ELI LILLY & Co - Quarter Report: 2024 March (Form 10-Q)

Other current liabilities Total current liabilities Noncurrent LiabilitiesLong-term debt Accrued retirement benefits (Note 8) Long-term income taxes payable Other noncurrent liabilities Total noncurrent liabilities Commitments and Contingencies (Note 9) Additional paid-in capital Retained earnings Employee benefit trust()()Accumulated other comprehensive loss (Note 10)()()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 condensed financial statements.

Consolidated Condensed Statements of Shareholders' Equity

(Unaudited)

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(1)

Noncontrolling Interests

Amount

Balance at January 1, 2023

()

Net income

Other comprehensive income, net of tax

Retirement of treasury shares

()

Purchase of treasury shares

()

Issuance of stock under employee stock plans, net

()

Stock-based compensation

Other

()

Balance at March 31, 2023

()

Balance at January 1, 2024

()

Net income (loss)

()

Other comprehensive income, net of tax

Purchases of in-process research and development

()

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

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 January 1

Cash and Cash Equivalents at March 31

See notes to consolidated condensed financial statements.

Notes to Consolidated Condensed Financial Statements

(Tables present dollars in millions)

Note 1:

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 from the Jardiance® and Trajenta® families of products resulting from our collaboration with Boehringer Ingelheim discussed in Note 4, as well as the sale of product rights. 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 during the three months ended March 31, 2024 and 2023.

Adjustments to Revenue

Adjustments to revenue recognized as a result of changes in estimates for our most significant United States (U.S.) sales returns, rebates, and discounts liability balances for products shipped in previous periods were percent and less than percent of U.S. revenue during the three months ended March 31, 2024 and 2023, respectively.

Contract Liabilities

Our contract liabilities result from arrangements where we have received payment in advance of performance under the contract and do not include sales returns, rebates, and discounts. Changes in contract liabilities are generally due to either receipt of additional advance payments or our performance under the contract.

During the three months ended March 31, 2024 and 2023, 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®

Jardiance(1)

Humalog® (2)

Zepbound®

Humulin®

Basaglar® (3)

Other diabetes and obesity Total diabetes and obesity Oncology:

Verzenio®

Cyramza®

Erbitux®

Tyvyt®

Other oncology Total oncology Immunology:

Taltz®

Olumiant®

Other immunology Total immunology Neuroscience:

Emgality®

Other neuroscience Total neuroscience Other:

Cialis®

Forteo®

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®.

$ Europe China Japan Other foreign countries Revenue$ $ Other assets and liabilities, net()Acquisition date fair value of consideration transferred Less: Cash acquired()Cash paid, net of cash acquired$

(1) The goodwill recognized from this acquisition is attributable primarily to the radiopharmaceutical discovery, development, and manufacturing capabilities and the assembled workforce for POINT, which is not deductible for tax purposes.

The results of operations attributable to POINT for the three months ended March 31, 2024 were not material.

Pro forma information has not been included as this acquisition did not have a material impact on our consolidated condensed statements of operations for the three months ended March 31, 2023.

Asset Acquisitions

Upon each asset acquisition, the cost allocated to acquired IPR&D was immediately expensed as acquired IPR&D if the compound had no alternative future use. Milestone payment obligations incurred prior to regulatory approval of the compound were expensed as acquired IPR&D when the event triggering an obligation to pay the milestone occurred. We recognized acquired IPR&D charges of $ million and $ million for the three months ended March 31, 2024 and 2023, respectively.

Note 4:

$ Basaglar Trajenta

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. The agreement calls for payments by us to Incyte associated with certain development, success-based regulatory, and sales-based milestones.

In connection with the regulatory approvals of Olumiant in the U.S., Europe, and Japan, as well as achievement of a sales-based milestone, milestone payments were capitalized as intangible assets and are being amortized to cost of sales through the term of the collaboration. Net milestones capitalized are not material. As of March 31, 2024, Incyte is eligible to receive up to $ million of additional payments from us in potential sales-based milestones.

We record our sales of Olumiant 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 March 31, 2024, Roche is eligible to receive additional payments from us, including up to $ million contingent upon the achievement of additional success-based regulatory milestones and up to $ billion in potential sales-based milestones. During the three months ended March 31, 2024 and 2023, 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 lebrikizumab 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 three months ended March 31, 2024 and 2023, collaboration and other revenue recognized under this license agreement was not material. As of March 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 March 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.

Note 5:

$ Work in process Raw materials and supplies Total (approximates replacement cost)

Increase to last-in, first-out (LIFO) cost

Inventories$ $

Note 6:

Adjustments recorded for the three months ended March 31, 2024 and 2023 were not material.

The net gains (losses) recognized in our consolidated condensed statements of operations for equity securities were $ million and $() million for the three months ended March 31, 2024 and 2023, respectively. The net gains (losses) recognized for the three months ended March 31, 2024 and 2023 on equity securities sold during the respective periods were not material.

As of March 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 three months ended March 31, 2024 and 2023.

$ $ $ $ $ Unrealized gross losses Fair value of securities in an unrealized gain position Fair value of securities in an unrealized loss position

million and $ million for the three months ended March 31, 2024 and 2023, respectively.

$ $ $ $ $ Short-term investments:U.S. government and agency securities$ $ $ $ $ $ Corporate debt securities Asset-backed securities Other securities 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$ December 31, 2023

Cash equivalents(2)

$ $ $ $ $ $ Short-term investments:U.S. government and agency securities$ $ $ $ $ $ Corporate debt securities Other securities 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.

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 will 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, which became callable at par beginning February 27, 2024.

In February 2023, we issued $ million of percent fixed-rate notes due in 2026, which are callable at par after one year, $ 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.

Fair Value of Debt

)$ $()$ $()December 31, 2023() () ()Long-term debt, including current portionMarch 31, 2024() () ()December 31, 2023() () ()

Risk Management and Related Financial Instruments

Financial instruments that potentially subject us to credit risk consist principally of trade receivables and interest-bearing investments. Wholesale distributors of life science products account for a substantial portion of our trade receivables; collateral is generally not required. We seek to mitigate the risk associated with this concentration through our ongoing credit-review procedures and insurance. The majority of our cash is held by a few major financial institutions that have been identified as Global Systemically Important Banks (G-SIBs) by the Financial Stability Board. G-SIBs are subject to rigorous regulatory testing and oversight and must meet certain capital requirements. We monitor our exposures with these institutions and do not expect any of these institutions to fail to meet their obligations. In accordance with documented corporate risk-management policies, we monitor the amount of credit exposure to any one financial institution or corporate issuer based on credit rating of our counterparty. We are exposed to credit-related losses in the event of nonperformance by counterparties to risk-management instruments but do not expect significant counterparties to fail to meet their obligations given their investment grade credit ratings.

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 March 31, 2024 and December 31, 2023, respectively, under these factoring arrangements. The costs of factoring such accounts receivable as well as estimated credit losses were not material for the three months ended March 31, 2024 and 2023.

Forward contracts generally have maturities not exceeding months. days:

U.S. dollarsU.S. dollarsEuroBritish poundsU.S. dollarsU.S. dollarsJapanese yen

Foreign currency exchange risk is also managed through the use of foreign currency debt, cross-currency interest rate swaps, and foreign currency forward contracts. Our foreign currency-denominated notes had carrying amounts of $ billion and $ billion as of March 31, 2024 and December 31, 2023, respectively, of which $ billion and $ billion have been designated as, and are effective as, economic hedges of net investments in certain of our foreign operations as of March 31, 2024 and December 31, 2023, respectively. At March 31, 2024, we had outstanding cross-currency swaps with notional amounts of $ million swapping U.S. dollars to euro and $ billion swapping Swiss francs to U.S. dollars which have settlement dates ranging through 2028. Our cross-currency interest rate swaps, for which a significant amount convert a portion of our U.S. dollar-denominated fixed-rate debt to foreign-denominated fixed-rate debt, have also been designated as, and are effective as, economic hedges of net investments. At March 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, economic hedges of net investments.

At March 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 Condensed 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 (gains) losses on foreign currency exchange contracts not designated as hedging instruments ()Total$ $()

During the three months ended March 31, 2024 and 2023, the amortization of losses related to the portion of our risk management hedging instruments, fair value hedges, and cash flow hedges that was excluded from the assessment of effectiveness was not material.

$()Cross-currency interest rate swaps ()Foreign currency forward contracts ()Cash flow hedges:Forward-starting interest rate swaps Cross-currency interest rate swaps ()

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.

Contingent consideration liabilities relate to our liabilities arising in connection with the contingent value rights (CVRs) issued as a result of acquisitions of businesses. The fair values of the CVR liabilities were estimated using a discounted cash flow analysis and Level 3 inputs, including projections representative of a market participant's view of the expected cash payments associated with the agreed upon regulatory milestones based on probabilities of technical success, timing of the potential milestone events for the compounds, and estimated discount rates.

Note 7:

percent for the three months ended March 31, 2024 compared to percent for the three months ended March 31, 2023, driven by a larger net discrete tax benefit reflected in the three months ended March 31, 2024 compared to the same period in 2023.

The U.S. examination of tax years 2016-2018 began in 2019 and remains ongoing. The Internal Revenue Service commenced its examination of tax years 2019-2021 during the third quarter of 2023. The resolution of both audit periods will likely extend beyond the next 12 months.

Note 8:

$ Interest cost Expected return on plan assets()()Amortization of prior service cost Recognized actuarial loss Net periodic (benefit) cost$ $()


	2024		2023
Components of net periodic benefit:
Service cost	$		$
Interest cost
Expected return on plan assets	()		()
Amortization of prior service benefit	()		()
Recognized actuarial gain	()		()
Net periodic benefit	$	()	$	()

()) () ) ()

The tax effects on the net activity related to each component of other comprehensive income (loss) were as follows:


Tax benefit (expense)	2024		2023
Foreign currency translation gains/losses	$	()	$
Net unrealized gains/losses on available-for-sale securities			()
Defined benefit pension and retiree health benefit plans			()
Net unrealized gains/losses on cash flow hedges	()		()
Benefit (expense) for income taxes allocated to other comprehensive income (loss) items	$	()	$

20242023

Note 11:

$ Interest income()()Net investment (gains) losses on equity securities (Note 6)() Retirement benefit plans()()Other (income) expense ()()Other–net, (income) expense$()$()

Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition

(Tables present dollars in millions, except per-share data)

General

Management's discussion and analysis of results of operations and financial condition is intended to assist the reader in understanding and assessing significant changes and trends related to our results of operations and financial position. This discussion and analysis should be read in conjunction with the consolidated condensed financial statements and accompanying footnotes in Part I, Item 1 of this Quarterly Report on Form 10-Q. Certain statements in this Part I, Item 2 of this Quarterly Report on Form 10-Q constitute forward-looking statements. Various risks and uncertainties, including those discussed in "Forward-Looking Statements" in this Quarterly Report on Form 10-Q and "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023, may cause our actual results, financial position, and cash generated from operations to differ from these forward-looking statements.

EXECUTIVE OVERVIEW

This section provides an overview of our financial results, late-stage pipeline developments, and other matters affecting our company and the pharmaceutical industry.

Financial Results

The following table summarizes certain financial information:


	Three Months Ended March 31,				Percent Change
	2024		2023
Revenue	$	8,768.0	$	6,960.0	26
Net income	2,242.9		1,344.9		67
Earnings per share - diluted	2.48		1.49		66

(1) In collaboration with Boehringer Ingelheim.

(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) In collaboration with Almirall, S.A. in Europe.

(4) Breakthrough Therapy designation is designed to expedite the development and review of potential medicines that are intended to treat a serious condition where preliminary clinical evidence indicates that the treatment may demonstrate substantial improvement over available therapy on a clinically significant endpoint.

(5) Continued approval may be contingent on verification and description of clinical benefit in confirmatory Phase 3 trials.

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 9 to the consolidated condensed financial statements for a description of legal proceedings currently pending regarding certain of our patents and "Business—Patents, Trademarks, and Other Intellectual Property Rights" in Part I, Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2023 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 high inflation, 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 worldwide 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 August 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 nine years (for medicines approved under a New Drug Application) or thirteen years (for medicines approved under a Biologics License Application) following initial FDA approval and will be set at a price that is likely to represent a significant discount from existing average prices to wholesalers and direct purchasers. While the law specifies a ceiling price, it does not set a minimum or floor price. In August 2023, the 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. 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 would 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, the Part D benefit redesign will replace 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 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 the U.S. Congress, the U.S. executive branch, and regulatory authorities worldwide, could adversely impact our business and consolidated results of operations. For example, the proposed BIOSECURE Act in the U.S. would affect elements of the pharmaceutical supply chain, although as currently written we do not anticipate it would have a material impact on our business.

Consolidation and integration of private payors and pharmacy benefit managers in the U.S. has also significantly impacted the market for pharmaceuticals by increasing payor 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. Moreover, increased focus on business combinations across industries and jurisdictions can lead to impediments to the completion of business combinations.

See "Business—Regulations and Private Payer Actions Affecting Pharmaceutical Pricing, Reimbursement, and Access" in Part I, Item 1 and "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023. See also Note 9 to the consolidated condensed financial statements.

Product Supply

Demand for our incretin medicines has exceeded production. We expect tight supply to continue as growing production volume is outpaced by demand. In the short to mid-term, we expect sales growth for incretin medicines to primarily be a function of the quantity we can produce and ship. Among other measures to manage tight supply, in international markets we have communicated with healthcare practitioners to not start new patients on Trulicity in order to minimize disruption to existing patients. Supply considerations have also influenced the timing of tirzepatide launches in new markets. We continue to expand manufacturing capacity and progress efforts to bring tirzepatide to patients in various countries via different delivery presentations, such as single-use vials and multi-use pens. The most significant production increases in 2024 are expected in the second half of the year with additional capacity expected to be operational over the next several years.

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 adversely impact our future consolidated results of operations and cash flows.

In response to the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (Framework), which set forth a two-pillar solution to reform the international tax framework, and the EU's adoption of Directive 2022/2523 (known as "Pillar Two") (Directive) within the EU to implement the Framework, multiple countries, both within and outside of the EU, have enacted legislation that provides for a minimum level of taxation of multinational companies. The Directive required EU member states to enact legislation effective for years beginning on or after December 31, 2023. For certain provisions within the Framework, the OECD published guidance during 2023 that extends the effective dates for enactment. While we expect an increase in future years’ tax expense as a result of the global minimum tax, we do not anticipate a material impact to our 2024 consolidated results of operations. Our assessment of the impact for 2024 and subsequent years could be affected by legislative guidance, future enactment of additional provisions within the Pillar Two framework, and U.S. tax changes scheduled to occur in 2026 as part of the Tax Cuts and Jobs Act (2017 Tax Act).

A bipartisan tax bill, the Tax Relief for American Families and Workers Act, was passed by the U.S. House of Representatives in January 2024. The bill contains certain business tax provisions including the retroactive repeal for 2022 and 2023 and deferral of the requirement to capitalize U.S. research and development expenses for tax purposes that was a provision enacted in the 2017 Tax Act. Uncertainty exists as to whether the bill will be enacted into law; however, if the bill is enacted as currently drafted, we would expect our effective tax rate for 2024 to be moderately higher, and a net discrete tax detriment in the quarter of enactment related to 2022 and 2023. In addition, we would expect a decrease in cash tax payments.

Acquisitions

We invest in external research and technologies 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 condensed financial statements for further discussion regarding our recent acquisitions.

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 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, availability of adequate capacity in global transportation, 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 "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023 for additional information on risk factors that could impact our business and operations.

RESULTS OF OPERATIONS

Revenue

The following table summarizes our revenue activity by region:


	2024		2023
U.S.	$	5,694.4	$	4,436.2	28
Outside U.S.	3,073.7		2,523.9		22
Revenue	$	8,768.0	$	6,960.0	26

Numbers may not add due to rounding.

The following are components of the change in revenue compared with the prior year:


	U.S.		Outside U.S.		Consolidated
Volume	12	%	23	%	16	%
Price	16		(1)		10
Foreign exchange rates	—		—		—
Percent change	28	%	22	%	26	%

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®.

Revenue of Mounjaro in the U.S. during the three months ended March 31, 2024 was $1.52 billion compared to $536.4 million during the three months ended March 31, 2023, reflecting higher realized prices, as well as increased demand. The higher realized prices were positively impacted by savings card dynamics compared to the same period in 2023. In the second half of 2024, these savings card dynamics should cease to have a notable effect on realized price comparisons to base periods, as the $25 non-covered benefit expired June 30, 2023. Revenue outside the U.S. was $286.2 million compared to $32.0 million during the three months ended March 31, 2023, driven by increased volume. Worldwide volume growth was linked to available supply.

Revenue of Trulicity decreased 30 percent in the U.S. during the three months ended March 31, 2024, driven by decreased volume primarily due to supply constraints and competitive dynamics. Revenue outside the U.S. decreased 13 percent during the three months ended March 31, 2024, driven by decreased volume and, to a lesser extent, lower realized prices. In addition to the factors affecting U.S. volume, international markets continue to be impacted by actions we have taken to manage demand amid tight supply, including measures to minimize impact to existing patients.

Revenue of Verzenio increased 38 percent in the U.S. and 42 percent outside the U.S. during the three months ended March 31, 2024, primarily driven by increased demand.

Revenue of Jardiance increased 12 percent in the U.S. during the three months ended March 31, 2024, driven by increased demand. Revenue outside the U.S. increased 28 percent during the three months ended March 31, 2024, driven by increased volume. See Note 4 to the consolidated condensed financial statements for information regarding our collaboration with Boehringer Ingelheim involving Jardiance.

Revenue of Taltz increased 11 percent in the U.S. during the three months ended March 31, 2024, driven by increased demand and higher realized prices. Revenue outside the U.S. increased 20 percent during the three months ended March 31, 2024, driven by increased demand.

Revenue of Zepbound in the U.S. during the three months ended March 31, 2024 was $517.4 million. Similar to our other incretin medicines, volume growth was linked to available supply. Zepbound launched in the U.S. for the treatment of adult patients with obesity or overweight with weight-related comorbidities in November 2023.

Gross Margin, Costs, and Expenses

The following table summarizes our gross margin, costs, and expenses:


	Three Months Ended March 31,						Percent Change
	2024			2023

Gross margin	$	7,094.5		$	5,333.3		33
Gross margin as a percent of revenue	80.9		%	76.6		%

Research and development	$	2,522.8		$	1,985.1		27
Marketing, selling, and administrative	1,952.2			1,749.2			12
Acquired in-process research and development (IPR&D)	110.5			105.0			5

Other–net, (income) expense	(27.1)			(35.7)			(24)
Income taxes	293.2			184.8			59
Effective tax rate	11.6		%	12.1		%

* 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 Quarterly Report. We will furnish a copy of these agreements to the Securities and Exchange Commission upon request.

Signatures

Pursuant to the requirements 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
		(Registrant)

Date:	April 30, 2024	/s/ Anat Ashkenazi
		Anat Ashkenazi
		Executive Vice President and Chief Financial Officer
Date:	April 30, 2024	/s/ Donald Zakrowski
		Donald Zakrowski
		Senior Vice President, Finance, and Chief Accounting Officer

ELI LILLY & Co - Quarter Report: 2024 March (Form 10-Q)

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