Eli Lilly and Company — Q1 2022 Form 10-Q
Business context and reporting period
Unaudited results for the three months ended March 31, 2022, compared with Q1 2021. Lilly operates as a single global pharmaceutical segment.
Financial results and liquidity
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $7.81 billion | $6.81 billion | +15% |
| Gross margin | $5.74 billion; 73.5% of revenue | $4.93 billion; 72.4% | Margin +1.1 percentage points |
| Net income | $1.90 billion | $1.36 billion | +40% |
| Diluted EPS | $2.10 | $1.49 | +41% |
| Operating cash flow | $2.50 billion | $1.70 billion | +$0.80 billion |
Net margin was approximately 24.4% (calculated as net income divided by revenue). Research and development expense was $1.61 billion, down 4%; marketing, selling, and administrative expense was $1.56 billion, down 1%. Acquired in-process R&D and milestone charges were $165.6 million versus $312.0 million; there were no asset impairment or restructuring charges, compared with $211.6 million in Q1 2021.
Cash and cash equivalents were $2.46 billion at March 31, down from $3.82 billion at year-end. Total investments were $2.84 billion. Total debt was $16.51 billion, down from $16.88 billion. Current assets were $16.96 billion and current liabilities $13.39 billion. The company reported $5.26 billion of unused committed credit facilities, including $5.00 billion available to support commercial paper. Q1 cash uses included $1.50 billion in share repurchases, $885.5 million in dividends, and $365.4 million in property and equipment purchases.
Material changes versus Q1 2021
- U.S. revenue grew 31% to $5.17 billion; outside-U.S. revenue fell 8% to $2.64 billion. Consolidated growth reflected 20% volume growth, partly offset by lower prices and foreign exchange.
- COVID-19 antibody revenue rose 81% to $1.47 billion, mainly from U.S. sales. Trulicity revenue increased 20% to $1.74 billion; Verzenio increased 74% to $469.4 million; and Jardiance increased 34% to $419.4 million.
- Alimta revenue fell 38% to $343.9 million amid generic competition; Cymbalta fell 54% to $81.1 million and Forteo fell 31% to $137.4 million.
- Other-net expense was $350.7 million, versus $321.1 million of income in Q1 2021. This largely reflected $425.4 million of equity investment losses, compared with $301.5 million of investment gains in the prior period.
- The effective tax rate was 7.3%, versus 8.2%. Net income and EPS comparisons also reflect these investment gains and losses and differing special and acquired R&D charges.
Outlook, management commentary, and risks
- The filing gives no specific consolidated revenue or earnings forecast. Management expects additional COVID-19 antibody revenue to be limited beginning in Q2 2022; an option for the U.S. government to order up to 500,000 additional bebtelovimab doses by July 31 was uncertain.
- Management expects U.S. Alimta generics to cause a rapid and severe revenue decline, with a material adverse effect on results and cash flows. Humalog faces ongoing pricing and market-share pressure; further Forteo erosion is expected.
- Pipeline developments included an April announcement that the initial Phase III obesity trial of tirzepatide met co-primary and key secondary endpoints, and Q1 U.S. submission of mirikizumab for ulcerative colitis. The FDA did not approve sintilimab in its current form and recommended an additional multiregional study. Several clinical trials were discontinued in April for lack of efficacy or failure to meet progression criteria.
- The 2017 U.S. tax law provision requiring capitalization and amortization of R&D expenses could increase 2022 cash tax payments by up to $1.50 billion. If deferred or repealed for 2022, the company estimated a 2022 effective tax rate of approximately 13%–14%.
- In April 2022, Lilly agreed to acquire substantially all Petra shareholder rights to future milestones for a one-time payment; it expects to record an approximately $335 million acquired R&D/milestone charge in Q2.
- Risks include pandemic and supply-chain disruption, regulatory changes to COVID-19 authorizations, drug pricing and reimbursement pressure, patent expirations, foreign exchange and investment volatility, and litigation or investigations. The company said it could not reasonably estimate maximum exposure for certain legal matters; it noted that some outcomes could materially affect results in an individual period.
Important facts for investors to verify
- Whether COVID-19 antibody demand, authorizations, and government purchases decline as management expects, and the resulting effect on revenue.
- The pace and financial impact of Alimta generic entry in the U.S. and continued erosion in other markets.
- Progress and regulatory outcomes for key pipeline programs, including tirzepatide, mirikizumab, donanemab, and the additional study required for sintilimab.
- Developments in pricing and 340B disputes, and material litigation matters including the Brazil facility case and RCT manufacturing-process litigation.
- 2022 cash taxes under the R&D tax provision, equity-investment performance, and the effect of share repurchases and dividends on cash and debt.