generally accepted in the U.S., we must often make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures. Some of those judgments can be subjective and complex, and consequently actual results could differ from those estimates. For any given individual estimate or assumption we make, it is possible that other people applying reasonable judgment to the same facts and circumstances could develop different estimates. We believe that, given current facts and circumstances, it is unlikely that applying any such other reasonable judgment would cause a material adverse effect on our consolidated results of operations, financial position, or liquidity for the periods presented in this Annual Report on Form 10-K. Our most critical accounting estimates have been discussed with our audit committee and are described below.
Revenue Recognition and Sales Return, Rebate, and Discount Accruals
Background and Uncertainties
We recognize revenue primarily from two different types of contracts, product sales to customers (net product revenue) and collaborations and other arrangements. For product sales to customers, provisions for returns, rebates and discounts are established in the same period the related product sales are recognized. To determine the appropriate transaction price for our product sales at the time we recognize a sale to a direct customer, we estimate any rebates or discounts that ultimately will be due to the direct customer and other customers in the distribution chain under the terms of our contracts. Significant judgments are required in making these estimates. The largest of our sales rebate and discount amounts include rebates associated with sales covered by managed care, Medicare, Medicaid, and chargeback programs, as well as reductions in revenue related to our patient assistance programs, in the U.S. In determining the appropriate accrual amount, we consider our historical rebate payments for these programs, as well as patient assistance program costs, by product as a percentage of our historical sales as well as any significant changes in sales trends (e.g., patent expiries and product launches), an evaluation of the current contracts for these programs, the percentage of our products that are sold via these programs, and our product pricing. Although we accrue a liability for revenue reductions related to these programs at the time we record the sale, the reduction related to that sale is typically paid up to six months later. Because of this time lag, in any particular period our net product revenue may incorporate revisions of accruals for several periods.
Refer to Note 2 to the consolidated financial statements for further information on revenue recognition and sales return, rebate, and discount accruals.
Revenue recognized from collaborations and other arrangements includes our share of profits from the collaborations, as well as royalties, upfront and milestone payments we receive under these types of contracts.
Financial Statement Impact
We believe that our accruals for sales returns, rebates, and discounts are reasonable and appropriate based on current facts and circumstances. Our rebate and discount liabilities are included in sales rebates and discounts on our consolidated balance sheet. Our sales return liability is included in other current liabilities and other noncurrent liabilities on our consolidated balance sheet. As of December 31, 2024, a 5 percent change in our consolidated sales return, rebate, and discount liability would result in a change in revenue of approximately $600 million.
The portion of our consolidated sales return, rebate, and discount liability resulting from sales of our products in the U.S. was approximately 90 percent as of December 31, 2024 and 2023.
The following represents a roll-forward of our most significant U.S. sales return, rebate, and discount liability balances, including managed care, Medicare, Medicaid, chargeback, and patient assistance programs:
| | | | | | | | | | | |
| 2024 | | 2023 |
| Sales return, rebate, and discount liabilities, beginning of year | $ | 10,667.5 | | | $ | 8,214.1 | |
Reduction of net sales(1) | 41,452.3 | | | 37,866.8 | |
| Cash payments | (41,807.0) | | | (35,413.4) | |
| Sales return, rebate, and discount liabilities, end of year | $ | 10,312.8 | | | $ | 10,667.5 | |
(1) Adjustments of the estimates for these returns, rebates, and discounts to actual results were less than 2 percent of consolidated revenue for each of the years presented.
Litigation Liabilities and Other Contingencies
Background and Uncertainties
Litigation liabilities and other contingencies are, by their nature, uncertain and based upon complex judgments and probabilities. The factors we consider in developing our litigation liability reserves and other contingent liability amounts include the merits and jurisdiction of the litigation, the nature and the number of other similar current and past matters, the nature of the product and the current assessment of the science subject to the litigation, as applicable, and the likelihood of settlement and current state of settlement discussions, if any. In addition, we accrue for certain product liability claims incurred but not filed to the extent we can formulate a reasonable estimate of their costs based primarily on historical claims experience and data regarding product usage.
We also consider the insurance coverage we have to diminish the exposure for periods covered by insurance. In assessing our insurance coverage, we consider the policy coverage limits and exclusions, the potential for denial of coverage by the insurance company, the financial condition of the insurers, and the possibility of and length of time for collection. Due to a very restrictive market for liability insurance, we are predominantly self-insured for liability losses for all our currently and previously marketed products, as well as for litigation or investigations related to our pricing practices or other similar matters. In addition to insurance coverage, we consider any third-party indemnification to which we are entitled or under which we are obligated. With respect to our third-party indemnification rights, these considerations include the nature of the indemnification, the financial condition of the indemnifying party, and the possibility of and length of time for collection.
The litigation accruals and environmental liabilities and the related estimated insurance recoverables are reflected on a gross basis as liabilities and assets, respectively, on our consolidated balance sheets.
Acquisitions
Background and Uncertainties
To determine whether acquisitions or licensing transactions should be accounted for as a business combination or as an asset acquisition, we make certain judgments, which include assessing whether the acquired set of activities and assets would meet the definition of a business under the relevant accounting rules.
If the acquired set of activities and assets meets the definition of a business, assets acquired and liabilities assumed are required to be recorded at their respective fair values on our consolidated balance sheet as of the acquisition date. The excess of the purchase price over the fair value of the acquired net assets, where applicable, is recorded as goodwill. If the acquired set of activities and assets does not meet the definition of a business, the transaction is recorded as an acquisition of assets and, therefore, any acquired IPR&D that does not have an alternative future use is charged to acquired IPR&D on our consolidated statement of operations at the acquisition date, and goodwill is not recorded. See Note 3 to the consolidated financial statements for additional information.
The judgments made in determining estimated fair values assigned to assets acquired and liabilities assumed in a business combination, as well as estimated asset lives, can materially affect our consolidated results of operations. The fair values of intangible assets, including acquired IPR&D, are determined using information available near the acquisition date based on estimates and assumptions that are deemed reasonable by management. Significant estimates and assumptions include, but are not limited to, probability of technical success, revenue projections, and discount rate. Depending on the facts and circumstances, we may deem it necessary to engage an independent valuation expert to assist in valuing significant assets and liabilities.
The fair values of identifiable intangible assets are primarily determined using the "income method," as described in Note 8 to the consolidated financial statements.
The fair value of any contingent consideration liability that results from a business combination is primarily determined using a discounted cash flow analysis, as described in Note 7 to the consolidated financial statements. Estimating the fair value of contingent consideration requires the use of significant estimates and judgments, including, but not limited to, probability of technical success, timing of the potential milestone event, and the discount rate.
Financial Statement Impact
As of December 31, 2024, a 5 percent change in the contingent consideration liabilities would result in a change in income before income taxes of $1.6 million.
Impairment of Indefinite-Lived and Long-Lived Assets
Background and Uncertainties
We review the carrying value of long-lived assets (both intangible and tangible) for potential impairment whenever events or changes in circumstances indicate the carrying value of an asset (or asset group) may not be recoverable. We identify impairment by comparing the projected undiscounted cash flows to be generated by the asset (or asset group) to its carrying value. If an impairment is identified, a loss is recorded equal to the excess of the asset's net book value over its fair value, and the cost basis is adjusted.
Goodwill and indefinite-lived intangible assets are reviewed for impairment at least annually, or more frequently if impairment indicators are present, by first assessing qualitative factors to determine whether it is more likely than not that the fair value of the asset is less than its carrying amount. If we conclude it is more likely than not that the fair value is less than the carrying amount, a quantitative test that compares the fair value of the intangible asset to its carrying value is performed to determine the amount of any impairment.
Several methods may be used to determine the estimated fair value of long-lived assets, all of which require multiple assumptions. When determining the fair value of indefinite-lived acquired IPR&D as well as the fair value of finite-lived intangible assets for impairment testing purposes, we utilize the "income method," as described in Note 8 to the consolidated financial statements.
For acquired IPR&D assets, the risk of failure has been factored into the fair value measure and there can be no certainty that these assets ultimately will yield a successful product, as discussed previously in "—Executive Overview—Clinical Development Pipeline." The nature of the pharmaceutical business is high-risk and requires that we invest in a large number of projects to maintain a successful portfolio of approved products. As such, it is likely that some acquired IPR&D assets will become impaired in the future.
Estimates of future cash flows, based on what we believe to be reasonable and supportable assumptions and projections, require management's judgment. Actual results could vary materially from these estimates.
Income Taxes
Background and Uncertainties
We file tax returns based upon our interpretation of tax laws and regulations, and we record estimates in our financial statements based upon these interpretations at the applicable tax rates in the jurisdictions in which we operate. Our tax returns are routinely subject to examination by taxing authorities, which could result in future tax, interest, and penalty assessments. Inherent uncertainties also exist in estimates of many tax positions due to the complexity of tax laws. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate resolution. The amount of unrecognized tax benefits is adjusted for changes in facts and circumstances such as changes to existing tax law, the issuance of regulations by taxing authorities, new information obtained during a tax examination, or resolution of a tax examination. We believe our estimates for uncertain tax positions are both appropriate and sufficient to pay assessments that may result from examinations of our tax returns; however, given the uncertainty of positions that could be taken by taxing authorities during the examinations of our tax returns, the ultimate outcome of any tax matters may result in liabilities that are greater than amounts accrued. We recognize both accrued interest and penalties related to unrecognized tax benefits in income tax expense.
We have recorded valuation allowances against certain of our deferred tax assets, primarily those that have been generated from net operating losses, tax credits, and other tax carryforwards in certain taxing jurisdictions, when the amount of future taxable income is unlikely to support their utilization.
Financial Statement Impact
As of December 31, 2024, a 5 percent change in the amount of uncertain tax positions and the valuation allowance would result in a change in net income of $131.3 million and $48.2 million, respectively.
Retirement Benefits Assumptions
Background and Uncertainties
Defined benefit pension plan and retiree health benefit plan costs include assumptions for the discount rate, expected return on plan assets, and retirement age. These assumptions have a significant effect on the amounts reported. In addition to the analysis below, see Note 15 to the consolidated financial statements for additional information regarding our retirement benefits.
Annually, we evaluate the discount rate and the expected return on plan assets in our defined benefit pension and retiree health benefit plans. We use an actuarially determined, plan-specific yield curve of high quality, fixed income debt instruments to determine the discount rates. In evaluating the expected return on plan assets, we consider many factors, with a primary analysis of current and projected market conditions, asset returns and asset allocations (approximately 75 percent of which are growth investments), and the views of leading financial advisers and economists. We may also review our historical assumptions compared with actual results, as well as the discount rates and expected return on plan assets of other companies, where applicable. In evaluating our expected retirement age assumption, we consider the retirement ages of our past employees eligible for pension and medical benefits together with our expectations of future retirement ages.
Financial Statement Impact
If the 2024 discount rate for the U.S. defined benefit pension and retiree health benefit plans (U.S. plans) were to change by a quarter percentage point, income before income taxes would change by $15.0 million. If the 2024 expected return on plan assets for U.S. plans were to change by a quarter percentage point, income before income taxes would change by $33.2 million. If our assumption regarding the 2024 expected age of future retirees for U.S. plans were adjusted by one year, our income before income taxes would be affected by $35.9 million. The U.S. plans, including Puerto Rico, represent approximately 80 percent for total projected benefit obligation and 85 percent for total plan assets at December 31, 2024.
LEGAL AND REGULATORY MATTERS
Information relating to certain legal proceedings can be found in Note 16 to the consolidated financial statements and is incorporated here by reference.
Item 7A.Quantitative and Qualitative Disclosures About Market Risk
You can find quantitative and qualitative disclosures about market risk (e.g., interest rate risk) at Item 7, "Management's Discussion and Analysis - Financial Condition and Liquidity." That information is incorporated by reference herein.
Item 8.Financial Statements and Supplementary Data
Consolidated Statements of Operations
ELI LILLY AND COMPANY AND SUBSIDIARIES
(Dollars in millions, except per-share data, and shares in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Year Ended December 31, |
| | | | 2024 | | 2023 | | 2022 |
| Revenue (Note 2) | | $ | | | | $ | | | | $ | | |
| Costs, expenses, and other: | | | | | | |
| Cost of sales | | | | | | | | | |
| Research and development | | | | | | | | | |
| Marketing, selling, and administrative | | | | | | | | | |
| Acquired in-process research and development (Note 3) | | | | | | | | | |
Asset impairment, restructuring, and other special charges
(Note 5) | | | | | | | | | |
| Other—net, (income) expense (Note 18) | | | | | () | | | | |
| | | | | | | | | |
| Income before income taxes | | | | | | | | | |
| Income taxes (Note 14) | | | | | | | | | |
| |
| |
| Net income | | $ | | | | $ | | | | $ | | |
| | | | | | |
| Earnings per share: | | | | | | |
| |
| |
| Basic | | $ | | | | $ | | | | $ | | |
| |
| |
| |
| Diluted | | $ | | | | $ | | | | $ | | |
| | | | | | |
| Shares used in calculation of earnings per share: | | | | | | |
| Basic | | | | | | | | | |
| Diluted | | | | | | | | | |
See notes to consolidated financial statements.
Consolidated Statements of Comprehensive Income
ELI LILLY AND COMPANY AND SUBSIDIARIES
(Dollars in millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Year Ended December 31, |
| | | | 2024 | | 2023 | | 2022 |
| Net income | | $ | | | | $ | | | | $ | | |
| Other comprehensive income (loss): | | | | | | |
| Change in foreign currency translation gains (losses) | | () | | | () | | | () | |
| Change in net unrealized gains (losses) on available-for-sale securities | | () | | | | | | () | |
Change in retirement benefit plans (Note 15) | | | | | () | | | | |
| Change in net unrealized gains (losses) on cash flow hedges | | | | | | | | | |
| Other comprehensive income (loss) before income taxes | | | | | () | | | | |
| Benefit (expense) for income taxes related to other comprehensive income (loss) | | () | | | | | | () | |
Other comprehensive income (loss), net of tax (Note 17) | | | | | () | | | | |
| |
| |
| Comprehensive income | | $ | | | | $ | | | | $ | | |
See notes to consolidated financial statements.
Consolidated Balance Sheets
ELI LILLY AND COMPANY AND SUBSIDIARIES
(Dollars in millions, shares in thousands) | | | | | | | | | | | | | | | | | | | | |
| | | | December 31, |
| | | | 2024 | | 2023 |
| Assets | | | | |
| Current Assets | | | | |
| Cash and cash equivalents (Note 7) | | $ | | | | $ | | |
| Short-term investments (Note 7) | | | | | | |
Accounts receivable, net of allowances of $ (2024) and $ (2023) | | | | | | |
| Other receivables | | | | | | |
| Inventories (Note 6) | | | | | | |
| Prepaid expenses | | | | | | |
| Other current assets | | | | | | |
| Total current assets | | | | | | |
| Investments (Note 7) | | | | | | |
| Goodwill (Note 8) | | | | | | |
| Other intangibles, net (Note 8) | | | | | | |
| Deferred tax assets (Note 14) | | | | | | |
| Property and equipment, net (Note 9) | | | | | | |
|
| Other noncurrent assets | | | | | | |
|
| Total assets | | $ | | | | $ | | |
| Liabilities and Equity | | | | |
| Current Liabilities | | | | |
| Short-term borrowings and current maturities of long-term debt (Note 11) | | $ | | | | $ | | |
| Accounts payable | | | | | | |
| Employee compensation | | | | | | |
| Sales rebates and discounts | | | | | | |
| Dividends payable | | | | | | |
|
| Other current liabilities | | | | | | |
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| Total current liabilities | | | | | | |
| Noncurrent Liabilities | | | | |
| Long-term debt (Note 11) | | | | | | |
| Accrued retirement benefits (Note 15) | | | | | | |
| Long-term income taxes payable (Note 14) | | | | | | |
|
| Other noncurrent liabilities | | | | | | |
|
| Total noncurrent liabilities | | | | | | |
| Commitments and Contingencies (Note 16) | | | | |
| Eli Lilly and Company Shareholders' Equity (Notes 12 and 13) | | | | |
Common stock—no par value Authorized shares: Issued shares: (2024) and (2023) | | | | | | |
| Additional paid-in capital | | | | | | |
| Retained earnings | | | | | | |
| Employee benefit trust | | () | | | () | |
| Accumulated other comprehensive loss (Note 17) | | () | | | () | |
Cost of common stock in treasury | | () | | | () | |
| Total Eli Lilly and Company shareholders' equity | | | | | | |
| Noncontrolling interests | | | | | | |
| Total equity | | | | | | |
| Total liabilities and equity | | $ | | | | $ | | |
See notes to consolidated financial statements.
Consolidated Statements of Shareholders' Equity
ELI LILLY AND COMPANY AND SUBSIDIARIES | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Equity of Eli Lilly and Company Shareholders | | |
| (Dollars in millions, except per-share data, and shares in thousands) | Common Stock | | Additional
Paid-in
Capital | | Retained
Earnings | | Employee Benefit Trust | | Accumulated Other Comprehensive Loss | | Common Stock in Treasury | | Noncontrolling Interest |
| Shares | | Amount | Shares | | Amount |
Balance at January 1, 2022 | | | | $ | | | | $ | | | | $ | | | | $ | () | | | $ | () | | | | | | $ | () | | | $ | | |
| Net income (loss) | | | | | | | | | | | | | | | | | | () | |
| Other comprehensive income, net of tax | | | | | | | | | | | | | | | | | | |
Cash dividends declared per share: $ | | | | | | | () | | | | | | | | | | | |
| Retirement of treasury shares | () | | | () | | | | | () | | | | | | | () | | | | | | |
| Purchase of treasury shares | | | | | | | | | | | | | | | | () | | | |
| Issuance of stock under employee stock plans, net | | | | | | | () | | | | | | | | | () | | | | | | |
| Stock-based compensation | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Other | | | | | | | | | | | | | | | | | | () | |
Balance at December 31, 2022 | | | | | | | | | | | | | () | | | () | | | | | | () | | | | |
| Net income | | | | | | | | | | | | | | | | | | | |
| Other comprehensive loss, net of tax | | | | | | | | | | | () | | | | | | | |
Cash dividends declared per share: $ | | | | | | | () | | | | | | | | | | | |
| Retirement of treasury shares | () | | | () | | | | | () | | | | | | | () | | | | | | |
| Purchase of treasury shares | | | | | | | | | | | | | | | | () | | | |
| Issuance of stock under employee stock plans, net | | | | | | | () | | | | | | | | | () | | | | | | |
| Stock-based compensation | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Other | | | | | | | () | | | | | | | | | () | | | () | |
Balance at December 31, 2023 | | | | | | | | | | | | | () | | | () | | | | | | () | | | | |
| Net income (loss) | | | | | | | | | | | | | | | | | | () | |
| Other comprehensive income, net of tax | | | | | | | | | | | | | | | | | | |
Cash dividends declared per share: $ | | | | | | | () | | | | | | | | | | | |
| Retirement of treasury shares | () | | | () | | | | | () | | | | | | | () | | | | | | |
| Purchase of treasury shares | | | | | | | | | | | | | | | | () | | | |
| Issuance of stock under employee stock plans, net | | | | | | | () | | | | | | | | | () | | | | | | |
| Stock-based compensation | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Other | | | | | | | () | | | | | | | | | () | | | () | |
Balance at December 31, 2024 | | | | $ | | | | $ | | | | $ | | | | $ | () | | | $ | () | | | | | | $ | () | | | $ | | |
See notes to consolidated financial statements.
Consolidated Statements of Cash Flows
ELI LILLY AND COMPANY AND SUBSIDIARIES
(Dollars in millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Year Ended December 31, |
| | | | 2024 | | 2023 | | 2022 |
| Cash Flows from Operating Activities | | | | | | |
| Net income | | $ | | | | $ | | | | $ | | |
| Adjustments to Reconcile Net Income to Cash Flows from Operating Activities: | | | | | | |
| |
| |
| Depreciation and amortization | | | | | | | | | |
| Change in deferred income taxes | | () | | | () | | | () | |
| Stock-based compensation expense | | | | | | | | | |
Investment (gains) losses, net | | | | | | | | | |
| Gains on sale of product rights | | () | | | () | | | () | |
| Acquired in-process research and development | | | | | | | | | |
| Other operating activities, net | | | | | | | | | |
| Other changes in operating assets and liabilities, net of acquisitions and divestitures: | | | | | | |
| Receivables—(increase) decrease | | () | | | () | | | () | |
| Inventories—(increase) decrease | | () | | | () | | | () | |
Prepaid expenses and other assets—(increase) decrease | | () | | | () | | | () | |
| Accounts payable and other liabilities—increase (decrease) | | | | | | | | | |
| Net Cash Provided by Operating Activities | | | | | | | | | |
| Cash Flows from Investing Activities | | | | | | |
| Purchases of property and equipment | | () | | | () | | | () | |
| Proceeds from sales and maturities of short-term investments | | | | | | | | | |
| Purchases of short-term investments | | () | | | () | | | () | |
| Proceeds from sales of and distributions from noncurrent investments | | | | | | | | | |
| Purchases of noncurrent investments | | () | | | () | | | () | |
| Proceeds from sale of product rights | | | | | | | | | |
| Purchases of in-process research and development | | () | | | () | | | () | |
| Cash paid for acquisitions, net of cash acquired | | () | | | () | | | () | |
| |
| |
| Other investing activities, net | | () | | | () | | | () | |
| Net Cash Used for Investing Activities | | () | | | () | | | () | |
| Cash Flows from Financing Activities | | | | | | |
| Dividends paid | | () | | | () | | | () | |
| Net change in short-term borrowings | | () | | | | | | | |
| Proceeds from issuance of long-term debt | | | | | | | | | |
| Repayments of long-term debt | | () | | | | | | () | |
| Purchases of common stock | | () | | | () | | | () | |
| |
| Other financing activities, net | | () | | | () | | | () | |
Net Cash Provided by (Used for) Financing Activities | | | | | | | | () | |
| Effect of exchange rate changes on cash and cash equivalents | | () | | | | | | () | |
| Net increase (decrease) in cash and cash equivalents | | | | | | | | () | |
| Cash and cash equivalents at beginning of year | | | | | | | | | |
| Cash and Cash Equivalents at End of Year | | $ | | | | $ | | | | $ | | |
See notes to consolidated financial statements.
Notes to Consolidated Financial Statements
ELI LILLY AND COMPANY AND SUBSIDIARIES
(Tables present dollars in millions)
Note 1:
Global advertising expenses, comprised primarily of online marketing and television advertising, totaled $ billion, $ billion, and $ million in 2024, 2023, and 2022, respectively, which were less than percent of revenue each year.
Other Significant Accounting Policies
Our other significant accounting policies are described in the remaining appropriate notes to the consolidated financial statements.
Note 2:
| | $ | | | | $ | | |
| Collaboration and other revenue | | | | | | | | |
| Revenue | $ | | | | $ | | | | $ | | |
We recognize revenue primarily from two different types of contracts, product sales to customers (net product revenue) and collaborations and other arrangements. Revenue recognized from collaborations and other arrangements includes our share of profits from the collaborations, as well as royalties, upfront and milestone payments we receive under these types of contracts. See Note 4 for additional information related to our collaborations and other arrangements. Collaboration and other revenue disclosed above includes the revenue resulting from our collaboration with Boehringer Ingelheim, as well as from the 2023 sales of rights for the olanzapine portfolio, including Zyprexa, and for Baqsimi, all of which are discussed in Note 4. Substantially all of the remainder of collaboration and other revenue is related to contracts accounted for as contracts with customers. Collaboration and other revenue associated with intellectual property licensed in prior periods was not material for the years ended December 31, 2024, 2023, and 2022.
to days from date of shipment. Revenue for our product sales has not been adjusted for the effects of a financing component as we expect, at contract inception, that the period between when we transfer control of the product and when we receive payment will be or less. Any exceptions are either not material or we collect interest for payments made after the due date. Provisions for rebates, discounts, and returns are established in the same period the related product sales are recognized. We generally ship product shortly after orders are received; therefore, we generally only have a few days of orders received but not yet shipped at the end of any reporting period. Shipping and handling activities are considered to be fulfillment activities and are not considered to be a separate performance obligation. We exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are imposed on our sales of product and collected from a customer.Most of our products are sold to wholesalers that serve pharmacies, physicians and other healthcare professionals, and hospitals. For the years ended December 31, 2024, 2023, and 2022, our three largest wholesalers each accounted for between percent and percent of consolidated revenue. Further, they each accounted for between percent and percent of accounts receivable as of December 31, 2024 and 2023.
Significant judgments must be made in determining the transaction price for our sales of products related to anticipated rebates, discounts, and returns. The following describe the most significant of these judgments:
Sales Rebates and Discounts - Background and Uncertainties
•We initially invoice our customers at contractual list prices. Contracts with direct and indirect customers may provide for various rebates and discounts that may differ in each contract. As a consequence, to determine the appropriate transaction price for our product sales at the time we recognize a sale to a direct customer, we estimate any rebates or discounts that ultimately will be due to the direct customer and other customers in the distribution chain under the terms of our contracts. Significant judgments are required in making these estimates.
•The rebate and discount amounts are recorded as a deduction to arrive at our net product revenue. Sales rebates and discounts that require the use of judgment in the establishment of the accrual include managed care, Medicare, Medicaid, chargebacks, long-term care, hospital, patient assistance programs, and various other programs. We estimate these accruals using an expected value approach.
•The largest of our sales rebate and discount amounts include rebates associated with sales covered by managed care, Medicare, Medicaid, and chargeback programs, as well as reductions in revenue related to our patient assistance programs, in the U.S. In determining the appropriate accrual amount, we consider our historical rebate payments for these programs, as well as patient assistance program costs, by product as a percentage of our historical sales as well as any significant changes in sales trends (e.g., patent expiries and product launches), an evaluation of the current contracts for these programs, the percentage of our products that are sold via these programs, and our product pricing. Although we accrue a liability for revenue reductions related to these programs at the time we record the sale, the reduction related to that sale is typically paid up to later. Because of this time lag, in any particular period our net product revenue may incorporate revisions of accruals for several periods.
•Most of our rebates outside the U.S. are contractual or legislatively mandated and are estimated and recognized in the same period as the related sales. In some large European countries, government rebates are based on the anticipated budget for pharmaceutical payments in the country. An estimate of these rebates, updated as governmental authorities revise budgeted deficits, is recognized in the same period as the related sale.
months after the initial sale of a product to our customer), and estimated levels of inventory in the wholesale and retail channels, as well as any other specifically identified anticipated returns due to known factors such as the loss of patent exclusivity, product recalls and discontinuations, or a changing competitive environment. We maintain a returns policy that allows most U.S. customers to return most of our products for dating issues within a specified period prior to and subsequent to the product's expiration date. Following the loss of exclusivity for a patent-dependent product, we expect to experience an elevated level of product returns as product inventory remaining in the wholesale and retail channels expires. Adjustments to the returns reserve have been and may in the future be required based on revised estimates to our assumptions. We record the return amounts as a deduction to arrive at our net product revenue. Once the product is returned, it is destroyed; we do not record a right of return asset. Our returns policies outside the U.S. are generally more restrictive than in the U.S. as returns are not allowed for reasons other than failure to meet product specifications in many countries. Our reserve for future product returns for product sales outside the U.S. is not material.•As a part of our process to estimate a reserve for product returns, we regularly review the supply levels of our significant products at the major wholesalers in the U.S. and in major markets outside the U.S., primarily by reviewing periodic inventory reports supplied by our major wholesalers and available prescription volume information for our products, or alternative approaches. We attempt to maintain U.S. wholesaler inventory levels at an average of approximately or less. Causes of unusual wholesaler buying patterns include actual or anticipated product-supply issues, weather patterns, anticipated changes in the transportation network, redundant holiday stocking, and changes in wholesaler business operations. In the U.S., the current structure of our arrangements provides us with data on inventory levels at our wholesalers; however, our data on inventory levels in the retail channel is more limited. Wholesaler stocking and destocking activity historically has not caused any material changes in the rate of actual product returns.
•Actual U.S. product returns have been less than percent of our U.S. revenue during each of the past three years and have not fluctuated significantly as a percentage of revenue, although fluctuations are more likely in periods following loss of patent exclusivity for major products in the U.S. market.
Adjustments to Revenue
Adjustments to revenue recognized as a result of changes in estimates for our most significant U.S. sales returns, rebates, and discounts liability balances for products shipped in previous periods were less than percent of U.S. revenue during the year ended December 31, 2024, and less than percent of U.S. revenue during each of the years ended December 31, 2023 and 2022.
Collaboration and Other Arrangements
We recognize several types of revenue from our collaborations and other arrangements, which we discuss in general terms immediately below and more specifically in Note 4 for each of our significant collaborations and other arrangements. Our collaborations and other arrangements are evaluated to determine if the arrangements in their entirety, or contain aspects that, are contracts with customers.
•Revenue related to products we sell pursuant to these arrangements is included in net product revenue at the earlier of when control of the asset transfers to the other party or when the product has no alternative use to us and we have right to payment.
•Profit-sharing due from our collaboration partners, which is based upon gross margins reported to us by our partners, is recognized as collaboration and other revenue as earned.
•Royalty revenue from licensees and certain of our collaboration partners, which is based on sales to third parties of licensed products and technology, is recorded when the third-party sale occurs and the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). This royalty revenue is included in collaboration and other revenue.
| | $ | | | The contract liabilities balances disclosed above as of December 31, 2024 and 2023 were primarily related to the remaining license period of symbolic intellectual property and obligations to supply product for a defined period of time.
During the years ended December 31, 2024, 2023, and 2022, revenue recognized from contract liabilities as of the beginning of the respective year was not material. Revenue expected to be recognized in the future from contract liabilities as the related performance obligations are satisfied is not expected to be material in any one year.
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | Trulicity | | | | | | | | | | | | | | | | | |
| Zepbound | | | | | | | | | | | | | | | | | |
Jardiance(1) | | | | | | | | | | | | | | | | | |
Humalog(2) | | | | | | | | | | | | | | | | | |
| Humulin | | | | | | | | | | | | | | | | | |
Basaglar(3) | | | | | | | | | | | | | | | | | |
Baqsimi | | | | | | | | | | | | | | | | | |
| Other cardiometabolic health | | | | | | | | | | | | | | | | | |
| Total cardiometabolic health | | | | | | | | | | | | | | | | | |
| | | | | | |
| Oncology: | | | | | | | | | | | |
| Verzenio | | | | | | | | | | | | | | | | | |
| Cyramza | | | | | | | | | | | | | | | | | |
| Erbitux | | | | | | | | | | | | | | | | | |
| Tyvyt | | | | | | | | | | | | | | | | | |
| Other oncology | | | | | | | | | | | | | | | | | |
| Total oncology | | | | | | | | | | | | | | | | | |
| | | | | | |
| Immunology: | | | | | | | | | | | |
| Taltz | | | | | | | | | | | | | | | | | |
Olumiant(4) | | | | | | | | | | | | | | | | | |
| Other immunology | | | | | | | | | | | | | | | | | |
| Total immunology | | | | | | | | | | | | | | | | | |
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| Neuroscience: | | | | | | | | | | | |
| Emgality | | | | | | | | | | | | | | | | | |
Zyprexa(5) | | | | | | | | | | | | | | | | | |
| Other neuroscience | | | | | | | | | | | | | | | | | |
| Total neuroscience | | | | | | | | | | | | | | | | | |
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| Other: | | | | | | | | | | | |
COVID-19 antibodies(6) | | | | | | | | | | | | | | | | | |
| Other | | | | | | | | | | | | | | | | | |
| Total other | | | | | | | | | | | | | | | | | |
| | | | | | |
| Revenue | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
Numbers may not add due to rounding.
(1) Jardiance revenue includes Glyxambi, Synjardy, and Trijardy XR.
(2) Humalog revenue includes insulin lispro.
(3) Basaglar revenue includes Rezvoglar.
(4) Olumiant revenue includes sales for baricitinib that were made pursuant to Emergency Use Authorization (EUA) or similar regulatory authorizations.
(5) Zyprexa revenue includes sale of rights for the olanzapine portfolio in July 2023.
(6) COVID-19 antibodies include sales for bamlanivimab administered alone, for bamlanivimab and etesevimab administered together, and for bebtelovimab and were made pursuant to EUAs or similar regulatory authorizations.
In connection with our acquisition of Petra Pharma Corporation (Petra) in 2020, we were required to make milestone payments to Petra shareholders contingent upon the occurrence of certain future events linked to the success of the mutant-selective PI3Kα inhibitor. In 2022, we entered into agreements with substantially all Petra shareholders to acquire their rights to receive any future milestone payments in exchange for a one-time payment. As a result of these agreements, we recognized a charge of $ million as acquired IPR&D in 2022. Any remaining contingent milestones payments linked to the success of the mutant-selective PI3Kα inhibitor are not expected to be material.
Note 4:
| | $ | | | | $ | | | | Basaglar | | | | | | | | |
| 2024 revenue from Jardiance included a one-time payment received of $ million associated with an amendment to our collaboration with Boehringer Ingelheim. Pursuant to the amendment, we and Boehringer Ingelheim adjusted commercialization responsibilities for Jardiance within certain smaller markets.
Olumiant
We have a worldwide license and collaboration agreement with Incyte Corporation (Incyte), which provides us the development and commercialization rights to baricitinib, which is branded and trademarked as Olumiant, and certain follow-on compounds, for the treatment of inflammatory and autoimmune diseases and COVID-19. Incyte has the right to receive tiered, double digit royalty payments on worldwide net sales with rates ranging up to percent. Incyte has the right to receive an additional royalty ranging up to the low teens on worldwide net sales for the treatment of COVID-19 that exceed a specified aggregate worldwide net sales threshold.
We record our sales of Olumiant, including sales of baricitinib that were made pursuant to EUA or similar regulatory authorizations, to third parties as net product revenue with the royalty payments made to Incyte recorded as cost of sales.
| | $ | | | | $ | | |
| | $ | | | | $ | | | Ebglyss
We have a license agreement with F. Hoffmann-La Roche Ltd and Genentech, Inc. (collectively, Roche), which provides us the worldwide development and commercialization rights to lebrikizumab, which is branded and trademarked as Ebglyss. Roche receives tiered royalty payments on worldwide net sales ranging in percentages from high single digits to high teens, which we recognize as cost of sales. As of December 31, 2024, Roche is eligible to receive additional payments from us, including up to $ billion in potential sales-based milestones. During the years ended December 31, 2024, 2023, and 2022, milestone payments to Roche were not material.
We have a license agreement with Almirall, S.A. (Almirall), under which Almirall licensed the rights to develop and commercialize Ebglyss for the treatment or prevention of dermatology indications, including, but not limited to, atopic dermatitis in Europe. We receive tiered royalty payments on net sales in Europe ranging in percentages from low double digits to low twenties, which we recognize as collaboration and other revenue. During the years ended December 31, 2024, 2023, and 2022, collaboration and other revenue recognized under this license agreement was not material. As of December 31, 2024, we are eligible to receive additional payments up to $ billion in a series of sales-based milestones.
Orforglipron
We have a license agreement with Chugai Pharmaceutical Co., Ltd (Chugai), which provides us with the worldwide development and commercialization rights to orforglipron. Chugai has the right to receive tiered royalty payments on future worldwide net sales from mid single digits to low teens if the product is successfully commercialized. As of December 31, 2024, Chugai is eligible to receive up to $ million contingent upon the achievement of success-based regulatory milestones and up to $ million in a series of sales-based milestones, contingent upon the commercial success of orforglipron. During the years ended December 31, 2024, 2023, and 2022, milestone payments to Chugai were not material.
COVID-19 Antibodies
We have a worldwide license and collaboration agreement with AbCellera Biologics Inc. (AbCellera) to co-develop therapeutic antibodies for the potential prevention and treatment of COVID-19, including bamlanivimab and bebtelovimab, for which we hold development and commercialization rights. AbCellera received royalty payments, recorded as cost of sales, in the mid-teens to mid-twenties on worldwide net sales of bamlanivimab and bebtelovimab.
Pursuant to EUAs or similar regulatory authorizations, we recognized net product revenue associated with our sales of our COVID-19 antibodies of $ billion during 2022. We had sales of our COVID-19 antibodies during the years ended December 31, 2024 and 2023.
Divestitures
Olanzapine Portfolio (including Zyprexa)
In July 2023, we sold the rights for the olanzapine portfolio, including Zyprexa, to Cheplapharm Arzneimittel GmbH (Cheplapharm), a European company. Under the terms of the agreement, we received $ billion in cash in 2023 and an additional $ million in cash in 2024. We included both in the transaction price in 2023.
We entered into a supply agreement with Cheplapharm that obligates Cheplapharm to purchase Zyprexa product we are manufacturing at an amount which represents a standalone selling price. As the product we are manufacturing under this supply agreement has no alternative use to us and we have right to payment, we recognize net product revenue over time as we manufacture the product.
billion in revenue primarily related to the net gain on the sale of rights for the olanzapine portfolio. Baqsimi
In June 2023, we sold the rights for Baqsimi to Amphastar Pharmaceuticals, Inc. (Amphastar). Under the terms of the agreement, we received $ million in cash in 2023 and an additional $ million in cash in 2024. We included both in the transaction price in 2023. We are eligible to receive payments of up to $ million in a series of sales-based milestones, that have not been included in the transaction price as of December 31, 2024.
We entered into a supply agreement with Amphastar that obligates Amphastar to purchase Baqsimi product we are manufacturing at an amount which represents a standalone selling price. As the product we are manufacturing under this supply agreement has no alternative use to us and we have right to payment, we recognize net product revenue over time as we manufacture the product.
million in revenue primarily related to the net gain on the sale of rights for Baqsimi.
Note 5:
million, $ million, and $ million for the years ended December 31, 2024, 2023, and 2022, respectively.Asset impairment, restructuring, and other special charges recognized during the year ended December 31, 2024 were primarily related to a $ million litigation charge and an intangible asset impairment for Vitrakvi, driven by expected commercial projections. See Note 16 for additional information related to the litigation charge.
Asset impairment, restructuring, and other special charges recognized during the year ended December 31, 2022 were primarily related to an intangible asset impairment driven by delays in estimated launch timing.
Note 6:
Inventories measured using LIFO must be valued at the lower of cost or market. Inventories measured using FIFO must be valued at the lower of cost or net realizable value. | | $ | | | | Work in process | | | | | |
| Raw materials and supplies | | | | | |
| Total (approximates replacement cost) | | | | | |
| Increase to LIFO cost | | | | | |
| Inventories | $ | | | | $ | | |
Inventories valued under the LIFO method comprised $ billion and $ billion of total inventories at December 31, 2024 and 2023, respectively.
When we believe that future commercialization is probable and the future economic benefit is expected to be realized, we capitalize pre-launch inventory prior to regulatory approval. A number of factors are considered, including the current status in the regulatory approval process, potential impediments to the approval process such as safety or efficacy, viability of commercialization, and marketplace trends. Pre-launch inventory capitalized as of December 31, 2024 was $ million, primarily related to orforglipron.
Note 7:
Adjustments recorded for the years ended December 31, 2024, 2023, and 2022 were not material.
The net losses recognized in our consolidated statements of operations for equity securities were $ million, $ million, and $ million for the years ended December 31, 2024, 2023, and 2022, respectively. The net gains (losses) recognized for the years ended December 31, 2024, 2023, and 2022 on equity securities sold during the respective periods were not material.
As of December 31, 2024, we had approximately $ million of unfunded commitments to invest in venture capital funds, which we anticipate will be paid over a period of up to years.
Impairment and credit losses related to available-for-sale securities were not material for the years ended December 31, 2024, 2023, and 2022.
| | $ | | | | $ | | | | $ | | | | $ | | | | | $ | | | | Unrealized gross losses | | | | | |
| Fair value of securities in an unrealized gain position | | | | | |
| Fair value of securities in an unrealized loss position | | | | | |
million, $ million, and $ million for the years ended December 31, 2024, 2023, and 2022, respectively.
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | Short-term investments: | | | | | | | | | | | |
| U.S. government and agency securities | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Corporate debt securities | | | | | | | | | | | | | | | | | |
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| Other securities | | | | | | | | | | | | | | | | | |
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| Short-term investments | $ | | | | | | | | | | | | |
| Noncurrent investments: |
| U.S. government and agency securities | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Corporate debt securities | | | | | | | | | | | | | | | | | |
| Mortgage-backed securities | | | | | | | | | | | | | | | | | |
| Asset-backed securities | | | | | | | | | | | | | | | | | |
| Other securities | | | | | | | | | | | | | | | | | |
| Marketable equity securities | | | | | | | | | | | | | | | | | |
Equity investments without readily determinable fair values(3) | | | | | | | | | | | | |
Equity method investments(3) | | | | | | | | | | | | |
| Noncurrent investments | $ | | | | | | | | | | | | |
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| December 31, 2023 | | | | | | | | | | | |
Cash equivalents(2) | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Short-term investments: | | | | | | | | | | | |
| U.S. government and agency securities | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Corporate debt securities | | | | | | | | | | | | | | | | | |
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| Other securities | | | | | | | | | | | | | | | | | |
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| Short-term investments | $ | | | | | | | | | | | | |
| Noncurrent investments: | | | | | | | | | | | |
| U.S. government and agency securities | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Corporate debt securities | | | | | | | | | | | | | | | | | |
| Mortgage-backed securities | | | | | | | | | | | | | | | | | |
| Asset-backed securities | | | | | | | | | | | | | | | | | |
| Other securities | | | | | | | | | | | | | | | | | |
| Marketable equity securities | | | | | | | | | | | | | | | | | |
Equity investments without readily determinable fair values(3) | | | | | | | | | | | | |
Equity method investments(3) | | | | | | | | | | | | |
| Noncurrent investments | $ | | | | | | | | | | | | |
(1) For available-for-sale debt securities, amounts disclosed represent the securities' amortized cost.
(2) We consider all highly liquid investments with a maturity of three months or less from the date of purchase to be cash equivalents. The cost of these investments approximates fair value.
(3) Fair value disclosures are not applicable for equity method investments and investments accounted for under the measurement alternative for equity investments.
| | $ | | | | $ | | | | $ | | | | $ | | | | December 31, 2023 | | | | | | | | | | | | | | |
| Long-term debt, including current portion | | | | | | | | | |
| December 31, 2024 | | | | | | | | | | | | | | |
| December 31, 2023 | | | | | | | | | | | | | | |
Risk Management and Related Financial Instruments
We have entered into accounts receivable factoring agreements with financial institutions to sell certain of our non-U.S. accounts receivable. These transactions are accounted for as sales and result in a reduction in accounts receivable because the agreements transfer effective control over, and risk related to, the receivables to the buyers. We derecognized $ million and $ million of accounts receivable as of December 31, 2024 and 2023, respectively, under these factoring arrangements. The costs of factoring such accounts receivable as well as estimated credit losses were not material for the years ended December 31, 2024, 2023, and 2022.
billion and $ billion as of December 31, 2024 and 2023, respectively, of which $ billion and $ billion have been designated as, and are effective as, hedges of net investments in certain of our foreign operations as of December 31, 2024 and 2023, respectively. At December 31, 2024, we had outstanding cross-currency interest rate swaps with notional amounts of $ million swapping U.S. dollars to euro and million Swiss francs swapping to U.S. dollars, with settlement dates ranging through 2028. Our cross-currency interest rate swaps have been designated as, and are effective as, net investment and cash flow hedges, respectively. At December 31, 2024, we had outstanding foreign currency forward contracts to sell billion euro and to sell billion Chinese yuan, with settlement dates ranging through 2025, which have been designated as, and are effective as, hedges of net investments.Forward contracts generally have maturities not exceeding months. days:
| U.S. dollars | | | U.S. dollars | | | Euro | |
| U.S. dollars | | | Japanese yen | |
| Japanese yen | | | U.S. dollars | |
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At December 31, 2024, all of our total long-term debt is at a fixed rate. We have converted approximately percent of our long-term fixed-rate notes to floating rates through the use of interest rate swaps.
The Effect of Risk Management Instruments on the Consolidated Statements of Operations
) | | $ | | | | $ | () | |
| Effect from interest rate contracts | | | | () | | | | |
| Cash flow hedges: | | | | | |
| Effective portion of losses on interest rate contracts reclassified from accumulated other comprehensive loss | | | | | | | | |
| Cross-currency interest rate swaps | | | | () | | | | |
| Net losses on foreign currency exchange contracts not designated as hedging instruments | | | | | | | | |
Total | $ | | | | $ | () | | | $ | | |
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Risk-management instruments above are disclosed on a gross basis. There are various rights of setoff associated with certain of the risk-management instruments above that are subject to enforceable master netting arrangements or similar agreements. Although various rights of setoff and master netting arrangements or similar agreements may exist with the individual counterparties to the risk-management instruments above, individually, these financial rights are not material.
Note 8:
The change in goodwill during 2024 was primarily related to our acquisition of a manufacturing site in Wisconsin. See Note 3 for additional information. impairments occurred with respect to the carrying value of goodwill for the years ended December 31, 2024, 2023, and 2022.
Other Intangibles
| | $ | () | | | $ | | | | $ | | | | $ | () | | | $ | | |
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| Indefinite-lived intangible assets: | | | | | | | | | | | |
| Acquired IPR&D | | | | — | | | | | | | | | — | | | | |
| Other intangibles | $ | | | | $ | () | | | $ | | | | $ | | | | $ | () | | | $ | | |
Marketed products consist primarily of the amortized cost of the rights to assets acquired in business combinations and approved for marketing in a significant global jurisdiction (U.S., Europe, and Japan) and capitalized milestone payments.
Acquired IPR&D consists of the fair values of acquired IPR&D projects acquired in business combinations, adjusted for subsequent impairments, if any.
years. As of December 31, 2024, the remaining weighted-average amortization period for finite-lived intangible assets was approximately years. | | $ | | | | $ | | | | | $ | | | | $ | | | | $ | | | | $ | | |
Note 9:
to years for buildings and three to years for equipment). We review the carrying value of long-lived assets for potential impairment on a periodic basis and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Impairment is determined by comparing projected undiscounted cash flows to be generated by the asset to its carrying value. If an impairment is identified, a loss is recorded equal to the excess of the asset's net book value over its fair value, and the cost basis is adjusted. | | $ | | | | Buildings | | | | | |
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| Less accumulated depreciation | () | | | () | |
| Property and equipment, net | $ | | | | $ | | |
Depreciation expense related to property and equipment was as follows:
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| 2024 | | 2023 | | 2022 |
| Depreciation expense | $ | | | | $ | | | | $ | | |
Capitalized interest costs were not material for the years ended December 31, 2024, 2023, and 2022.
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billion of unused committed bank credit facilities, which consisted primarily of a $ billion credit facility that expires in December 2028 and a $ billion -day facility that expires in September 2025, both of which are available to support our commercial paper program. We have not drawn against the $ billion and $ billion facilities as of December 31, 2024. Of the remaining committed bank credit facilities, the outstanding balances as of December 31, 2024 and 2023 were not material. Compensating balances and commitment fees are not material, and there are no conditions that are probable of occurring under which the lines may be withdrawn. In February 2025, we issued $ billion of percent fixed-rate notes due in 2028, $ billion of percent fixed-rate notes due in 2030, $ billion of percent fixed-rate notes due in 2032, $ billion of percent fixed-rate notes due in 2035, $ billion of percent fixed-rate notes due in 2055, and $ million of percent fixed-rate notes due in 2065, all with interest to be paid semi-annually. We expect to use the net cash proceeds from the offering to fund potential business development activities, as well as general business purposes, including the repayment of outstanding commercial paper.
In August 2024, we issued $ million of percent fixed-rate notes due in 2027, $ billion of percent fixed-rate notes due in 2029, $ billion of percent fixed-rate notes due in 2034, $ billion of percent fixed-rate notes due in 2054, and $ million of percent fixed-rate notes due in 2064, all with interest to be paid semi-annually. We used a portion of the net cash proceeds from the offering of $ billion to fund the acquisition of Morphic and related fees and expenses, with any remaining funds used for general business purposes, including the repayment of outstanding commercial paper.
In February 2024, we issued $ billion of percent fixed-rate notes due in 2027, $ billion of percent fixed-rate notes due in 2029, $ billion of percent fixed-rate notes due in 2034, $ billion of percent fixed-rate notes due in 2054, and $ billion of percent fixed-rate notes due in 2064, all with interest to be paid semi-annually. We used, or may be using, the net cash proceeds from the offering of $ billion for general business purposes, including the repayment of outstanding commercial paper, repayment of current maturities of long-term debt, and repayment of the $ million of percent fixed-rate notes due in 2026.
In February 2023, we issued $ million of percent fixed-rate notes due in 2026, $ billion of percent fixed-rate notes due in 2033, $ billion of percent fixed-rate notes due in 2053, and $ billion of percent fixed-rate notes due in 2063, all with interest to be paid semi-annually. We used the net cash proceeds from the offering of $ billion for general business purposes, including the repayment of outstanding commercial paper.
| | $ | | | | $ | | | | $ | | | | $ | | |
We have converted approximately percent of our long-term fixed-rate notes to floating rates through the use of interest rate swaps. The weighted-average effective borrowing rates based on long-term debt obligations and interest rates at December 31, 2024 and 2023, including the effects of interest rate swaps for hedged debt obligations, were percent and percent, respectively.
| | $ | | | | $ | | | In accordance with the requirements of derivatives and hedging guidance, the portion of our fixed-rate debt obligations that is hedged as a fair value hedge is reflected in the consolidated balance sheets as an amount equal to the sum of the debt's carrying value plus the fair value adjustment representing changes in fair value of the hedged debt attributable to movements in market interest rates subsequent to the inception of the hedge.
Note 12:
| | $ | | | | $ | | | | Tax benefit | | | | | | | | |
At December 31, 2024, stock-based compensation awards may be granted under the 2002 Lilly Stock Plan for not more than million additional shares.
Restricted Stock Units
RSUs are granted to certain employees and are payable in shares of our common stock. RSU shares are accounted for at fair value based upon the closing stock price on the date of grant. The corresponding expense is amortized over the vesting period, typically . The weighted-average fair values of RSU awards granted during the years ended December 31, 2024, 2023, and 2022 were $, $, and $, respectively. The number of shares ultimately issued for the RSU program remains constant with the number of shares originally granted less forfeitures. Pursuant to this program, million, million, and million shares were granted and approximately million, million, and million shares were issued during the years ended December 31, 2024, 2023, and 2022, respectively. We expect to issue approximately million shares in 2025. As of December 31, 2024, the total estimated remaining unrecognized compensation cost related to nonvested RSUs was $ million, which will be amortized over the weighted-average remaining requisite service period of months.
Shareholder Value Award Program
SVAs are granted to officers and management and are payable in shares of our common stock. The number of shares actually issued, if any, varies depending on our stock price at the end of the vesting period compared to pre-established target stock prices. We measure the fair value of the SVA unit on the grant date using a Monte Carlo simulation model. The model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the award grant and calculates the fair value of the award. Expected volatilities utilized in the model are based on implied volatilities from traded options on our stock, historical volatility of our stock price, and other factors. Similarly, the dividend yield is based on historical experience and our estimate of future dividend yields. The risk-free interest rate is derived from the U.S. Treasury yield curve in effect at the time of grant. , $, and $, respectively, determined using the following assumptions:
% | | | % | | | % | | Risk-free interest rate | | | | | | | | |
| Volatility | | | | | | | | |
Pursuant to this program, approximately million, million, and million shares were issued during the years ended December 31, 2024, 2023, and 2022, respectively. We expect to issue approximately million shares in 2025. As of December 31, 2024, the total estimated remaining unrecognized compensation cost related to nonvested SVAs was $ million, which will be amortized over the weighted-average remaining requisite service period of months.
period. PA shares were accounted for at fair value based upon the closing stock price on the date of grant and fully vest at the end of the measurement period. The fair values of PAs granted for the years ended December 31, 2023 and 2022 were, $ and $, respectively. Pursuant to this program, approximately million, million, and million shares were issued during the years ended December 31, 2024, 2023, and 2022, respectively. We expect to issue approximately million shares in 2025. As of December 31, 2024, there was no remaining unrecognized compensation cost related to PAs, as we discontinued the program.Relative Value Award Program
RVAs are granted to officers and management and are payable in shares of our common stock. The number of shares actually issued, if any, varies depending on the growth of our stock price at the end of the vesting period compared to our peers. We measure the fair value of the RVA unit on the grant date using a Monte Carlo simulation model. The model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the award grant and calculates the fair value of the award. Expected volatilities utilized in the model are based on implied volatilities from traded options on our stock, historical volatility of our stock price and our peers' stock price, and other factors. Similarly, the dividend yield is based on historical experience and our estimate of future dividend yields. The risk-free interest rate is derived from the U.S. Treasury yield curve in effect at the time of grant. , $, and $, respectively, determined using the following assumptions:
% | | | % | | | % | | Risk-free interest rate | | | | | | | | |
| Volatility | | | | | | | | |
Pursuant to this program, approximately million shares were issued during each of the years ended December 31, 2024 and 2023. We expect to issue approximately million shares in 2025. As of December 31, 2024, the total estimated remaining unrecognized compensation cost related to nonvested RVAs was $ million, which will be amortized over the weighted-average remaining requisite service period of months.
Note 13:
billion, $ million, and $ billion, respectively, of shares associated with our share repurchase programs. In 2024, we repurchased $ billion of shares, which completed our $ billion share repurchase program that our board authorized in May 2021. Our board authorized a $ billion share repurchase program in December 2024. shares were repurchased under this new program as of December 31, 2024.
We have million authorized shares of preferred stock. As of December 31, 2024 and 2023, preferred stock was issued.
We have an employee benefit trust that held million shares of our common stock at both December 31, 2024 and 2023, to provide a source of funds to assist us in meeting our obligations under various employee benefit plans. The cost basis of the shares held in the trust was $ billion at both December 31, 2024 and 2023, and is shown as a reduction of shareholders' equity. Any dividend transactions between us and the trust are eliminated. Stock held by the trust is not considered outstanding in the computation of EPS. The assets of the trust were not used to fund any of our obligations under these employee benefit plans during the years ended December 31, 2024, 2023, and 2022.
Note 14:
| | $ | | | | $ | | | | Foreign | | | | | | | | |
| State | | | | | | | | |
| Total current tax expense | | | | | | | | |
| Deferred: | | | | | |
| Federal | () | | | () | | | () | |
| Foreign | () | | | | | | () | |
| State | () | | | () | | | () | |
| Total deferred tax benefit | () | | | () | | | () | |
| Income taxes | $ | | | | $ | | | | $ | | |
million, $ million, and $ million of tax benefit, respectively, from utilization of net operating loss and other tax carryforwards.
| | $ | | | | Purchases of intangible assets | | | | | |
| Sales rebates and discounts | | | | | |
| Correlative tax adjustments | | | | | |
Tax loss and other tax carryforwards | | | | | |
| Tax credit carryforwards | | | | | |
| Compensation and benefits | | | | | |
| Foreign tax redeterminations | | | | | |
| Operating lease liabilities | | | | | |
| Other | | | | | |
| Total gross deferred tax assets | | | | | |
| Valuation allowances | () | | | () | |
| Total deferred tax assets | | | | | |
| Deferred tax liabilities: | | | |
| Intangibles | () | | | () | |
| Earnings of foreign subsidiaries | () | | | () | |
| Prepaid employee benefits | () | | | () | |
| Property and equipment | () | | | () | |
| Operating lease assets | () | | | () | |
| Financial instruments | () | | | () | |
| Inventories | () | | | () | |
| Total deferred tax liabilities | () | | | () | |
| Deferred tax assets - net | $ | | | | $ | | |
The deferred tax asset and related valuation allowance amounts for U.S. federal, international, and state net operating losses and tax credits shown above have been reduced for differences between financial reporting and tax return filings.
At December 31, 2024, based on filed tax returns we have tax credit carryforwards and carrybacks of $ billion available to reduce future income taxes; $ million, if unused, will expire in 2026, and $ million, if unused, will expire between 2030 and 2044. The remaining portion of the tax credit carryforwards is related to federal tax credits of $ million, international tax credits of $ million, and state tax credits of $ million, all of which are fully reserved.
At December 31, 2024, based on filed tax returns we have net operating losses and other carryforwards for U.S. federal and international tax purposes of $ billion available to reduce future income taxes: $ million will expire by 2029, $ million will expire between 2030 and 2044, and $ million of the carryforwards will never expire. The remaining net operating losses and other carryforwards for U.S. federal and international tax purposes of $ million and $ million, respectively, are fully reserved. Deferred tax assets related to state net operating losses and other carryforwards of $ million are fully reserved as of December 31, 2024.
At December 31, 2024 and 2023, prepaid expenses included prepaid taxes of $ billion and $ billion, respectively.
Domestic and Puerto Rican companies contributed approximately percent, percent, and percent for the years ended December 31, 2024, 2023, and 2022, respectively, to consolidated income before income taxes.
| | $ | | | | $ | | | As of December 31, 2024, we have noncurrent income tax payables of $ million that we expect to pay in 2026 and $ billion that we cannot reasonably estimate the timing of future cash outflows.
| | $ | | | | $ | | | | Add (deduct): | | | | | |
Non-deductible acquired IPR&D(1) | | | | | | | | |
| Foreign-derived intangible income deduction | () | | | () | | | () | |
International operations, including Puerto Rico(2) | () | | | () | | | () | |
| General business credits | () | | | () | | | () | |
Stock-based compensation(3) | () | | | () | | | () | |
|
| Valuation allowance release | () | | | () | | | () | |
| Other | () | | | | | | () | |
| Income taxes | $ | | | | $ | | | | $ | | |
(1) Non-deductible acquired IPR&D was primarily related to the acquisitions of Morphic in 2024, and DICE, Versanis, and Emergence in 2023. See Note 3 for additional information related to acquisitions.
(2) Includes the impact of GILTI tax, Puerto Rico Excise Tax (for 2022), and other U.S. taxation of foreign income.
(3) Includes excess tax benefits from stock-based compensation and non-deductible stock-based compensation.
| | $ | | | | $ | | | | Additions based on tax positions related to the current year | | | | | | | | |
| Additions for tax positions of prior years | | | | | | | | |
| Reductions for tax positions of prior years | () | | | () | | | () | |
| Settlements | () | | | () | | | () | |
| Lapses of statutes of limitation | () | | | () | | | () | |
| Changes related to the impact of foreign currency translation | () | | | | | | () | |
| Ending balance at December 31 | $ | | | | $ | | | | $ | | |
The total amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate was $ billion at December 31, 2024.
We file U.S. federal, foreign, and various state and local income tax returns. We are no longer subject to U.S. federal income tax examination for years before 2016. In most major foreign and state jurisdictions, we are no longer subject to income tax examination for years before 2014.
The U.S. examination of tax years 2019-2021 began in 2023 and remains ongoing. For tax years 2016-2018, we are pursuing competent authority assistance through the Mutual Agreement Procedure (MAP) process for the pricing of certain intercompany transactions. The resolution of both audit periods will likely extend beyond the next 12 months.
million and $ million at December 31, 2024 and 2023, respectively.
Note 15:
| | $ | | | | $ | | | | $ | | | | Service cost | | | | | | | | | | | |
| Interest cost | | | | | | | | | | | |
| Actuarial (gain) loss | () | | | | | | () | | | | |
| Benefits paid | () | | | () | | | () | | | () | |
| | |
| | |
| Foreign currency exchange rate changes and other adjustments | () | | | | | | () | | | | |
| Benefit obligation at end of year | | | | | | | | | | | |
| Change in plan assets: | | | | | | | |
| Fair value of plan assets at beginning of year | | | | | | | | | | | |
| Actual return on plan assets | | | | | | | | | | | |
| Employer contribution | | | | | | | | | | | |
| Benefits paid | () | | | () | | | () | | | () | |
| Foreign currency exchange rate changes and other adjustments | () | | | | | | | | | () | |
| Fair value of plan assets at end of year | | | | | | | | | | | |
| | |
| Funded status | | | | () | | | | | | | |
| Unrecognized net actuarial loss | | | | | | | | | | | |
| Unrecognized prior service (benefit) cost | | | | | | | () | | | () | |
| Net amount recognized | $ | | | | $ | | | | $ | | | | $ | | |
| | |
| | | | | | | |
Amounts recognized in the consolidated balance sheets consisted of: | | | | | | | |
| Other noncurrent assets | $ | | | | $ | | | | $ | | | | $ | | |
| Other current liabilities | () | | | () | | | () | | | () | |
| Accrued retirement benefits | () | | | () | | | () | | | () | |
Accumulated other comprehensive loss | | | | | | | | | | | |
| Net amount recognized | $ | | | | $ | | | | $ | | | | $ | | |
The unrecognized net actuarial (gain) loss and unrecognized prior service (benefit) cost have not yet been recognized in net periodic pension costs and were included in accumulated other comprehensive loss at December 31, 2024 and 2023. Unrecognized net actuarial (gain) loss for the U.S. and Puerto Rico defined benefit pension and retiree health benefit plans are amortized over the average remaining service period of active employees in the plan. The amortization of actuarial (gains) losses for U.S. and Puerto Rico defined benefit pension plans are determined by using a 10% corridor of the greater of the market related value of assets or the projected benefit obligations.
The $ million decrease in benefit obligation in 2024 was primarily driven by increases in the discount rates. The $ billion increase in benefit obligation in 2023 was primarily driven by decreases in the discount rates.
% | | % | | % | | | % | | % | | % | Rate of compensation increase | | | | | | | | | | |
Expected return on plan assets | | | | | | | | | | | | | |
Weighted-average assumptions used to determine benefit obligation as of December 31: | | | | | | | |
Discount rate | | % | | % | | % | | | % | | % | | % |
Rate of compensation increase | | | | | | | | | | |
We annually evaluate the expected return on plan assets in our defined benefit pension and retiree health benefit plans. In evaluating the expected return on plan assets, we consider many factors, with a primary analysis of current and projected market conditions; asset returns and asset allocations; and the views of leading financial advisers and economists. In U.S. and Puerto Rico, the expected return on plan assets uses a market-related value of assets. For U.S. dollar denominated investment grade debt securities and derivatives, the market-related value of assets is the actual fair value. For all other asset categories, the market-related value of assets uses a method that recognizes investment gains and losses arising from the difference between expected and actual returns on plan assets over a five-year period.
We may also review our historical assumptions compared with actual results, as well as the assumptions and trend rates utilized by similar plans, where applicable.
Given the design of our retiree health benefit plans, healthcare-cost trend rates do not have a material impact on our financial condition or results of operations.
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | Retiree health benefit plans | | | | | | | | | | | | | | | | | |
| | $ | | | | Fair value of plan assets | | | | | |
| | $ | | | | $ | | | | $ | | | | Fair value of plan assets | | | | | | | | | | | |
The total accumulated benefit obligation for our defined benefit pension plans was $ billion and $ billion at December 31, 2024 and 2023, respectively.
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | Interest cost | | | | | | | | | | | | | | | | | |
| Expected return on plan assets | () | | | () | | | () | | | () | | | () | | | () | |
| Amortization of prior service (benefit) cost | | | | | | | | | | () | | | () | | | () | |
| Recognized actuarial (gain) loss | | | | | | | | | | () | | | () | | | | |
| | | | | | |
| | | | | | |
| Net periodic (benefit) cost | $ | | | | $ | | | | $ | | | | $ | () | | | $ | () | | | $ | () | |
| | $ | () | | | $ | | | | $ | () | | | $ | () | | | $ | () | | | | | | | | |
| | | | | | |
|
|
|
| () | |
| | | | | | |
|
| | | | | | |
| | | | | | |
| | | | | | |
) |
| | | | | | |
| | | | | | |
) ) |
| | | | | | |
) |
| | | | | | |
) |
| | | | | | |
| () | |
The tax effects on the net activity related to each component of other comprehensive income (loss) for the years ended December 31, were as follows:
| | | | | | | | | | | | | | | | | |
| Tax benefit (expense) | 2024 | | 2023 | | 2022 |
| Foreign currency translation gains/losses | $ | () | | | $ | | | | $ | () | |
| Net unrealized gains/losses on available-for-sale securities | | | | () | | | | |
| Retirement benefit plans | () | | | | | | () | |
| Net unrealized gains/losses on cash flow hedges | () | | | () | | | () | |
| Benefit (expense) for income taxes related to other comprehensive income (loss) | $ | () | | | $ | | | | $ | () | |
Except for the tax effects of foreign currency translation gains and losses related to our foreign currency-denominated notes, cross-currency interest rate swaps, and other foreign currency exchange contracts designated as net investment hedges (see Note 7), income taxes were not provided for foreign currency translation. Generally, the assets and liabilities of foreign operations are translated into U.S. dollars using the current exchange rate. For those operations, changes in exchange rates generally do not affect cash flows; therefore, resulting translation adjustments are made in shareholders' equity rather than in the consolidated statements of operations.
) | | $ | () | | | $ | () | | Other—net, (income) expense | | Actuarial losses | | | | | | | | | Other—net, (income) expense |
| Total before tax | | | | | | | | | |
| Tax benefit | () | | | () | | | () | | Income taxes |
| Net of tax | | | | | | | | | |
| | | | | | |
| Other, net of tax | | | | () | | | | | Other—net, (income) expense |
| Total reclassifications for the period, net of tax | $ | | | | $ | | | | $ | | | |
Note 18:
| | $ | | | | $ | | | | Interest income | () | | | () | | | () | |
| Net investment losses on equity securities (Note 7) | | | | | | | | |
|
| Retirement benefit plans | () | | | () | | | () | |
| Other (income) expense | | | | | | | | |
| Other–net, (income) expense | $ | | | | $ | () | | | $ | | |
Note 19:
| | $ | | | | $ | | | Less: | | | | | |
| Cost of sales | | | | | | | | |
Early-stage research and development(1) | | | | | | | | |
Late-stage research and development(1) | | | | | | | | |
| Marketing, selling, and administrative | | | | | | | | |
| Acquired in-process research and development | | | | | | | | |
Other segment items(2) | | | | | | | | |
| Net income | $ | | | | $ | | | | $ | | |
(1) Early-stage research and development primarily includes costs incurred from discovery through Phase 2 clinical trials. Late-stage research and development primarily includes costs incurred from Phase 3 clinical trials.
(2) Other segment items primarily include income taxes and asset impairment, restructuring, and other special charges.
The following tables summarize additional segment information:
| | | | | | | | | | | | | | | | | |
| 2024 | | 2023 | | 2022 |
| Interest income | $ | | | | $ | | | | $ | | |
| Interest expense | | | | | | | | |
| Depreciation and amortization | | | | | | | | |
| Asset impairment, restructuring, and other special charges | | | | | | | | |
Earnings (loss) in equity method investments | | | | () | | | () | |
| Income taxes | | | | | | | | |
Expenditures for long-lived assets(1) | | | | | | | | |
(1) Includes expenditures for property and equipment and computer software costs. | | | | | | | | | | | |
| 2024 | | 2023 |
| Total assets | $ | | | | $ | | |
Equity method investments | | | | | |
Management's Reports
Management's Report for Financial Statements—Eli Lilly and Company and Subsidiaries
Management of Eli Lilly and Company and subsidiaries is responsible for the accuracy, integrity, and fair presentation of the financial statements. The statements have been prepared in accordance with generally accepted accounting principles in the United States and include amounts based on judgments and estimates by management. In management's opinion, the consolidated financial statements present fairly our financial position, results of operations, and cash flows.
In addition to the system of internal accounting controls, we maintain a code of conduct (known as "The Red Book") that applies to all employees worldwide, requiring proper overall business conduct, avoidance of conflicts of interest, compliance with laws, and confidentiality of proprietary information. All employees must take training annually on The Red Book and are required to report suspected violations. A hotline number is available on our lilly.com website and on the internal LillyNow website to enable reporting of suspected violations anonymously. Employees who report suspected violations are protected from discrimination or retaliation by the company. In addition to The Red Book, the chief executive officer and all financial management must sign a financial code of ethics, which further reinforces their ethical and fiduciary responsibilities.
The consolidated financial statements have been audited by Ernst & Young LLP, an independent registered public accounting firm (PCAOB ID: ). Their responsibility is to examine our consolidated financial statements in accordance with generally accepted auditing standards of the Public Company Accounting Oversight Board (United States). Ernst & Young's opinion with respect to the fairness of the presentation of the statements is included in Item 8 of our Annual Report on Form 10-K. Ernst & Young reports directly to the audit committee of the board of directors.
Our audit committee includes four nonemployee members of the board of directors, all of whom are independent from our company. The committee charter, which is available on our website, outlines the members' roles and responsibilities. It is the audit committee's responsibility to appoint an independent registered public accounting firm subject to shareholder ratification, pre-approve both audit and non-audit services performed by the independent registered public accounting firm, and review the reports submitted by the firm. The audit committee meets several times during the year with management, the internal auditors, and the independent public accounting firm to discuss audit activities, internal controls, and financial reporting matters, including reviews of our externally published financial results. The internal auditors and the independent registered public accounting firm have full and free access to the committee.
We are dedicated to ensuring that we maintain the high standards of financial accounting and reporting that we have established. We are committed to providing financial information that is transparent, timely, complete, relevant, and accurate. Our culture demands integrity and an unyielding commitment to strong internal practices and policies. Finally, we have the highest confidence in our financial reporting, our underlying system of internal controls, and our people, who are objective in their responsibilities, operate under a code of conduct and are subject to the highest level of ethical standards.
Management's Report on Internal Control Over Financial Reporting—Eli Lilly and Company and Subsidiaries
Management of Eli Lilly and Company and subsidiaries is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. We have global financial policies that govern critical areas, including internal controls, financial accounting and reporting, fiduciary accountability, and safeguarding of corporate assets. Our internal accounting control systems are designed to provide reasonable assurance that assets are safeguarded, that transactions are executed in accordance with management's authorization and are properly recorded, and that accounting records are adequate for preparation of financial statements and other financial information. A staff of internal auditors regularly monitors, on a worldwide basis, the adequacy and effectiveness of internal accounting controls. The general auditor reports directly to the audit committee of the board of directors.
We conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in "Internal Control—Integrated Framework" (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on our evaluation under this framework, we concluded that our internal control over financial reporting was effective as of December 31, 2024. However, because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The effectiveness of internal control over financial reporting as of December 31, 2024 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their attestation report, which appears herein. Their responsibility is to evaluate whether internal control over financial reporting was designed and operating effectively.
| | | | | | | | |
| David Ricks | | Lucas Montarce |
| Chair, President, and Chief Executive Officer | | Executive Vice President and Chief Financial Officer |
February 19, 2025
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Eli Lilly and Company
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Eli Lilly and Company and subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 19, 2025, expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
| | | | | | | | |
| | Medicaid, Managed Care, and Medicare sales rebate accruals |
| Description of the Matter | | As described in Note 2 to the consolidated financial statements under the caption “Net Product Revenue,” the Company establishes provisions for sales rebate and discounts in the same period as the related sales occur. At December 31, 2024, the Company had $11,539.3 million in sales rebate and discount accruals. A large portion of these accruals are rebates associated with sales in the United States for which payment for purchase of the product is covered by Medicaid, Managed Care, and Medicare.
Auditing the Medicaid, Managed Care, and Medicare sales rebate and discount liabilities is challenging because of the subjectivity of certain assumptions required to estimate the rebate liabilities. In calculating the appropriate accrual amount, the Company considers historical Medicaid, Managed Care, and Medicare rebate payments by product as a percentage of their historical sales as well as any significant changes in sales trends, the lag in payment timing, changes in rebate contracts, an evaluation of the current Medicaid and Medicare laws and interpretations, the percentage of products that are sold via Medicaid, Managed Care, and Medicare, and product pricing. Given variability in prescription drug costs and variability in prescription data, historical rebate information may not be predictive for management to estimate the rebate accrual and thus, management supplements its historical data analysis with qualitative adjustments based upon current expectations, particularly for select products which contribute the largest portion of the Company's revenue. |
| How We Addressed the Matter in Our Audit | | We tested the Company’s controls addressing the identified risks of material misstatement related to the valuation of the sales rebate and discount liabilities. This included testing controls over management’s review of the significant assumptions used to calculate the Medicaid, Managed Care, and Medicare rebate liabilities, including the significant assumptions discussed above. This testing also included management’s control to compare actual activity to estimated activity and controls to ensure the data used to evaluate the significant assumptions was complete and accurate. Our audit procedures included, among others, evaluating for reasonableness the significant assumptions in light of economic trends, product profiles, and other regulatory factors. Our testing involved assessing the historical accuracy of management’s estimates by comparing actual activity to previous estimates and performing analytical procedures, based on internal and external data sources, to evaluate the completeness of the reserves. Additionally, our procedures included reviewing a sample of contracts, testing a sample of rebate payments and testing the underlying data used in management’s evaluation. For Medicaid, we involved our professionals with an understanding of the statutory reimbursement requirements to assess the consistency of the Company’s calculation methodologies with the applicable government regulations and policy. |
/s/
We have served as the Company's auditor since 1940.
February 19, 2025
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Eli Lilly and Company
Opinion on Internal Control Over Financial Reporting
We have audited Eli Lilly and Company and subsidiaries’ internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Eli Lilly and Company and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes and our report dated February 19, 2025, expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Indianapolis, Indiana
February 19, 2025
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under applicable Securities and Exchange Commission (SEC) regulations, management of a reporting company, with the participation of the principal executive officer and principal financial officer, must periodically evaluate the company's "disclosure controls and procedures," which are defined generally as controls and other procedures designed to ensure that information required to be disclosed by the reporting company in its periodic reports filed with the SEC (such as this Form 10-K) is recorded, processed, summarized, and reported on a timely basis.
Our management, with the participation of David Ricks, president and chief executive officer, and Lucas Montarce, executive vice president and chief financial officer, evaluated our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of December 31, 2024, and concluded that they were effective.
Management's Report on Internal Control over Financial Reporting
Mr. Ricks and Mr. Montarce provided a report on behalf of management on our internal control over financial reporting, in which management concluded that the company's internal control over financial reporting is effective at December 31, 2024 based on the framework in "Internal Control—Integrated Framework" (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States. Due to the inherent limitations, no evaluation over internal control can provide absolute assurance that no material misstatements or fraud exist.
In addition, Ernst & Young LLP, the company's independent registered public accounting firm, issued an attestation report on the company's internal control over financial reporting as of December 31, 2024.
See Item 8 for the full text of management's report and Ernst & Young's attestation report.
Changes in Internal Control over Financial Reporting
During the fourth quarter of 2024, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.Other Information
, , , a sales plan (Plan). The Plan was entered into during an open trading window and is intended to satisfy the affirmative defense conditions of of the Exchange Act of 1934 and our policies regarding trading in our securities. The Plan calls for the sale of up to shares of company common stock between March 13, 2025 and subject to the terms and conditions of the Plan.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
Part III
Item 10.Directors, Executive Officers, and Corporate Governance
Directors and Executive Officers
Information relating to our board of directors is found in our Definitive Proxy Statement, to be dated on or about March 21, 2025 (Proxy Statement), under "Governance - How We Build an Effective Board" and is incorporated in this Annual Report on Form 10-K by reference.
Information relating to our is found in our Proxy Statement under "Ownership of Company Stock - Common Stock Ownership by Directors and Executive Officers" and is incorporated in this Annual Report on Form 10-K by reference.
Information relating to our executive officers is found at Item 1, "Business - Executive Officers of the Company" and is incorporated by reference herein.
Code of Ethics
Information relating to our code of ethics is found in our Proxy Statement under "Governance - How We Operate an Effective Board - Governance Practices - Board Oversight - Key Areas of Oversight by the Board and Its Committees - Governance - Code of Ethics" and is incorporated in this Annual Report on Form 10-K by reference.
Corporate Governance
Information about the procedures by which shareholders can recommend nominees to our board of directors is found in our Proxy Statement under "Governance - How We Build an Effective Board - Director Nominations - Shareholder Director Candidates" and is incorporated in this Annual Report on Form 10-K by reference.
The board of directors has appointed an audit committee consisting entirely of independent directors in accordance with applicable Securities and Exchange Commission and New York Stock Exchange requirements for audit committees. Information about our audit committee is found in our Proxy Statement under "Governance - How We Operate an Effective Board - Board Structure - Meetings of the Board and Its Committees - Committees of the Board - Audit Committee" and is incorporated in this Annual Report on Form 10-K by reference.
Section 16(a) Reporting Compliance
Information about our compliance with Section 16(a) is found in our Proxy Statement under "Ownership of Company Stock - Delinquent Section 16(a) Reports" and is incorporated in this Annual Report on Form 10-K by reference.
Item 11.Executive Compensation
Information on director compensation, executive compensation, and talent and compensation committee matters can be found in the Proxy Statement under "Governance - How We Build an Effective Board - Director Compensation," "- How We Operate an Effective Board - Board Structure - Meetings of the Board and Its Committees - Committees of the Board - Talent and Compensation Committee," "Compensation - Compensation Discussion and Analysis," "- Talent and Compensation Committee Matters," and "- Executive Compensation." Such information is incorporated in this Annual Report on Form 10-K by reference.
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Security Ownership of Certain Beneficial Owners and Management
Information relating to ownership of the company's common stock by management and by persons known by the company to be the beneficial owners of more than five percent of the outstanding shares of common stock is found in the Proxy Statement under "Ownership of Company Stock" and incorporated in this Annual Report on Form 10-K by reference.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table presents information as of December 31, 2024 regarding the company's compensation plans under which shares of the company's common stock have been authorized for issuance.
| | | | | | | | | | | |
| Plan category | (a) Number of securities to be issued upon exercise of outstanding options, warrants, and rights (1) | (b) Weighted-average exercise price of outstanding options, warrants, and rights | (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
| Equity compensation plans approved by security holders | — | | $ | — | 48,827,102 |
| Equity compensation plan not approved by security holders | — | | — | — | |
| Total | — | | — | 48,827,102 | |
(1) 2,396,006 shares are underlying outstanding equity awards.
Item 13.Certain Relationships and Related Transactions, and Director Independence
Related Person Transactions
Information relating to the policies and procedures for approval of related person transactions by our board of directors can be found in the Proxy Statement under "Governance - How We Operate an Effective Board - Board Alignment - Conflicts of Interest and Transactions with Related Persons." Such information is incorporated in this Annual Report on Form 10-K by reference.
Director Independence
Information relating to director independence can be found in the Proxy Statement under "Governance - How We Build an Effective Board - Director Qualifications - Independence" and is incorporated in this Annual Report on Form 10-K by reference.
Item 14.Principal Accountant Fees and Services
Information related to the fees and services of our principal independent accountants, Ernst & Young LLP, can be found in the Proxy Statement under "Audit Matters - Item 3. Ratification of the Appointment of the Independent Auditor - Services Performed by the Independent Auditor" and "- Independent Auditor Fees." Such information is incorporated in this Annual Report on Form 10-K by reference.
Item 15.Exhibits and Financial Statement Schedules
(a)1. Financial Statements
The following consolidated financial statements of the company and its subsidiaries are found at Item 8:
•Consolidated Statements of Operations—Years Ended December 31, 2024, 2023, and 2022
•Consolidated Statements of Comprehensive Income—Years Ended December 31, 2024, 2023, and 2022
•Consolidated Balance Sheets—December 31, 2024 and 2023
•Consolidated Statements of Shareholders' Equity—Years Ended December 31, 2024, 2023, and 2022
•Consolidated Statements of Cash Flows—Years Ended December 31, 2024, 2023, and 2022
•Notes to Consolidated Financial Statements
(a)2. Financial Statement Schedules
The consolidated financial statement schedules of the company and its subsidiaries have been omitted because they are not required, are inapplicable, or are adequately explained in the financial statements.
Financial statements of interests of 50 percent or less, which are accounted for by the equity method, have been omitted because they do not, considered in the aggregate as a single subsidiary, constitute a significant subsidiary.
(a)3. Exhibits
The following documents are filed as part of this Annual Report on Form 10-K:
| | | | | | | | |
| Exhibit | | Description |
| | |
| 3.1 | | |
| | |
| 3.2 | | |
| | |
| 4.1 | | |
| | |
| 4.2 | | |
| | |
| 4.3 | | |
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| 4.4 | | |
| | |
| 4.5 | | |
| | |
| 4.6 | | |
| | |
| 4.7 | | |
| | |
| 4.8 | | |
| | |
| | | | | | | | |
| 4.9 | | |
| | |
| 10.1 | | |
| | |
| 10.2 | | |
| | |
| 10.3 | | |
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| 10.4 | | |
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| 10.5 | | |
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| 10.6 | | |
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| 10.7 | | |
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| 10.8 | | |
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| 10.9 | | |
| | |
| 10.10 | | |
| | |
| 19 | | |
| | |
| 21 | | |
| | |
| 23 | | |
| | |
| 31.1 | | |
| | |
| 31.2 | | |
| | |
| 32 | | |
| | |
| 97 | | |
| | |
| 101 | | Interactive Data File* |
| | |
| 104 | | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)* |
(1) Indicates management contract or compensatory plan.
* Filed herewith.
Long-term debt instruments under which the total amount of securities authorized does not exceed 10 percent of our consolidated assets are not filed as exhibits to this Annual Report. We will furnish a copy of these agreements to the Securities and Exchange Commission upon request.
Item 16.Form 10-K Summary
Not applicable.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Eli Lilly and Company
| | | | | | | | |
| By | | /s/ David Ricks |
| David Ricks |
| Chair, President, and Chief Executive Officer |
February 19, 2025
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on February 19, 2025 by the following persons on behalf of the Registrant and in the capacities indicated.
| | | | | | | | |
| Signature | | Title |
| | |
| /s/ David Ricks | | Chair, President, and Chief Executive Officer (principal executive officer) |
| DAVID RICKS | |
| | |
| /s/ Lucas Montarce | | Executive Vice President and Chief Financial Officer (principal financial officer) |
| LUCAS MONTARCE | |
| | |
| /s/ Donald Zakrowski | | Senior Vice President, Finance, and Chief Accounting Officer (principal accounting officer) |
| DONALD ZAKROWSKI | |
| | |
| /s/ Ralph Alvarez | | Director |
| RALPH ALVAREZ | | |
| | |
| /s/ Katherine Baicker, Ph.D. | | Director |
| KATHERINE BAICKER, Ph.D. | | |
| | |
| /s/ Erik Fyrwald | | Director |
| ERIK FYRWALD | | |
| | |
| /s/ Mary Lynne Hedley, Ph.D. | | Director |
| MARY LYNNE HEDLEY, Ph. D. | | |
| | |
| /s/ Jamere Jackson | | Director |
| JAMERE JACKSON | | |
| | |
| /s/ Kimberly Johnson | | Director |
| KIMBERLY JOHNSON | | |
| | |
| /s/ William Kaelin, Jr., M.D. | | Director |
| WILLIAM KAELIN, JR., M.D. | | |
| | |
| /s/ Juan Luciano | | Director |
| JUAN LUCIANO | | |
| | |
| /s/ Jon Moeller | | Director |
| JON MOELLER | | |
| | |
| /s/ Gabrielle Sulzberger | | Director |
| GABRIELLE SULZBERGER | | |
| |
| |
| |
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