Eli Lilly and Company — Q1 2023 Form 10-Q
Business context and reporting period: Global pharmaceutical company; the filing covers the three months ended March 31, 2023, compared with the three months ended March 31, 2022. Lilly reports one operating segment.
Financial results and position
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | $6.96 billion | $7.81 billion; down 11% |
| Net income | $1.34 billion | $1.90 billion; down 29% |
| Diluted EPS | $1.49 | $2.10; down 29% |
| Gross margin | $5.33 billion; 76.6% of revenue | $5.74 billion; 73.5% |
| Research and development expense | $1.99 billion | $1.61 billion; up 23% |
| Marketing, selling, and administrative expense | $1.75 billion | $1.56 billion; up 12% |
| Cash from operating activities | $1.73 billion | $2.52 billion |
| Capital expenditures | $669 million | $365 million |
Cash and cash equivalents were $3.55 billion at March 31, 2023, versus $2.07 billion at year-end 2022; total investments were $2.87 billion. Total debt was $18.88 billion, up from $16.24 billion at year-end. Current assets were $20.81 billion and current liabilities $16.01 billion. Lilly reported $7.33 billion of unused committed credit facilities, including $7.00 billion supporting its commercial paper program.
Q1 financing included $3.96 billion of net proceeds from new long-term notes, used for general business purposes including repayment of commercial paper. Lilly paid $1.02 billion in dividends and repurchased $750 million of shares. Operating cash flow less capital expenditures was approximately $1.06 billion.
Material changes and business drivers
- Revenue declined mainly because COVID-19 antibody sales fell to zero from $1.47 billion in Q1 2022, and because of lower realized prices, lower volume, and unfavorable foreign exchange. Revenue was down 14% in the U.S. and 4% outside the U.S.
- Mounjaro generated $568.5 million in revenue, including $536.4 million in the U.S.; it launched in the U.S. in June 2022. Trulicity revenue rose 14% to $1.98 billion, Verzenio rose 60% to $751 million, and Jardiance rose 38% to $578 million.
- Alimta revenue fell 83% to $58 million following generic competition; Humalog revenue fell 25% to $461 million, reflecting pricing and competitive pressures, among other factors.
- Net income also reflected a sharp reduction in equity investment losses: $13.7 million in Q1 2023 versus $425.4 million in Q1 2022. Gross margin percentage increased year over year, primarily because the prior-year period included COVID-19 antibody sales, partly offset by lower realized prices.
- R&D spending increased, primarily due to late-stage development; commercial expenses rose largely with product and indication launches.
Outlook, commentary, risks, and unusual items
- The filing gives no numerical full-year revenue or earnings guidance. Management said available cash, expected operating cash flow, and borrowing access should be sufficient for existing and planned capital requirements. It expects more than $8 billion of capital investment over several years for manufacturing facilities, with significant capacity expansion in 2023.
- Management reported intermittent U.S. order delays for Mounjaro and Trulicity and continuing international Trulicity supply disruptions. Tight incretin-product supply is expected to persist until additional manufacturing capacity comes online over the next several years.
- Pipeline updates included FDA complete response letters for donanemab’s accelerated-approval submission and mirikizumab; a Phase II study of rezpegaldesleukin failed its primary endpoint, and solanezumab failed its Phase III primary and secondary endpoints. Mounjaro’s obesity application was submitted in Europe, and an obesity Phase III trial met co-primary and key secondary endpoints, as reported in April.
- Pricing and access remain risks, including insulin price and rebate pressure, the U.S. Inflation Reduction Act’s future Medicare price-setting provisions, payer actions, and ongoing 340B and insulin-pricing litigation and investigations. Lilly said the full impact of the IRA remains uncertain.
- Legal matters include an Emgality patent jury verdict for Teva, subject to post-trial motions and potential appeal; Brazil environmental/labor litigation with an inflation-adjusted award cited at approximately $226 million and related security reduced to approximately $20 million; and an RCT manufacturing-related case where potential damages could be material but are not reasonably estimable. Lilly said it cannot reasonably estimate maximum exposure or possible loss beyond accrued amounts for its legal matters.
- After quarter-end, Lilly agreed to sell rights to its olanzapine portfolio for $1.05 billion at closing plus $305 million one year later, with up to $50 million in milestones; and Baqsimi rights for $500 million at closing plus $125 million one year later, with up to $450 million in sales milestones. Both transactions are subject to closing conditions and regulatory approval.
Investor verification priorities
- Track Mounjaro adoption and manufacturing capacity, including whether supply constraints ease as planned.
- Assess revenue concentration and the pace of growth in newer products against continued COVID-19 antibody absence, Alimta erosion, and insulin pricing pressure.
- Review clinical and regulatory outcomes for donanemab, mirikizumab, and other late-stage pipeline candidates.
- Monitor debt growth, capital spending, operating cash generation, and the completion and proceeds of the announced portfolio divestitures.
- Follow pricing-policy developments and material litigation, investigations, and contingencies; outcomes and potential losses may not be predictable from the filing.