ELI LILLY AND COMPANY Results of Operations
(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 the results of operations and financial position of our consolidated company. 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, 2020, may cause our actual results, financial position, and cash generated from operations to differ materially from these forward-looking statements. Executive Overview This section provides an overview of our financial results, recent product and late-stage pipeline developments, and other matters affecting our company and the pharmaceutical industry. Earnings per share (EPS) data are presented on a diluted basis. COVID-19 Pandemic In response to the COVID-19 pandemic, we have focused on maintaining a reliable supply of our medicines; reducing the strain on the medical system; developing treatments for COVID-19; protecting the health, safety, and well-being of our employees; supporting our communities; and ensuring affordability of and access to our medicines, particularly insulin. We have experienced negative impacts to our underlying business due to the COVID-19 pandemic, including decreases in new prescriptions as a result of fewer patient visits to physician's offices to begin or change treatment, changes in payer segment mix, and the use of patient affordability programs inthe United States (U.S. ) due to increased unemployment. Additionally, we have experienced, and may continue to experience if the COVID-19 pandemic undergoes resurgent or more severe waves, decreased demand as a result of lack of normal access and fewer in-person interactions by patients and our employees with the healthcare system. In certain locations in theU.S. and around the world with COVID-19 outbreaks, we temporarily halted in-person interactions by our employees with healthcare providers and increased virtual interactions. Prescriptions in most of our therapeutic areas have returned to pre-COVID-19 pandemic levels in theU.S. , and healthcare systems in most of our major markets have largely resumed normal operations as ofJune 30, 2021 . While a majority of our in-person interactions have resumed, we may decide to halt such activity in the future and, in those cases, expect to resume such interactions as it is safe to do so and in compliance with applicable guidance and requirements. We may experience additional pricing pressures resulting from the financial strain of the COVID-19 pandemic on government-funded healthcare systems around the world. We remain committed to discovering and developing new treatments for the patients we serve. At the beginning of the COVID-19 pandemic, we paused new clinical trial starts and enrollment in new trials in order to reduce the strain on the medical system, and we have resumed this activity in our clinical trials. However, significant delays or unexpected issues, such as higher discontinuation rates or delays accumulating data, affecting the timing, conduct, or regulatory review of our clinical trials, could adversely affect our ability to commercialize some assets in our product pipeline if the COVID-19 pandemic experiences resurgent or more severe waves. 40 -------------------------------------------------------------------------------- Since the start of the pandemic we have worked with a variety of organizations, including governmental agencies, to facilitate access to our COVID-19 therapies in various countries. TheU.S. Food and Drug Administration (FDA) granted Emergency Use Authorizations (EUA) for bamlanivimab and bamlanivimab and etesevimab administered together for higher-risk patients who have been recently diagnosed with mild-to-moderate COVID-19 and for baricitinib for treatment with or without remdesivir in hospitalized COVID-19 patients. InApril 2021 , the FDA subsequently revoked the EUA for bamlanivimab alone. InJune 2021 , theOffice of the Assistant Secretary for Preparedness and Response halted shipment of bamlanivimab and etesevimab administered together in theU.S. This was due to the prevalence of the Gamma and Beta variants in theU.S. at that time and the fact that bamlanivimab and etesevimab administered together do not retain neutralization effects against those variants. The COVID-19 pandemic has involved, and may continue to involve, the spread of variants, including the Delta variant which is currently estimated to be the most dominant variant in theU.S. Preclinical data demonstrate that bamlanivimab and etesevimab administered together retain neutralization activity against the variants currently in circulation in many countries, including Delta and Alpha. TheEuropean Medicines Agency's (EMA)Committee for Medicinal Products for Human Use (CHMP) issued a positive opinion for bamlanivimab alone and for bamlanivimab and etesevimab administered together for patients that do not require supplemental oxygen and who are at high risk of progressing to severe COVID-19. We have, and will continue to, face unique risks and uncertainties in our development, manufacture, and uptake of potential treatments for COVID-19, including vulnerability to supply chain disruptions, higher manufacturing costs, difficulties in manufacturing appropriate quantities of our therapies, heightened regulatory scrutiny of our manufacturing practices, restrictions on administration that limit widespread and timely access to our therapies, and risks related to handling, return, and/or refund of product after delivery by us. Expedited authorization processes, including our EUA for bamlanivimab and etesevimab administered together, have allowed restricted distribution of products with less than typical safety and efficacy data, and additional data that become available have and may further call into question the safety or effectiveness of our COVID-19 therapies. Additionally, the availability of superior or competitive therapies, or preventative measures, such as vaccines, coupled with the transient nature of pandemics, have and could further negatively impact or eliminate demand for our COVID-19 therapies. Mutations or the spread of other variants of the coronavirus have in some cases reduced the effectiveness of our COVID-19 therapies, and may further render our therapies less effective or ineffective. We may also be required to accept returns of certain bamlanivimab and etesevimab previously supplied together in theU.S. if the relevant EUA is revoked or terminated due to safety and efficacy concerns. In addition, evolving regulatory priorities have intensified governmental scrutiny of our operations, including our compliance with Good Manufacturing Practices (cGMP), quality assurance, and similar regulations relating to our manufacture of COVID-19 therapies and other medicines. Any of these risks could prevent us from recouping our substantial investments in the research, development, and manufacture of our COVID-19 therapies. These risks could also affect other aspects of our business, including potentially resulting in delays or denials in the approval or launch of other products. Our ability to continue to operate without significant negative impacts will in part depend on our ability to protect our employees and our supply chain. We have taken steps to protect our employees worldwide, with particular measures in place for those working in our manufacturing sites and distribution facilities. We have been able to largely maintain our normal operations. However, uncertainty resulting from the COVID-19 pandemic could have an adverse impact on our manufacturing operations, global supply chain, and distribution systems, which could impact our ability to produce and distribute our products and the ability of third parties on which we rely to fulfill their obligations to us, and could increase our expenses if the COVID-19 pandemic experiences resurgent or more severe waves. Although the COVID-19 pandemic has affected our operations and demand for our products, it has not negatively impacted our liquidity position. We expect to continue to generate cash flows to meet our short-term liquidity needs and to have access to liquidity via the short-term and long-term debt markets. As part of our response to the COVID-19 pandemic, and at the request of theU.S. and international governments, we invested in large-scale manufacturing of COVID-19 antibodies at risk, in order to ensure rapid access to patients around the world. As the COVID-19 pandemic has continued to evolve during 2021, we have incurred inventory charges related to our COVID-19 antibodies during the three and six months endedJune 30, 2021 , primarily due to the combination of changes to current and forecasted demand from theU.S. and international governments, including changes to our agreement with theU.S. government, and near-term expiry dates of COVID-19 antibodies. We could experience additional impairments of our assets, including inventory related to our COVID-19 antibodies, or significant changes in the fair value of our assets due to the COVID-19 pandemic, including as a result of the factors discussed above. See "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year endedDecember 31, 2020 for additional information on risk factors that could impact our results. 41 -------------------------------------------------------------------------------- Financial Results The following table summarizes our key operating results: Three Months Ended June 30, Six Months Ended June 30, 2021 2020 Percent Change 2021 2020 Percent Change Revenue$ 6,740.1 $ 5,499.4 23$ 13,545.7 $ 11,359.2 19 Gross margin 4,786.9 4,277.4 12 9,713.9 8,922.1 9 Gross margin as a percent of revenue 71.0 % 77.8 % 71.7 % 78.5 % Operating expenses$ 3,358.5 $ 2,838.8 18$ 6,619.3 $ 5,780.5 15 Acquired in-process research and development (IPR&D) 25.0 241.8 (90) 324.3 294.1
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Asset impairment, restructuring, and other special charges - - NM 211.6 59.9 NM Net income 1,390.2 1,412.0 (2) 2,745.5 2,868.5 (4) EPS 1.53 1.55 (1) 3.01 3.15 (4) NM - not meaningful Revenue increased for the three and six months endedJune 30, 2021 driven by increased volume and the favorable impact of foreign exchange rates, partially offset by lower realized prices. We estimate that the COVID-19 pandemic negatively impacted revenue for the three months endedJune 30, 2020 by approximately$250 million of decreased customer buying that largely offset product stocking that occurred in the first quarter of 2020. Operating expenses, defined as the sum of research and development and marketing, selling, and administrative expenses, increased for the three and six months endedJune 30, 2021 , primarily due to higher development expenses for late-stage assets and higher research and development expenses for COVID-19 therapies, as well as higher marketing and selling expenses. The increase in marketing and selling expenses for the three and six months endedJune 30, 2021 was driven by lower marketing and selling expenses in the same periods in 2020 due to pandemic-related spending reductions. The decrease in net income and EPS for the three and six months endedJune 30, 2021 was primarily driven by higher operating expenses, largely offset by higher gross margin. 42 -------------------------------------------------------------------------------- The following highlighted items also affect comparisons of our financial results for the three and six months endedJune 30, 2021 and 2020: 2021 Cost of Sales (See Note 5 to the consolidated condensed financial statements) •We recognized inventory impairment charges of$423.0 million and$504.5 million for the three and six months endedJune 30, 2021 , respectively, for excess inventory related to our COVID-19 antibodies. As part of our response to the COVID-19 pandemic, and at the request of theU.S. and international governments, we invested in large-scale manufacturing of COVID-19 antibodies at risk, in order to ensure rapid access to patients around the world. As the COVID-19 pandemic has continued to evolve during 2021, we incurred excess inventory charges primarily due to the combination of changes to current and forecasted demand fromU.S. and international governments, including changes to our agreement with theU.S. government, and near-term expiry dates of COVID-19 antibodies. Acquired IPR&D (See Note 3 to the consolidated condensed financial statements) •We recognized acquired IPR&D charges of$25.0 million and$324.3 million for the three and six months endedJune 30, 2021 , respectively. The charges for the three months endedJune 30, 2021 were related to a business development transaction withMiNA Therapeutics Limited (MiNA). The charges for the six months endedJune 30, 2021 also included charges related to business development transactions with Rigel Pharmaceuticals, Inc. (Rigel), Precision BioSciences, Inc. (Precision), Merus N.V. (Merus), andAsahi Kasei Pharma Corporation (Asahi). Asset Impairment, Restructuring, and Other Special Charges (See Note 5 to the consolidated condensed financial statements) •We recognized charges of$211.6 million for the six months endedJune 30, 2021 primarily related to an intangible asset impairment resulting from the sale of the rights to Qbrexza®, as well as acquisition and integration costs associated with the acquisition ofPrevail Therapeutics Inc. (Prevail). Other-Net, (Income) Expense (See Note 6 to the consolidated condensed financial statements) •We recognized other income of$215.4 million and$517.0 million of net investment gains on equity securities for the three and six months endedJune 30, 2021 , respectively. 2020 Acquired IPR&D (See Note 3 to the consolidated condensed financial statements) •We recognized acquired IPR&D charges of$241.8 million and$294.1 million for the three and six months endedJune 30, 2020 , respectively. The charges for the three months endedJune 30, 2020 were related to the acquisition of a pre-clinical stage company, as well as business development transactions with AbCellera Biologics Inc. (AbCellera),Evox Therapeutics Limited (Evox), and Shanghai Junshi Biosciences Co., Ltd. (Junshi Biosciences). The charges for the six months endedJune 30, 2020 also included a charge related to a business development transaction withSitryx Therapeutics Limited (Sitryx). Asset Impairment, Restructuring, and Other Special Charges (See Note 5 to the consolidated condensed financial statements) •We recognized charges of$59.9 million for the six months endedJune 30, 2020 primarily related to acquisition and integration costs associated with the acquisition ofDermira, Inc. (Dermira ). Other-Net, (Income) Expense (See Note 6 to the consolidated condensed financial statements) •We recognized other income of$576.8 million and$763.4 million of net investment gains on equity securities for the three and six months endedJune 30, 2020 , respectively. 43 -------------------------------------------------------------------------------- Late-Stage Pipeline Our long-term success depends on our ability to continually discover or acquire, develop, and commercialize innovative new medicines. We currently have approximately 45 candidates in clinical development or under regulatory review, and a larger number of projects in the discovery phase. The following new molecular entities (NMEs) are currently in Phase III clinical trials or have been submitted for regulatory review or have received first regulatory approval in theU.S. ,Europe , orJapan in 2021. In addition, the following table includes certain NMEs currently in Phase I or Phase II clinical trials. The following table reflects the status of these NMEs, including certain other developments sinceJanuary 1, 2021 . Compound Indication Status
Developments
COVID-19 Therapies
Announced in the first quarter of 2021 that a Phase
III trial met the primary and all key secondary
Bamlanivimab COVID-19 Emergency Use Authorization(1) endpoints. The EMA's CHMP issued a positive administered alone
scientific opinion in the first quarter of 2021. In
the second quarter of 2021 the FDA revoked the EUA
for bamlanivimab alone in the U.S.
Announced in the first quarter of 2021 that Phase III
trials met the primary and all key secondary
Bamlanivimab and endpoints. Additional Phase III trial is ongoing. The etesevimab
COVID-19 Emergency Use Authorization FDA granted EUA for higher-risk patients recently administered together
diagnosed with mild-to-moderate COVID-19 in the first
quarter of 2021. The EMA's CHMP issued a positive
scientific opinion in the first quarter of 2021.
Submitted in
Phase II trial initiated in the second quarter of
bebtelovimab COVID-19 Phase II 2021.
(LY-CoV1404)
administered together
VIR-7831 and
bamlanivimab COVID-19 Phase II Phase II trial initiated in the first quarter of
administered 2021.
together(2)
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Developments
Endocrinology
Heart failure with preserved Phase III trial initiated in the second quarter of
ejection fraction 2021.
Obesity Phase III trials are ongoing.
Phase III Announced in the first and second quarters of 2021 Tirzepatide
that Phase III trials met the primary and key
Type 2 diabetes secondary endpoints. We intend to submit to
regulatory authorities for approval by the end of
2021. Additional Phase III trials are ongoing.
Nonalcoholic steatohepatitis Phase II Phase II trial is ongoing.
Basal Insulin-Fc Type 1 and 2 diabetes Phase II Phase II trials are ongoing.
GGG Tri-Agonist Obesity Phase II Phase II trials initiated in the second quarter of
Type 2 diabetes 2021.
Immunology
Lebrikizumab(3) Atopic dermatitis Phase III
Granted FDA Fast Track designation(4). Phase III
trials are ongoing.
Crohn's disease Phase III trials are ongoing.
Phase III Announced in the first quarter of 2021 that a Phase Mirikizumab
Ulcerative colitis III trial met the primary and key secondary
endpoints. Additional Phase III trials are ongoing.
Psoriasis Not pursuing Announced in the second quarter of 2021 that we do
submission not plan to pursue submission.
CXCR1/2 Ligands Hidradenitis suppurativa Phase II Phase II trial is ongoing.
Monoclonal Antibody
Systemic lupus erythematosus Phase II trial is ongoing.
IL-2 Conjugate Ulcerative colitis Phase II Phase II trial initiated in the second quarter of
2021.
PD-1 MAB Agonist Rheumatoid arthritis Phase II
Phase II trial initiated in the first quarter of
2021.
Neuroscience
In the first quarter of 2021 an Advisory Committee to
the FDA concluded that the proposed risk evaluation
Osteoarthritis pain Submitted and mitigation strategy will not ensure that the
Tanezumab(5) benefits outweigh the risks. In collaboration with
Pfizer, we plan to continue to work with the FDA as
it continues to review the submission.
Cancer pain Phase III
In collaboration with Pfizer, announced in
that a Phase III trial met the primary endpoint.
Announced in the first quarter of 2021 that a Phase
II trial met the primary endpoint and that we
expanded a Phase II trial to become a Phase III
Donanemab Early Alzheimer's disease Phase III trial. Granted FDA Breakthrough Therapy
designation(6) in the second quarter of 2021. We
intend to submit to the FDA under the accelerated
approval pathway by the end of 2021.
Solanezumab Preclinical Alzheimer's Phase III Phase III trial is ongoing.
disease
Epiregulin/TGF? MAB Chronic pain Phase II Phase II trials are ongoing.
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Compound Indication Status Developments
GBA1 Gene Therapy (PR001) Parkinson's disease Phase II
Acquired in the Prevail acquisition in the first quarter
of 2021. Granted FDA Fast Track designation(4). Phase II GRN Gene Therapy (PR006) Frontotemporal dementia
Phase II trials are ongoing.
PACAP38 Antibody Chronic pain Phase II Phase II trial is ongoing.
SSTR4 Agonist Chronic pain Phase II Phase II trials are ongoing.
Zagotenemab Alzheimer's disease Phase II Phase II trial is ongoing.
Oncology
Thyroid cancer Granted conditional marketing authorisation(7) in Europe Selpercatinib (Retevmo®)
Launched(7) in the first quarter of 2021. Phase III trials are
Lung cancer ongoing.
Sintilimab injection(8) Lung cancer Submitted In collaboration with Innovent, submitted in the U.S. in
the second quarter of 2021.
Chronic lymphocytic leukemia Phase III Phase III trial initiated in the first quarter of 2021. Pirtobrutinib (LOXO-305) Mantle cell lymphoma
Phase III Phase III trial initiated in the second quarter of 2021.
B-cell malignancies Phase II Phase II trial initiated in the second quarter of 2021.
(1) EUAs remain active for certain countries outside of the U.S.
(2) In collaboration with Vir Biotechnology, Inc. and GlaxoSmithKline plc.
(3) In collaboration with Almirall, S.A. (Almirall) in Europe .
(4) Fast Track designation is designated to expedite the development and review
of new therapies to treat serious conditions and address unmet medical needs.
(5) In collaboration with Pfizer, Inc (Pfizer).
(6) 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.
(7) Continued approval may be contingent on verification and description of
clinical benefit in confirmatory Phase III trials.
(8) In collaboration with Innovent Biologics, Inc. (Innovent).
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Our pipeline also contains several new indication line extension (NILEX)
products. The following certain NILEX products are currently in Phase II or
Phase III clinical testing, have been submitted for regulatory review, or have
received first regulatory approval in the U.S. , Europe , or Japan for use in the
indication described in 2021. The following table reflects the status of certain
NILEX products, including certain other developments since January 1, 2021 :
Compound Indication Status Developments
Endocrinology
Heart failure with reduced Granted FDA Fast Track designation(2).
ejection fraction Approved Granted marketing authorisation in Europe in
the second quarter of 2021.
Empagliflozin (Jardiance®)(1) Chronic kidney disease Granted FDA Fast Track designation(2). Phase
III trials are ongoing.
Heart failure with Phase III Granted FDA Fast Track designation(2).
preserved ejection fraction Announced in July 2021 that a Phase III trial
met the primary endpoint.
Immunology
Approved in Europe and Japan. Announced in
Atopic dermatitis Approved July 2021 that the FDA will not meet the
Prescription Drug User Fee Act action date
for the submission in the U.S.
Announced in the second quarter of 2021 that
a Phase III trial evaluating baricitinib 4 mg
once daily plus standard of care did not meet
COVID-19 Emergency Use the primary endpoint, but did result in a
Authorization(3) significant reduction in death. In
the FDA broadened the EUA for baricitinib to
allow for treatment with or without
remdesivir.
Granted FDA Breakthrough Therapy
designation(4). Announced in the first and
Alopecia areata Submitted second quarters of 2021 that Phase III trials
met the primary endpoints. Submitted in Japan
in July 2021.
Systemic lupus Phase III Phase III trials are ongoing.
erythematosus
Oncology
Announced in the first quarter of 2021
HR+, HER2- Adjuvant breast patient-reported outcomes in combination with
cancer Submitted standard adjuvant endocrine therapy. Abemaciclib (Verzenio®)
Submitted in Japan in the first quarter of
2021.
HR+, HER2+ Adjuvant breast Phase III Phase III trial initiated in the second
cancer quarter of 2021.
Prostate cancer Phase III Phase III trial initiated in July 2021.
(1) In collaboration with Boehringer Ingelheim .
(2) Fast Track designation is designated to expedite the development and review
of new therapies to treat serious conditions and address unmet medical needs.
(3) The FDA granted EUA for treatment with or without remdesivir in hospitalized
COVID-19 patients.
(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.
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Other Matters
Patent Matters
We depend on patents or other forms of intellectual property protection for most
of our revenue, cash flows, and earnings.
Our vitamin regimen patents for Alimta® expired in major European countries and
Japan in June 2021 . In the U.S. , we expect the vitamin regimen patent for Alimta
to provide us with patent protection through May 2022 . However, we and Eagle
Pharmaceuticals, Inc. (Eagle) reached an agreement in December 2019 to settle
all pending U.S. patent litigation, allowing Eagle a limited initial entry into
the market with its product starting February 2022 (up to an approximate
three-week supply) and subsequent unlimited entry starting April 2022 . We expect
that the entry of generic competition in the U.S. , major European countries, and
Japan following the loss of patent exclusivity will cause a rapid and severe
decline in revenue, and we expect that the entry of generic competition in the
U.S. will have a material adverse effect on our consolidated results of
operations and cash flows. See Note 9 to the consolidated condensed financial
statements for a more detailed account of the legal proceedings currently
pending regarding, among others, our Alimta patents.
Our compound patent for Humalog® (insulin lispro) has expired in major markets.
Global regulators have different legal pathways to approve similar versions of
insulin lispro. A competitor launched a similar version of insulin lispro in
certain European markets in 2017 and in the U.S. in the second quarter of 2018.
While it is difficult to estimate the severity of the impact of insulin lispro
products entering the market, we do not expect and have not experienced a rapid
and severe decline in revenue; however, we expect additional pricing pressure
and some loss of market share that would continue over time.
Our formulation and use patents for Forteo® have expired in major markets. We
expect further decline in revenue as a result of the anticipated entry of
generic and biosimilar competition due to the loss of patent exclusivity in
major markets.
Our compound patent for Cymbalta® expired in Japan in January 2020 . Two generic
competitors entered the market in June 2021 . We expect that the entry of generic
competition will cause a rapid and severe decline in revenue.
Foreign Currency Exchange Rates
As a global company with substantial operations outside the U.S. , we face
foreign currency risk exposure from fluctuating currency exchange rates,
primarily the U.S. dollar against the euro and Japanese yen. While we manage a
portion of these exposures through hedging and other risk management techniques,
significant fluctuations in currency rates can have a substantial impact, either
positive or negative, on our revenue, cost of sales, and operating expenses.
While there is uncertainty in the future movements in foreign exchange rates,
fluctuations in these rates could adversely impact our future consolidated
results of operations and cash flows.
Trends Affecting Pharmaceutical Pricing, Reimbursement, Access, and Other
Regulatory Matters
U.S.
In the U.S. , public concern over access to and affordability of pharmaceuticals
continues to drive the regulatory and legislative debate. These policy and
political issues increase the risk that taxes, fees, rebates, or other cost
control measures may be enacted to manage federal and state budgets. Evolving
regulatory priorities could further intensify these efforts and otherwise
increase regulatory scrutiny over our operations. Key health policy initiatives
affecting biopharmaceuticals include:
•the Coronavirus Aid, Relief, and Economic Security (CARES) Act and subsequent
stimulus bills that focus on ensuring availability and access to lifesaving
drugs during a public health crisis,
•foreign reference pricing in Medicare and private insurance,
•modifications to Medicare Parts B and D,
•provisions that would allow the Department of Health and Human Services (HHS)
to negotiate prices for biologics and drugs in Medicare,
•a reduction in biologic data exclusivity,
•proposals related to Medicaid prescription drug coverage and manufacturer drug
rebates,
•proposals that would require biopharmaceutical manufacturers to disclose
proprietary drug pricing information,
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•state-level proposals related to prescription drug prices and reducing the cost
of pharmaceuticals,
•federal and state proposals to permit importation of pharmaceuticals, including
insulin, intended for sale in foreign markets, and
•the Biden administration's regulatory rule freeze affecting all federal agency
rules that had not gone into effect as of January 20, 2021 , impacting the
implementation or effectiveness, as applicable, of final rules related to the
340B prescription drug program, rebate reform in Medicare Part D, drug
importation including insulin, and foreign reference pricing in Medicare Parts B
and D.
On September 1, 2020 , we announced we would distribute all 340B ceiling priced
products directly to covered entities and their child sites only. We provide
340B discounts to a contract pharmacy only if it is a wholly owned subsidiary of
a covered entity, if a covered entity does not have an in-house retail pharmacy
or, in the case of insulin, if the subject covered entity and its contract
pharmacies agree to pass along the discount to patients without any markup for
dispensing fees and without billing insurance or collecting duplicate discounts.
We have been transparent with regulators on our distribution activity and
continue to comply with all 340B program requirements. Certain covered entities
and their trade associations have initiated litigation questioning whether our
program, and similar actions by other manufacturers, violate 340B program
requirements. We are engaged in a number of legal proceedings related to our
decision to distribute all 340B ceiling priced products directly to covered
entities and their child sites only. See Note 9 to the consolidated condensed
financial statements for additional information regarding our ongoing 340B legal
proceedings.
California and several other states have enacted legislation related to
prescription drug pricing transparency and it is unclear the effect this
legislation or future legislation will have on our business. Several states have
also passed importation legislation, including Colorado , Florida , Maine , New
Hampshire , New Mexico , and Vermont . As of late 2020 several of these states were
actively working with the former presidential administration to implement an
importation program from Canada . On November 22, 2020 , Florida announced it
submitted a proposed importation plan to the U.S. In 2020, HHS and the FDA also
took several actions to advance state importation initiatives, including issuing
requests for proposals (RFPs) for personal importation and reimportation of
insulin and a final rule on the Importation of Prescription Drugs. On July 9,
2021 , the FDA and HHS announced the withdrawal of the RFPs. We continue to
review these state proposals and legislation, as well as federal rules,
commentary to the rulemaking, and guidance published by HHS and the FDA, the
impact of which is uncertain at this time. On July 9, 2021 , the Biden
administration released its Executive Order on "Promoting Competition in the
American Economy" (EO). The EO supports the importation of prescription drugs
from Canada , requests that HHS develop a drug pricing plan within 45 days, and
includes provisions to increase the availability of generics and biosimilars. We
will continue to monitor and assess these developments.
In the private sector, consolidation and integration among healthcare providers
significantly affects the competitive marketplace for pharmaceuticals. Health
plans, pharmacy benefit managers, wholesalers, and other supply chain
stakeholders have been consolidating into fewer, larger entities, thus enhancing
their purchasing strength and importance. Private third-party insurers, as well
as governments, typically maintain formularies that specify coverage (the
conditions under which drugs are included on a plan's formulary) and
reimbursement (the associated out-of-pocket cost to the consumer) to control
costs by negotiating discounts, rebates and other price concessions in exchange
for formulary inclusion. Formulary placement can lead to reduced usage of a drug
for the relevant patient population due to coverage restrictions, such as prior
authorizations and formulary exclusions, or due to reimbursement limitations
that result in higher consumer out-of-pocket cost, such as non-preferred co-pay
tiers, increased co-insurance levels, and higher deductibles. Consequently,
pharmaceutical companies compete for formulary placement not only on the basis
of product attributes such as efficacy, safety profile, or patient ease of use,
but also by providing rebates. Value-based agreements, where the amount of
rebates is based on achievement (or not) of specified outcomes, are another tool
that may be utilized between payers and pharmaceutical companies as formulary
placement and pricing are negotiated. Price is an increasingly important factor
in formulary decisions, particularly in treatment areas in which the payer has
taken the position that multiple branded products are therapeutically
comparable. We anticipate these downward pricing pressures will continue to
negatively affect our consolidated results of operations. In addition to
formulary placement, changes in insurance designs continue to drive greater
consumer cost-sharing through high deductible plans and higher co-insurance or
co-pays. We continue to invest in patient affordability solutions (resulting in
lower revenue) in an effort to assist patients in affording their medicines.
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The main coverage expansion provisions of the Affordable Care Act (ACA) are
currently in effect through both state-based exchanges and the expansion of
Medicaid. A trend has been the prevalence of benefit designs containing high
out-of-pocket costs for patients, particularly for pharmaceuticals. In addition
to the coverage expansions, many employers in the commercial market continue to
evaluate strategies such as private exchanges and wider use of consumer-driven
health plans to reduce their healthcare liabilities over time. Federal
legislation, litigation, or administrative actions to repeal or modify some or
all of the provisions of the ACA could have a material adverse effect on our
consolidated results of operations and cash flows. At the same time, the broader
paradigm shift towards performance-based reimbursement and the launch of several
value-based purchasing initiatives have placed demands on the pharmaceutical
industry to offer products with proven real-world outcomes data and a favorable
economic profile.
On December 31, 2020 , the Centers for Medicare and Medicaid Services published
in the Federal Register a final regulation impacting the rules for calculating
Medicaid rebate amounts, though the provision most likely to have a material
impact on us relates to the inclusion of copayment assistance programs in best
price and will take effect January 1, 2023 . We are evaluating the impact of this
regulation. We do not anticipate the changes related to "line extensions," which
are scheduled to take effect January 1, 2022 , to be material.
On March 11, 2021 , President Biden signed into law the American Rescue Plan Act
of 2021 (ARP). Section 9816 of the ARP removed Medicaid's maximum rebate
percentage effective January 1, 2024 . We are evaluating the impact of this
legislation. We expect to see continued focus on regulating pricing, potentially
resulting in additional legislation and regulation under the newly elected
Congress and the Biden administration.
In addition, evolving regulatory priorities have intensified governmental
scrutiny of our operations, including our compliance with cGMP, quality
assurance, and similar regulations. Any regulatory issues concerning these
matters could 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, delays or denials in
the approvals of new products pending resolution of the issues, and reputational
harm, any of which would adversely affect our business. See "Risk Factors" in
Part I, Item 1A of our Annual Report on Form 10-K for the year ended
December 31, 2020 . See also Note 9 to the consolidated condensed financial
statements.
International
International operations also are generally subject to extensive price and
market regulations. Cost-containment measures exist in a number of countries,
including additional price controls and mechanisms to limit reimbursement for
our products. Such policies are anticipated to increase in impact and reach,
given the pressures on national and regional health care budgets that come from
a growing, aging population and ongoing economic challenges. As additional
reforms are finalized, we will assess their impact on future revenues. In
addition, governments in many emerging markets are becoming increasingly active
in expanding health care system offerings. Given the budget challenges of
increasing health care coverage for citizens, policies may be proposed that
promote generics and biosimilars only and reduce current and future access to
branded pharmaceutical products. The COVID-19 pandemic is also creating
additional pressure on health systems worldwide. As a result, cost containment
and other measures may intensify as governments manage and emerge from the
pandemic.
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 could affect our effective tax rate, results of operations,
and cash flows. Countries around the world, including the U.S. , are actively
considering and enacting tax law changes. The Biden administration's tax
proposal contains significant changes, including increases to the tax rates at
which both domestic and foreign income of U.S. companies would be taxed.
Further, actions taken with respect to tax-related matters by associations such
as the Organisation for Economic Co-operation and Development and the European
Commission could influence tax policy in countries in which we operate. In
addition, global tax authorities routinely examine our tax returns and are
expected to become more aggressive in their examinations of profit allocations
among jurisdictions, which could adversely impact our future consolidated
results of operations and cash flows.
Acquisitions
We strategically invest in external research and technologies that we believe to
complement and strengthen our own efforts. These investments can take many
forms, including acquisitions, strategic alliances, collaborations, investments,
and licensing arrangements. We view our business development activity as an
important way to achieve our strategies, as we seek to bolster our pipeline and
enhance shareholder value. We continuously evaluate business development
transactions that have the potential to strengthen our business.
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In February 2020 , we acquired all shares of Dermira for a purchase price of
$849.3 million , net of cash acquired. Under the terms of the agreement, we
acquired lebrikizumab, a novel, investigational, monoclonal antibody being
evaluated for the treatment of moderate-to-severe atopic dermatitis.
Lebrikizumab was granted Fast Track designation from the FDA. We also acquired
Qbrexza cloth, a medicated cloth for the topical treatment of primary axillary
hyperhidrosis (uncontrolled excessive underarm sweating). During the six months
ended June 30, 2021 , we sold the rights to Qbrexza. See Note 5 to the
consolidated condensed financial statements for additional information.
In January 2021 , we acquired all shares of Prevail for a purchase price that
included $22.50 per share in cash (or an aggregate of $747.4 million , net of
cash acquired) plus one non-tradable contingent value right (CVR) per share. The
CVR entitles Prevail stockholders to up to an additional $4.00 per share in cash
(or an aggregate of approximately $160 million ) payable, subject to certain
terms and conditions, upon the first regulatory approval of a Prevail product in
one of the following countries: U.S. , Japan , United Kingdom , Germany , France ,
Italy , or Spain . Under the terms of the agreement, we acquired a gene therapy
program for patients with neurodegenerative diseases.
See Note 3 to the consolidated condensed financial statements for further
discussion regarding our recent acquisitions.
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The following table summarizes our revenue activity by region:
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 Percent Change 2021 2020 Percent Change
U.S. $ 3,704.2 $ 3,144.8 18 $ 7,645.5 $ 6,473.6 18
Outside U.S. 3,035.9 2,354.6 29 5,900.2 4,885.6 21
Revenue $ 6,740.1 $ 5,499.4 23 $ 13,545.7 $ 11,359.2 19
Numbers may not add due to rounding.
The following are components of the change in revenue compared with the prior
year:
Three Months Ended June 30, Six Months Ended June 30,
2021 vs. 2020 2021 vs. 2020
U.S. Outside U.S. Consolidated U.S. Outside U.S. Consolidated
Volume 18 % 26 % 22 % 21 % 17 % 20 %
Price (1) (4) (2) (3) (3) (3)
Foreign exchange rates - 6 3 - 6 3
Percent change 18 % 29 % 23 % 18 % 21 % 19 %
Numbers may not add due to rounding.
We estimate that the COVID-19 pandemic negatively impacted worldwide revenue for
the three months ended June 30, 2020 by approximately $200 million in the U.S.
and approximately $50 million outside the U.S. as a result of decreased customer
buying patterns that largely offset product stocking that occurred in the first
quarter of 2020. We believe that this decrease in U.S. revenue in the second
quarter of 2020 primarily impacted our diabetes portfolio, with estimated
decreases of approximately $70 million to $80 million for insulin products and
approximately $30 million to $40 million for Trulicity®. We also estimate that
U.S. revenue for Taltz® in the second quarter of 2020 was negatively impacted by
approximately $20 million to $25 million .
In the U.S. for the three months ended June 30, 2021 , the increase in volume was
primarily driven by Trulicity, Taltz, COVID-19 antibodies, Verzenio, and
Jardiance. In The U.S. for the six months ended June 30, 2021 , the increase in
volume was primarily driven by COVID-19 antibodies, Trulicity, and Taltz. U.S.
price performance was not a major driver during the three and six months ended
June 30, 2021 , as increased utilization in more highly-rebated government
segments was offset by lower utilization in the 340B segment, primarily for the
diabetes portfolio.
Outside the U.S. for the three and six months ended June 30, 2021 , the increase
in volume was primarily driven by increased volume for COVID-19 antibodies,
Trulicity, Olumiant, Verzenio, and Taltz, as well as the sale of our rights to
Cialis® in China .
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The following table summarizes our revenue activity by product for the three
months ended
Three Months Ended June 30,
2021 2020
Product U.S. Outside U.S. Total Total Percent Change
Trulicity $ 1,147.6 $ 388.0 $ 1,535.6 $ 1,229.8 25
Alimta 353.5 257.1 610.6 539.1 13
Humalog (1) 329.1 278.6 607.6 555.1 9
Taltz 399.8 169.3 569.1 395.2 44
Jardiance (2) 194.4 162.1 356.5 262.0 36
Verzenio 209.7 131.6 341.3 208.6 64
Humulin® 221.1 94.3 315.3 313.6 1
Cialis (5.2) 286.3 281.0 130.7 NM
Cyramza® 101.4 167.3 268.7 256.7 5
Forteo 122.8 95.6 218.4 252.7 (14)
Basaglar® 133.4 77.3 210.7 290.4 (27)
Olumiant 17.8 190.6 208.4 145.0 44
Cymbalta 12.4 163.3 175.6 179.9 (2)
Emgality® 112.1 44.2 156.3 87.4 79
COVID-19 antibodies (3) 83.4 65.7 148.9 - NM
Erbitux® 135.8 11.2 147.0 129.5 14
Tyvyt® - 105.0 105.0 64.1 64
Zyprexa® 8.4 86.9 95.4 96.6 (1)
Other products 126.8 261.7 388.7 363.0 7
Revenue $ 3,704.2 $ 3,035.9 $ 6,740.1 $ 5,499.4 23
Numbers may not add due to rounding.
NM - not meaningful
(1) Humalog revenue includes insulin lispro.
(2) Jardiance revenue includes Glyxambi®, Synjardy®, and Trijardy® XR.
(3) COVID-19 antibodies include sales for bamlanivimab administered alone as
well as sales for bamlanivimab and etesevimab administered together and were
made pursuant to EUAs.
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The following table summarizes our revenue activity by product for the six
months ended
Six Months Ended June 30,
2021 2020
Product U.S. (1) Outside U.S. Total Total Percent Change
Trulicity $ 2,264.3 $ 723.7 $ 2,988.1 $ 2,459.1 22
Humalog (1) 661.7 562.9 1,224.6 1,250.8 (2)
Alimta 614.6 554.9 1,169.6 1,099.2 6
Taltz 649.4 322.9 972.4 838.7 16
COVID-19 antibodies (2) 734.0 225.1 959.1 - NM
Jardiance (3) 345.6 322.9 668.5 529.5 26
Humulin 440.1 196.9 637.0 629.3 1
Verzenio 382.5 227.8 610.3 396.7 54
Cyramza 181.5 327.7 509.2 495.7 3
Basaglar 308.6 148.7 457.3 594.1 (23)
Forteo 220.5 196.4 416.9 525.0 (21)
Cialis 3.4 404.4 407.8 323.8 26
Olumiant 42.5 359.7 402.2 284.7 41
Cymbalta 23.3 328.9 352.3 390.3 (10)
Emgality 213.6 62.2 275.7 161.5 71
Erbitux 243.7 25.7 269.4 260.3 3
Tyvyt - 214.6 214.6 121.5 77
Zyprexa 15.3 175.8 191.1 195.0 (2)
Other products 300.6 518.9 819.6 804.2 2
Revenue $ 7,645.5 $ 5,900.2 $ 13,545.7 $ 11,359.2 19
Numbers may not add due to rounding.
NM - not meaningful
(1) Humalog revenue includes insulin lispro.
(2) COVID-19 antibodies include sales for bamlanivimab administered alone as
well as sales for bamlanivimab and etesevimab administered together and were
made pursuant to EUAs.
(3) Jardiance revenue includes Glyxambi, Synjardy, and Trijardy XR.
Revenue of Trulicity, a treatment for type 2 diabetes and to reduce the risk of
major adverse cardiovascular events in adult patients with type 2 diabetes and
established cardiovascular disease or multiple cardiovascular risk factors,
increased 20 percent in the U.S. during the three and six months ended June 30,
2021 , driven by increased demand, partially offset by lower realized prices.
Trulicity's lower realized prices in the U.S. during the three months ended
June 30, 2021 were primarily due to higher contracted rebates, partially offset
by modest list price increases. Trulicity's lower realized prices in the U.S.
during the six months ended June 30, 2021 were primarily due to higher
contracted rebates, partially offset by a favorable segment mix that reflected
lower utilization in the 340B segment and modest list price increases. Revenue
outside the U.S. increased 40 percent and 25 percent during the three and six
months ended June 30, 2021 , respectively, driven by increased volume and, to a
lesser extent, the favorable foreign exchange rates, partially offset by lower
realized prices.
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Revenue of Humalog, an injectable human insulin analog for the treatment of
diabetes, increased 17 percent in the U.S. during the three months ended
June 30, 2021 , driven by increased demand and higher realized prices due to
changes to estimates in rebates and discounts. Revenue decreased 3 percent in
the U.S. during the six months ended June 30, 2021 , driven by lower realized
prices, partially offset by increased demand. Humalog's lower realized prices in
the U.S. during the six months ended June 30, 2021 were driven by higher
contracted rebates and discounts, partially offset by changes to estimates in
rebates and discounts and lower utilization in the 340B segment. Revenue outside
the U.S. increased 2 percent during the three months ended June 30, 2021 , driven
by the favorable impact of foreign exchange rates, partially offset by decreased
volume and, to a lesser extent, lower realized prices. Revenue outside the U.S.
decreased 1 percent during the six months ended June 30, 2021 , primarily driven
by decreased volume, largely offset by the favorable impact of foreign exchange
rates. While it is difficult to estimate the severity of the impact of insulin
lispro products entering the market, we do not expect and have not experienced a
rapid and severe decline in revenue. However, due to the impact of competition
and due to pricing pressure in the U.S. and some international markets, we
expect some price decline and loss of market share to continue over time.
Revenue of Alimta, a treatment for various cancers, increased 11 percent in the
U.S. during the three months ended June 30, 2021 , primarily driven by higher
volume as a result of customer buying patterns and, to a lesser extent, higher
realized prices. Revenue decreased 4 percent in the U.S. during the six months
ended June 30, 2021 , primarily driven by lower demand. Revenue outside the U.S.
increased 16 percent and 21 percent during the three and six months ended
June 30, 2021 , respectively, primarily driven by increased volume and, to a
lesser extent, the favorable impact of foreign exchange rates, partially offset
by lower realized prices. We lost our patent protection for Alimta in Japan and
major European countries in June 2021 . We expect the limited entry of generic
competition in the U.S. starting February 2022 and subsequent unlimited entry
starting April 2022 . We expect that the entry of generic competition following
the loss of exclusivity will cause a rapid and severe decline in revenue. See
"Executive Overview - Other Matters- Patent Matters" for more information.
Revenue of Taltz, a treatment for moderate-to-severe plaque psoriasis, active
psoriatic arthritis, ankylosing spondylitis, and active non-radiographic axial
spondyloarthritis, increased 38 percent and 5 percent in the U.S. during the
three and six months ended June 30, 2021 , respectively, primarily driven by
increased demand, partially offset by lower realized prices. Taltz's lower
realized prices in the U.S. during the three and six months ended June 30, 2021
were driven by increased rebates to gain commercial access. Taltz's revenue
increase in the U.S. for the three months ended June 30, 2021 was favorably
impacted by inventory destocking in the three month ended June 30, 2020 . Revenue
outside the U.S. increased 60 percent and 45 percent during the three and six
months ended June 30, 2021 , respectively, driven by increased volume and, to a
lesser extent, the favorable impact of foreign exchange rates.
Revenue of COVID-19 antibodies, treatments that were authorized pursuant to EUAs
for mild to moderate COVID-19 for higher-risk patients, was $83.4 million and
$734.0 million in the U.S. during the three and six months ended June 30, 2021 ,
respectively. Revenue outside the U.S. was $65.7 million and $225.1 million
during the three and six months ended June 30, 2021 , respectively. The
availability of superior or competitive therapies, or preventative measures,
such as vaccines, coupled with the transient nature of pandemics, have and could
further negatively impact or eliminate demand for these COVID-19 antibodies. In
addition, mutations or the spread of other variants of the coronavirus have in
some cases reduced the effectiveness of our COVID-19 antibodies, and may further
render our antibodies less effective or ineffective.
Revenue of Jardiance, a treatment for type 2 diabetes and to reduce the risk of
cardiovascular death in adult patients with type 2 diabetes and established
cardiovascular disease, increased 34 percent and 19 percent in the U.S. during
the three and six months ended June 30, 2021 , respectively, primarily driven by
increased demand. Revenue outside the U.S. increased 39 percent and 35 percent
during the three and six months ended June 30, 2021 , respectively, driven by
increased volume and, to a lesser extent, the favorable impact of foreign
exchange rates. See Note 4 to the consolidated condensed financial statements
for information regarding our collaboration with Boehringer Ingelheim involving
Jardiance.
Revenue of Humulin, an injectable human insulin for the treatment of diabetes,
increased 3 percent in the U.S. during the three months ended June 30, 2021 ,
driven by increased volume, partially offset by lower realized prices. Revenue
increased 3 percent in the U.S. during the six months ended June 30, 2021 ,
driven by higher realized prices, and, to a lesser extent, increased demand.
Revenue outside the U.S. decreased 5 percent and 2 percent during the three and
six months ended June 30, 2021 , respectively, driven by decreased volume,
partially offset by the favorable impact of foreign exchange rates and higher
realized prices.
55
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Revenue of Verzenio, a treatment for HR+, HER2- metastatic breast cancer,
increased 48 percent and 41 percent in the U.S. during the three and six months
ended June 30, 2021 , respectively, driven by increased demand and, to a lesser
extent, higher realized prices. Revenue outside the U.S. increased 97 percent
and 81 percent during the three and six months ended June 30, 2021 ,
respectively, primarily driven by increased volume.
Revenue of Cyramza, a treatment for various cancers, increased 8 percent in the
U.S. during the three months ended June 30, 2021 , primarily driven by increased
volume. Revenue decreased 1 percent in the U.S. during the six months ended
June 30, 2021 , driven by lower realized prices, partially offset by increased
volume. Revenue outside the U.S. increased 3 percent for the three months ended
June 30, 2021 , primarily driven by increased volume. Revenue increased 5 percent
for the six months ended June 30, 2021 , driven by the favorable impact of
foreign exchange rates and increased volume.
Revenue of Basaglar, a long-acting human insulin analog for the treatment of
diabetes, decreased 42 percent and 33 percent in the U.S. during the three and
six months ended June 30, 2021 , respectively, driven by continued competitive
pressures that resulted in lower realized prices and, to a lesser extent,
decreased demand. Revenue outside the U.S. increased 27 percent during the three
months ended June 30, 2021 , driven by increased volume and, to a lesser extent,
the favorable impact of foreign exchange rates. Revenue outside the U.S.
increased 11 percent during the six months ended June 30, 2021 , driven by
increased volume and the favorable impact of foreign exchange rates, partially
offset by lower realized prices. See Note 4 to the consolidated condensed
financial statements for information regarding our collaboration with Boehringer
Ingelheim involving Basaglar. A competitor launched a similar version of
glargine in the U.S. in 2020. Due to competitive pressures, we expect some price
decline and loss of market share in the U.S. over time.
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Gross Margin, Costs, and Expenses
Gross margin as a percent of revenue decreased 6.8 percentage points to 71.0
percent and 71.7 percent for the three and six months ended June 30 2021,
respectively. The decrease in gross margin percent for the three and six months
ended June 30, 2021 was primarily driven by $423.0 million and $504.5 million ,
respectively, of excess inventory charges related to our COVID-19 antibodies. As
part of our response to the COVID-19 pandemic, and at the request of the U.S.
and international governments, we invested in large-scale manufacturing of
COVID-19 antibodies at risk, in order to ensure rapid access to patients around
the world. As the COVID-19 pandemic has continued to evolve during 2021, we
incurred excess inventory charges primarily due to the combination of changes to
current and forecasted demand from U.S. and international governments, including
changes to our agreement with the U.S. government, and near-term expiry dates of
COVID-19 antibodies. The decrease in gross margin percent for the six months
ended June 30, 2021 was also due to the unfavorable effect of foreign exchange
rates on international inventories sold.
Research and development expenses increased 20 percent to $1.67 billion and
increased 21 percent to $3.36 billion for the three and six months ended
June 30, 2021 , respectively. The increase in research and development expenses
for the three and six months ended June 30, 2021 was driven primarily by higher
development expenses for late-stage assets, as well as higher research and
development expenses for COVID-19 therapies.
Marketing, selling, and administrative expenses increased 16 percent to $1.69
billion and 9 percent to $3.26 billion for the three and six months ended
June 30, 2021 , respectively. The increase in marketing, selling, and
administrative expenses for the three and six months ended June 30, 2021 , was
primarily due to lower marketing and selling expenses for the three and six
months ended June 30, 2020 due to pandemic-related spending reductions.
We recognized $25.0 million and $324.3 million of acquired IPR&D charges for the
three and six months ended June 30, 2021 , respectively. The charge for the three
months ended June 30, 2021 was related to a business development transaction
with MiNA. The charges for the six months ended June 30, 2021 also included
charges related to business development transactions with Rigel, Precision,
Merus, and Asahi. We recognized $241.8 million and $294.1 million of acquired
IPR&D charges for the three and six months ended June 30, 2020 , respectively.
The charges for the three months ended June 30, 2020 were related to the
acquisition of a pre-clinical stage company, as well as business development
transactions with AbCellera, Evox, and Junshi Biosciences. The charges for the
six months ended June 30, 2020 also included a charge related to a business
development transaction with Sitryx.
We recognized asset impairment, restructuring, and other special charges of
$211.6 million for the six months ended June 30, 2021 , primarily related to an
intangible asset impairment resulting from the decision to sell the rights to
Qbrexza, as well as acquisition and integration costs associated with the
acquisition of Prevail. We recognized asset impairment, restructuring, and other
special charges of $59.9 million for the six months ended June 30, 2020 ,
primarily related to acquisition and integration costs associated with the
acquisition of Dermira .
Other-net, (income) expense was income of $190.5 million and $511.6 million for
the three and six months ended June 30, 2021 , respectively, compared with income
of $446.9 million and $536.0 million for the three and six months ended June 30,
2020 , respectively. The decrease in other income for the three and six months
ended June 30, 2021 was driven primarily by lower net investment gains on equity
securities, partially offset by income from patent settlements in Europe for
Alimta.
The effective tax rate was 12.8 percent for the three months ended June 30,
2021 , compared with 14.1 percent for the three months ended June 30, 2020 . The
effective tax rate was 10.6 percent for the six months ended June 30, 2021 ,
compared with 13.7 percent for the six months ended June 30, 2020 . The lower
effective tax rates for the three and six months ended June 30, 2021 were
primarily due to the income tax impact of the excess inventory charges related
to our COVID-19 antibodies and lower income tax expense related to lower net
gains on investment securities compared to the same period in 2020, partially
offset by a lower net discrete tax benefit compared to the same period in 2020
and a nondeductible acquired IPR&D charge in the second quarter of 2020.
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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. For a discussion of our capital requirements, see "Management's
Discussion and Analysis of Results of Operations and Financial Condition" in
Part II, Item 7 of our Annual Report on Form 10-K for the year ended
December 31, 2020.
Cash and cash equivalents decreased to $3.22 billion as of June 30, 2021 ,
compared with $3.66 billion as of December 31, 2020 . Refer to the consolidated
condensed statements of cash flows for additional information on the significant
sources and uses of cash for the six months ended June 30, 2021 and 2020.
In addition to our cash and cash equivalents, we held total investments of $3.53
billion and $2.99 billion as of June 30, 2021 and December 31, 2020 ,
respectively. See Note 6 to the consolidated condensed financial statements for
additional information.
In January 2021 , we acquired all shares of Prevail for a purchase price that
included $22.50 per share in cash (or an aggregate of $747.4 million , net of
cash acquired) plus one non-tradable CVR per share. The CVR entitles Prevail
stockholders to up to an additional $4.00 per share in cash (or an aggregate of
approximately $160 million ) payable, subject to certain terms and conditions.
The acquisition was funded primarily through cash on hand. See Note 3 to the
consolidated condensed financial statements for additional information.
As of June 30, 2021 , total debt was $16.52 billion , a decrease of $80.2 million
compared with $16.60 billion as of December 31, 2020 .
As of June 30, 2021 , we had a total of $5.24 billion of unused committed bank
credit facilities, $5.00 billion of which is available to support our commercial
paper program. We believe that amounts accessible through existing commercial
paper markets should be adequate to fund short-term borrowing needs.
During the six months ended June 30, 2021 , we repurchased $500.0 million of
shares under our $8.00 billion share repurchase program authorized in June 2018 .
As of June 30, 2021 , we had $500.0 million remaining under this program. In May
2021 we authorized an additional $5.00 billion share repurchase program. There
were no shares repurchased under the $5.00 billion share repurchase program
during the six months ended June 30, 2021 .
During the six months ended June 30, 2021 , we paid dividends of approximately
$1.54 billion , or $1.70 per share, to our shareholders.
See "Executive Overview - Other Matters - Patent Matters" for information
regarding recent and upcoming losses of patent protection.
Both domestically and abroad, we continue to monitor the potential impacts of
the economic environment; the creditworthiness of our wholesalers and other
customers, including foreign government-backed agencies and suppliers; the
uncertain impact of health care legislation; various international government
funding levels; and fluctuations in interest rates, foreign currency exchange
rates (see "Executive Overview - Other Matters - Foreign Currency Exchange
Rates"), and fair values of equity securities.
58
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Financial Expectations
We have updated certain elements of our 2021 financial guidance on a reported
basis. The update to our 2021 financial guidance reflects the excess inventory
charges related to our COVID-19 antibodies and acquired IPR&D charge recognized
during the three months ended June 30, 2021 . The update also reflects acquired
IPR&D charges for Protomer Technologies Inc. and Kumquat Biosciences Inc.
Earnings per share for 2021 are now expected to be in the range of $6.73 to
$6.93 .
We now anticipate 2021 revenue to be between $26.8 billion and $27.4 billion .
This modest change reflects an increase of $200 million in estimated revenue
from products in our core business, reflecting strong performance and, to a
lesser extent, the favorable impact of foreign exchange rates, and a reduction
in estimated revenue from COVID-19 therapies, which is now expected to be in the
range of $1.0 billion to $1.1 billion .
Gross margin as a percent of revenue for 2021 is now expected to be
approximately 75 percent, reflecting the impact of the excess inventory charges
for our COVID-19 antibodies. Research and development expenses for 2021 are
unchanged and remain in the range of $6.9 billion to $7.1 billion . Marketing,
selling, and administrative expenses for 2021 are unchanged and remain in the
range of $6.2 billion to $6.4 billion . Other-net, (income) expense for 2021 is
now expected to be income in the range of $375 million to $475 million ,
reflecting the impact of net investment gains on equity securities and the
income from patent settlements in Europe for Alimta recognized during the three
months ended June 30, 2021 . The 2021 effective tax rate is now expected to be
approximately 12 percent, reflecting primarily the tax impact of the excess
inventory charges related to our COVID-19 antibodies.
Available Information on our Website
We make available through our company website, free of charge, our company
filings with the Securities and Exchange Commission (SEC) as soon as reasonably
practicable after we electronically file them with, or furnish them to, the SEC .
The reports we make available include annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, proxy statements,
registration statements, and any amendments to those documents.
The website link to our SEC filings is
investor.lilly.com/financial-information/sec-filings. The information contained
in, or that can be accessed through, our website is not a part of, or
incorporated by reference in, this Quarterly Report.
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