Eli Lilly and Company — 2021 Form 10-K
Business context and reporting period. Lilly is a global pharmaceutical company operating in one reportable segment. This annual report covers the fiscal year ended December 31, 2021; comparisons below are primarily with 2020. The filing was signed February 23, 2022.
Financial performance
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $28.32 billion | $24.54 billion | +15% |
| Gross margin | $21.01 billion; 74.2% of revenue | $19.06 billion; 77.7% | +10% dollars; down 3.5 percentage points |
| Research and development | $7.03 billion | $6.09 billion | +15% |
| Marketing, selling, and administrative | $6.43 billion | $6.12 billion | +5% |
| Income before income taxes | $6.16 billion | $7.23 billion | -15% |
| Net income | $5.58 billion | $6.19 billion | -10% |
| Diluted EPS | $6.12 | $6.79 | -10% |
| Cash provided by operating activities | $7.26 billion | $6.50 billion | +12% |
| Capital expenditures | $1.31 billion | $1.39 billion | -6% |
Revenue rose on 16% higher consolidated volume, partly offset by a 2% decline in realized prices; foreign exchange contributed 1%. U.S. revenue increased 18% and revenue outside the U.S. increased 12%. Growth was led by Trulicity ($6.47 billion, +28%), COVID-19 antibodies ($2.24 billion; change not meaningful), Taltz ($2.21 billion, +24%), Verzenio ($1.35 billion, +48%), and Olumiant ($1.12 billion, +75%).
Notable declines included Humalog (-7%), Alimta (-12%), Basaglar (-21%), Forteo (-23%), and Cymbalta (-24%). Lilly attributed declines to factors including pricing pressure, generic competition, and loss of exclusivity.
Financial position and capital allocation
- At year-end, cash and cash equivalents were $3.82 billion; investments were approximately $3.30 billion. Total debt was $16.88 billion, versus $16.60 billion a year earlier. Debt included $1.54 billion classified as current maturities and short-term borrowings.
- Lilly reported $5.26 billion in unused committed credit facilities, including $5.00 billion available to support its commercial paper program. Management said available cash, operating cash flow, and borrowing access were sufficient for existing and planned capital requirements.
- Cash from operating activities increased to $7.26 billion from $6.50 billion. Cash used for investing was $2.76 billion and cash used for financing was $4.13 billion.
- Dividends paid were $3.40 per share in 2021. The quarterly dividend was raised to $0.98, implying a 2022 annual rate of $3.92 per share. Lilly repurchased $1.25 billion of shares during 2021 and had $4.75 billion remaining under its $5.00 billion repurchase authorization at year-end.
- In 2021, Lilly issued long-dated euro- and pound-denominated debt and used $1.91 billion of proceeds to redeem $1.50 billion principal of higher-rate U.S. dollar debt, recording a $405.2 million extinguishment loss. Substantially all long-term debt carried fixed rates; approximately 13% of fixed-rate notes had been converted to floating rates through swaps.
Material changes, outlook, and notable items
- Earnings comparison: Net income and EPS declined despite revenue and gross-profit growth. The principal comparison factor was other-net expense of $201.6 million in 2021 versus $1.17 billion of other-net income in 2020, when Lilly recognized substantially larger equity investment gains. Higher operating expenses and a $405.2 million debt extinguishment loss also weighed on 2021 results.
- COVID-19 products: Gross margin was pressured by higher sales of COVID-19 antibodies, and the company recorded a $339.7 million net inventory impairment charge as demand forecasts changed and inventory approached expiry. Lilly expected additional bamlanivimab/etesevimab revenue after the first quarter of 2022 to be limited; effectiveness and authorized use could change with circulating variants. In February 2022, the FDA authorized bebtelovimab, and Lilly agreed to supply the U.S. government up to 600,000 doses for at least $720 million, with an option for 500,000 more doses.
- Patent expirations: Lilly expected generic entry for Alimta in the U.S. to begin on a limited basis in February 2022 and without limitation in April 2022, with a rapid and severe revenue decline anticipated. Alimta had already faced generic competition in major European markets and Japan. The company also cited ongoing pressure from loss of exclusivity for Forteo and Cymbalta, and expected continued pricing and share pressure for Humalog.
- Pipeline and investment: Lilly reported approximately 45 candidates in clinical development or regulatory review. Tirzepatide for type 2 diabetes had been submitted in the U.S., Europe, and Japan; donanemab and pirtobrutinib had U.S. rolling submissions initiated. Pipeline outcomes, approvals, coverage, and commercial uptake remain uncertain. Lilly acquired Prevail in 2021 for $747.4 million net of acquired cash, with potential additional contingent payments, and recognized $874.9 million in acquired in-process R&D charges.
- Spending and facilities: Lilly planned to invest more than $1 billion over several years in a North Carolina injectable-product facility and more than €400 million in an Ireland biologics facility. The filing does not provide a clear consolidated revenue or EPS guidance range for 2022.
- Tax cash flow: If not deferred or repealed, a U.S. tax provision requiring capitalization and amortization of R&D costs was expected to increase 2022 income-tax cash payments by up to $1.50 billion, with moderate reductions thereafter over the five-year amortization period.
- Legal and regulatory matters: Lilly disclosed product-liability, pricing, patent, and 340B program disputes and investigations. It said it could not reasonably estimate maximum exposure or losses beyond recorded accruals for certain matters; outcomes could be material to results in an individual period. A Brazilian labor case included an inflation- and interest-adjusted award of approximately 950 million reais (about $170 million at year-end exchange rates), subject to ongoing appeals. Potential damages in a manufacturing-process royalty dispute were not reasonably estimable.
- Other risks: Management highlighted pricing and reimbursement pressure, generic and biosimilar competition, R&D and approval risk, supply-chain constraints, COVID-19 impacts, manufacturing compliance, foreign exchange, inflation, cybersecurity, and tax uncertainty.
Key investor verification points
- Track Alimta generic launches and the pace of revenue erosion, alongside the effects of other product exclusivity losses.
- Assess whether growth in Trulicity, Taltz, Verzenio, Jardiance, and other newer products can offset pricing pressure and declining legacy-product sales.
- Verify the realized demand, margin contribution, inventory exposure, and regulatory status of COVID-19 therapies, including the bebtelovimab government supply agreement.
- Review the quality and sustainability of earnings, particularly the impact of investment gains, the debt extinguishment charge, acquired R&D, and inventory impairment.
- Monitor cash conversion, debt maturities and refinancing, capital spending, dividends, and remaining share-repurchase capacity.
- Follow key pipeline trial and regulatory decisions, payer coverage for prospective products, and the disclosed legal matters, especially 340B, pricing, and the Brazil labor case.