Eli Lilly and Company — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Lilly operates as a single global pharmaceutical segment. Amounts below are in millions of dollars unless otherwise noted.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $6,740.1 | $5,499.4 | $13,545.7 | $11,359.2 |
| Gross margin | $4,786.9; 71.0% | $4,277.4; 77.8% | $9,713.9; 71.7% | $8,922.1; 78.5% |
| Net income | $1,390.2 | $1,412.0 | $2,745.5 | $2,868.5 |
| Diluted EPS | $1.53 | $1.55 | $3.01 | $3.15 |
| Operating cash flow | Not separately reported for the quarter | $3,472.9 | $2,877.8 |
Revenue increased 23% in Q2 and 19% in the first half, driven mainly by volume growth and favorable foreign exchange, partly offset by lower realized prices. Operating expenses rose 18% in Q2 and 15% in the first half, including higher late-stage development, COVID-19 research, and commercial spending.
For the six months, capital spending was $681.6, dividends paid were $1,543.1, and cash used for acquisitions was $747.4. Operating cash flow less property and equipment purchases was approximately $2,791.3. Cash and cash equivalents were $3,220.0 at June 30, versus $3,657.1 at year-end 2020; investments totaled $3,526.1. Total debt was approximately $16.52 billion, down $80.2 from year-end. Lilly reported $5.24 billion of unused committed credit facilities.
Material changes and notable items
- COVID-19 antibody inventory charges of $423.0 in Q2 and $504.5 for the first half reduced gross margin; the charges reflected changed government demand forecasts and near-term product expirations.
- Revenue from COVID-19 antibodies was $148.9 in Q2 and $959.1 for the first half. The FDA revoked the EUA for bamlanivimab alone in April; U.S. shipments of bamlanivimab with etesevimab were halted in June amid variant concerns.
- Key Q2 product growth included Trulicity (+25%), Verzenio (+64%), Taltz (+44%), and Jardiance (+36%). Basaglar declined 27%; Lilly cited U.S. competitive pressure and lower realized prices.
- Alimta patent protection expired in major European countries and Japan in June 2021. Lilly expects generic entry to cause a rapid, severe revenue decline; limited U.S. entry is expected from February 2022 and unrestricted entry from April 2022.
- Other-net income included equity investment gains of $215.4 in Q2 and $517.0 for the first half, lower than the corresponding 2020 gains. Q2 net income and diluted EPS declined 2% and 1%, respectively; first-half net income and EPS declined 4%.
- First-half special charges were $211.6, mainly a $108.1 impairment tied to the sale of Qbrexza rights and Prevail acquisition and integration costs. Acquired in-process R&D charges were $324.3 for the first half.
Outlook, management commentary, and risks
Lilly updated its 2021 outlook: revenue of $26.8–$27.4 billion; diluted EPS of $6.73–$6.93; gross margin of approximately 75%; R&D expense of $6.9–$7.1 billion; marketing, selling, and administrative expense of $6.2–$6.4 billion; other-net income of $375–$475 million; and an effective tax rate of approximately 12%. COVID-19 therapy revenue is expected to be $1.0–$1.1 billion. The updated outlook reflects antibody inventory charges and acquired R&D charges, including announced July transactions with Protomer and Kumquat.
Management said most major-market healthcare systems had largely resumed normal operations by June 30, 2021, while noting continuing pandemic uncertainty, possible demand and supply disruption, and risk that variants or competing treatments reduce demand or effectiveness of COVID-19 therapies. Lilly stated that cash, operating cash generation, and access to debt markets should be sufficient for planned capital requirements.
Other principal risks include pricing and reimbursement pressure, competition and patent expirations, clinical and regulatory uncertainty, manufacturing and quality issues, foreign-exchange movements, and legal proceedings. The filing describes multiple pricing, product-liability, patent, and 340B-related matters; management said resolution was not expected to materially harm consolidated financial position or liquidity, but could materially affect results in an individual period. Lilly is self-insured for product-liability losses. No material changes to the previously disclosed risk factors were reported.
Pipeline updates included plans to submit tirzepatide for type 2 diabetes by year-end 2021 and to seek accelerated FDA approval for donanemab by year-end. The FDA advisory committee concluded that tanezumab’s proposed risk-management strategy did not ensure benefits outweighed risks; review remained ongoing.
Investor verification priorities
- Track COVID-19 antibody demand, government orders, returns or expirations, and any further inventory write-downs against the $1.0–$1.1 billion revenue outlook.
- Assess whether core-product growth and pricing can offset Alimta’s loss of exclusivity and continuing insulin and Basaglar competition.
- Monitor delivery against the 2021 revenue, EPS, gross-margin, expense, and tax guidance ranges.
- Review cash conversion, investment-gain volatility, debt maturities, and planned buybacks; Lilly authorized a new $5 billion repurchase program in May 2021.
- Follow material legal and regulatory developments, including 340B disputes, insulin-pricing proceedings, and the Brazil environmental/labor litigation.