Eli Lilly and Company — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. Lilly is a global pharmaceutical company operating as one reportable segment. All financial amounts below are in U.S. dollars.
Financial performance and position
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $28.54 billion | $28.32 billion | +1% |
| Gross margin | $21.91 billion; 76.8% of revenue | $21.01 billion; 74.2% | +4%; +2.6 percentage points |
| Income before income taxes | $6.81 billion | $6.16 billion | — |
| Net income | $6.24 billion | $5.58 billion | +12% |
| Diluted EPS | $6.90 | $6.12 | +13% |
| Operating cash flow | $7.08 billion | $7.26 billion | Lower |
| Capital expenditures | $1.85 billion | $1.31 billion | Higher |
| Total debt at year-end | $16.24 billion | $16.88 billion | Lower |
| Cash and cash equivalents at year-end | $2.07 billion | $3.82 billion | Lower |
Cash, cash equivalents, and total investments were approximately $5.12 billion at year-end 2022. Lilly also reported $7.33 billion in unused committed bank credit facilities, including $7.00 billion available to support its commercial paper program. The effective tax rate was 8.3%, versus 9.3% in 2021. Cash income-tax payments rose to $2.67 billion from $1.60 billion, including the effect of required tax capitalization and amortization of research and development expenses.
Revenue trends and material changes
- U.S. revenue rose 8% to $18.19 billion; revenue outside the U.S. fell 10% to $10.35 billion. Overall growth reflected 10% higher volume, offset by 6% lower realized prices and a 3% unfavorable foreign-exchange impact.
- Growth leaders included Verzenio ($2.48 billion, +84%), Jardiance and related products ($2.07 billion, +39%), Trulicity ($7.44 billion, +15%), and Taltz ($2.48 billion, +12%). Mounjaro, launched in 2022, generated $482.5 million.
- Revenue declines included Alimta ($927.7 million, down 55%) amid generic entry, Humalog ($2.06 billion, down 16%) amid pricing pressure, and COVID-19 antibodies ($2.02 billion, down 10%).
- Gross-margin improvement mainly reflected the 2021 COVID-19 antibody inventory impairment and foreign-exchange effects on international inventories sold that year. In 2022, favorable product mix was partly offset by lower realized prices and inflation and logistics costs.
- Research and development expense increased 4% to $7.19 billion, primarily due to late-stage development spending. Marketing, selling, and administrative expense was broadly unchanged at $6.44 billion.
Outlook, management commentary, and risks
- The filing provides no specific 2023 revenue or EPS guidance. Management said it does not expect significant further revenue from COVID-19 treatments.
- Management reported strong demand for incretin medicines, including Mounjaro and Trulicity, but intermittent order-fulfillment delays and tight supply. Additional internal and contracted capacity is expected to come online over the next several years, with significant expansion in 2023. Lilly announced multiyear manufacturing investments, including more than $2 billion for two Indiana facilities, more than $1 billion for a North Carolina facility, and more than €400 million in Ireland; it also announced a further $450 million Durham expansion in early 2023.
- Alimta’s generic competition is expected to continue eroding sales, with a particularly significant effect on year-over-year comparisons in the first half of 2023. Humalog also faces sustained pricing pressure.
- The Inflation Reduction Act introduces Medicare price-setting and rebate provisions, with first government-set prices effective in 2026. The filing says the impact on Lilly remains uncertain; selection of a significant product could accelerate revenue erosion.
- Pipeline developments include U.S. and European submissions for lebrikizumab and U.S., European, and Japanese submissions for mirikizumab. Donanemab received an FDA complete response letter in January 2023 on its accelerated-approval submission; Phase III trials continued. The Medicare coverage policy described in the filing limits coverage of Alzheimer’s monoclonal antibodies to qualifying clinical-trial participants.
- Unusual items included $908.5 million of acquired in-process research and development and development milestones, a $244.6 million impairment/restructuring charge (primarily related to GBA1 gene therapy), and $410.7 million of net investment losses on equity securities.
- Material risks include dependence on a concentrated product portfolio—seven product or alliance revenue groups each exceeded $1 billion and collectively represented 69% of 2022 revenue; patent expiry and generic/biosimilar competition; pricing and reimbursement pressure; product safety and regulatory outcomes; manufacturing and supply constraints; foreign exchange and inflation; and reliance on wholesalers and external collaborators.
- Litigation and investigations include insulin-pricing and 340B matters, a jury verdict for Teva in Emgality patent litigation (with post-trial motions and potential appeal), and other proceedings. Lilly says it cannot reasonably estimate maximum exposure or possible loss beyond accruals for the described matters; some matters could be material to results in an individual period. The company is self-insured for litigation liability losses on its marketed products.
Key facts investors should verify
- Whether incretin demand converts into revenue growth as planned, and whether added manufacturing capacity resolves supply constraints without materially increasing costs or creating unused-capacity commitments.
- How much future revenue growth depends on Trulicity, Mounjaro, and other concentrated products, relative to ongoing Alimta erosion and insulin pricing pressure.
- Pipeline and regulatory milestones, particularly donanemab’s next regulatory path and the clinical and commercial progress of lebrikizumab and mirikizumab.
- The eventual effects of Medicare price-setting, rebates, payer coverage decisions, and international price controls on realized prices and access.
- Cash generation, capital spending, and debt funding as announced manufacturing investments proceed; assess the disclosed potential contractual payments of up to approximately $4.5 billion if specified purchasing commitments are not met.
- Updates on significant litigation and investigations, including potential outcomes and any changes to accruals; review the full contingency disclosures because the filing does not quantify a maximum exposure.