On February 2, 2023 Eli Lilly and Company (NYSE: LLY) reported its financial results for the fourth quarter of 2022 (Press release, Eli Lilly, FEB 2, 2023, View Source [SID1234626764]).
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"2023 is an inflection point for Lilly – a chance to expand our impact on patients and growth potential as an R&D-driven biopharma company," said David A. Ricks, Lilly’s chair and CEO. "Over the course of this critical year, we hope to launch as many as four new medicines for challenging diseases, while advancing our next generation of molecules currently in Phase 3."
Anat Ashkenazi, Lilly’s executive vice president and chief financial officer added: "As we closed out 2022, Lilly demonstrated strong growth and achieved meaningful pipeline progress that included the launch for Mounjaro in type 2 diabetes. We expect to capitalize on this momentum and deliver mid-teen revenue growth for our core business in 2023 while remaining committed to investing in innovation, late-stage opportunities, manufacturing capacity, and our people."
Lilly shared numerous updates recently on key regulatory, clinical, business development and other events, including:
The U.S. Food and Drug Administration (FDA) approval of Jaypirca (pirtobrutinib) for adults with relapsed or refractory mantle cell lymphoma after at least two lines of systemic therapy, including a BTK inhibitor, under the accelerated approval pathway;
FDA issuance of a complete response letter for the accelerated approval submission of donanemab for early Alzheimer’s disease;
FDA and European Medicines Agency acceptance of regulatory submissions for Jardiance for adults with chronic kidney disease based on results from the EMPA-KIDNEY Phase 3 trial;
The initiation of a rolling submission in the U.S. for tirzepatide in obesity and FDA Fast Track designation for tirzepatide in obstructive sleep apnea;
The announcement that Jardiance is the first SGLT2 inhibitor to show statistically significant reduction in blood sugar levels in children and adolescents with type 2 diabetes;
Positive donanemab data from the first Phase 3 active comparator study in early Alzheimer’s disease, TRAILBLAZER-ALZ 4;
Plans to invest an additional $450 million and create at least 100 new jobs to expand manufacturing capacity at the company’s Research Triangle Park facility;
The acquisition of Akouos, Inc., which expands Lilly’s efforts in genetic medicines to include Akouos’s potential first-in-class adeno-associated viral gene therapies;
The fifth consecutive 15% annual increase in Lilly’s quarterly dividend, doubling since 2018;
A collaboration with EVA Pharma to establish local manufacturing capabilities to supply low-cost insulin to at least 1 million people by 2030, mostly in Africa; and
An initiative with Direct Relief to expand cold chain capacity in Africa, Latin America, the Caribbean and Southeast Asia.
For additional information on these and other important public announcements, visit the news section of Lilly’s website.
Financial Results
$ in millions, except
per share data
Fourth Quarter
%
2022
2021
Change
Revenue
$7,301.8
$7,999.9
(9) %
Net Income – Reported
1,937.7
1,726.1
12 %
EPS – Reported
2.14
1.90
13 %
Net Income – Non-GAAP
1,893.1
1,970.5
(4) %
EPS – Non-GAAP
2.09
2.17
(4) %
A discussion of the non-GAAP financial measures is included under "Reconciliation of GAAP Reported to Selected Non-GAAP Adjusted Information (Unaudited)."
Fourth-Quarter Reported Results
In Q4 2022, worldwide revenue was $7.30 billion, a decrease of 9% compared with Q4 2021, driven by a 4% decrease from the unfavorable impact of foreign exchange rates, a 3% decrease due to lower realized prices, and a 2% decrease in volume. Excluding COVID-19 antibodies, revenue in Q4 2022 increased 5% and total worldwide volume increased 13%. Key growth products, consisting of Verzenio, Mounjaro, Jardiance, Taltz, Trulicity, Retevmo, Emgality, Cyramza, Tyvyt and Olumiant, grew 21% and represented 70% of revenue for Q4 2022.
Revenue in the U.S. decreased 10% to $4.66 billion, driven by a 10% decrease in volume with prices remaining relatively flat. Excluding revenue from COVID-19 antibodies, revenue in the U.S. increased by 11%, primarily driven by volume from key growth products.
Revenue outside the U.S. decreased 6% to $2.64 billion, driven by a 12% decrease from the unfavorable impact of foreign exchange rates and a 7% decrease due to lower realized prices, partially offset by a 12% increase in volume. The lower realized prices were primarily driven by the impact of government pricing in China from the volume-based procurement (VBP) for Humalog and the National Reimbursement Drug List (NRDL) formulary for certain products, particularly Verzenio and Tyvyt. The increase in volume outside the U.S. was largely driven by key growth products and approximately $130 million of one-time revenue associated with the sale of the company’s rights to Alimta in Korea and Taiwan.
Gross margin decreased 3% to $5.75 billion in Q4 2022 compared with Q4 2021. Gross margin as a percent of revenue was 78.8%, an increase of 4.4 percentage points compared with Q4 2021. The increase in gross margin percent was primarily driven by lower sales of COVID-19 antibodies, partially offset by lower realized prices and increased expenses due to inflation and logistics costs.
In Q4 2022, research and development expenses increased 5% to $2.00 billion, or 27% of revenue, driven by higher development expenses for late-stage assets, partially offset by the favorable impact of foreign exchange rates and lower development expenses for COVID-19 antibodies.
Marketing, selling and administrative expenses increased 3% to $1.64 billion in Q4 2022, primarily driven by costs associated with launches of new products and indications, partially offset by the favorable impact of foreign exchange rates.
In Q4 2022, the company recognized acquired in-process research and development (IPR&D) and development milestone charges of $240.1 million. In Q4 2021, the company recognized acquired IPR&D and development milestone charges of $437.7 million, primarily related to a business development transaction with Foghorn Therapeutics Inc.
In Q4 2022, the company recognized asset impairment, restructuring and other special charges of $38.1 million, primarily related to acquisition and integration costs associated with the closing of our acquisition of Akouos, Inc. In Q4 2021, the company recognized asset impairment, restructuring and other special charges of $104.5 million, primarily related to impairment of an intangible asset from our acquisition of Loxo Oncology.
Operating income in Q4 2022 was $1.84 billion compared with $1.92 billion in Q4 2021. Operating margin percent, defined as operating income as a percent of revenue, was 25.1%, which includes a negative impact of approximately 330 basis points attributed to acquired IPR&D and development milestone charges.
Other income (expense) was income of $260.0 million in Q4 2022 compared with expense of $77.3 million in Q4 2021. The increase in other income (expense) was primarily driven by net gains on investments in equity securities in Q4 2022 compared with net losses on investments in equity securities in Q4 2021.
The effective tax rate was 7.6% in Q4 2022 compared with 6.2% in Q4 2021. The effective tax rate in Q4 2022 reflects the favorable tax impact of the implementation of the provision in the Tax Cuts and Jobs Act (the 2017 Tax Act) that requires capitalization and amortization of research and development expenses for tax purposes starting in 2022 and a net discrete tax benefit, partially offset by the tax impact of the mix of earnings in higher tax jurisdictions. The effective tax rate in Q4 2021 reflected a net discrete tax benefit and the tax impact of acquired IPR&D and development milestone charges.
In Q4 2022, net income and earnings per share (EPS) were $1.94 billion and $2.14, respectively, compared with $1.73 billion and $1.90 in Q4 2021. Q4 2022 EPS was inclusive of $0.23 of acquired IPR&D and development milestone charges compared with $0.39 in Q4 2021.
Fourth-Quarter Non-GAAP Measures
On a non-GAAP basis, Q4 2022 gross margin decreased 3% to $5.88 billion compared with Q4 2021. Gross margin as a percent of revenue was 80.5%, an increase of 4.4 percentage points compared with Q4 2021. The increase in gross margin percent was primarily driven by lower sales of COVID-19 antibodies, partially offset by lower realized prices and increased expenses due to inflation and logistics costs.
Operating income on a non-GAAP basis decreased $160.5 million, or 7%, to $2.00 billion in Q4 2022 compared with Q4 2021. Operating margin percent was 27.4% on a non-GAAP basis, which includes a negative impact of approximately 330 basis points attributed to acquired IPR&D and development milestone charges.
The effective tax rate on a non-GAAP basis was 7.3% in Q4 2022 compared with 8.5% in Q4 2021. The lower effective tax rate for Q4 2022 reflects the favorable tax impact of the implementation of the 2017 Tax Act and a higher net discrete tax benefit compared to the same period in 2021, partially offset by the tax impact of the mix of earnings in higher tax jurisdictions.
On a non-GAAP basis, Q4 2022 net income and EPS were $1.89 billion and $2.09, respectively, compared with $1.97 billion and $2.17 in Q4 2021. Q4 2022 non-GAAP EPS was inclusive of $0.23 of acquired IPR&D and development milestone charges compared with $0.39 in Q4 2021.
For further detail on non-GAAP measures, see the reconciliation below as well as the "Reconciliation of GAAP Reported to Selected Non-GAAP Adjusted Information (Unaudited)" table later in this press release.
Fourth Quarter
2022
2021
% Change
Earnings per share (reported)
$ 2.14
$ 1.90
13 %
Amortization of intangible assets
.11
.19
Asset impairment, restructuring and other special charges
.03
.09
Net (gains) losses on investments in equity securities
(.19)
.06
Partial reversal of COVID-19 antibodies inventory charges
—
(.07)
Earnings per share (non-GAAP)
$ 2.09
$ 2.17
(4) %
Numbers may not add due to rounding.
Acquired IPR&D and development milestone charges
.23
.39
(41) %
Selected Revenue Highlights
(Dollars in millions)
Fourth Quarter
Full Year
Selected Products
2022
2021
% Change
2022
2021
% Change
Trulicity
$ 1,936.2
$ 1,883.7
3 %
$ 7,439.7
$ 6,471.9
15 %
Verzenio
808.0
404.1
100 %
2,483.5
1,349.9
84 %
Taltz
707.8
647.4
9 %
2,482.0
2,212.8
12 %
Jardiance(a)
612.3
431.9
42 %
2,066.0
1,490.8
39 %
Humalog(b)
548.3
601.7
(9) %
2,060.6
2,453.0
(16) %
COVID-19 antibodies(c)
38.0
1,063.1
(96) %
2,023.5
2,239.3
(10) %
Humulin
234.0
298.8
(22) %
1,019.4
1,222.6
(17) %
Cyramza
277.8
270.4
3 %
971.4
1,033.0
(6) %
Alimta
236.6
434.9
(46) %
927.7
2,061.4
(55) %
Olumiant(d)
205.8
306.0
(33) %
830.5
1,115.1
(26) %
Basaglar
201.7
242.4
(17) %
760.4
892.5
(15) %
Emgality
175.6
161.5
9 %
650.9
577.2
13 %
Forteo
160.0
184.0
(13) %
613.1
801.9
(24) %
Mounjaro
279.2
—
NM
482.5
—
NM
Tyvyt
57.5
77.8
(26) %
293.3
418.1
(30) %
Retevmo
64.6
38.6
67 %
191.9
114.7
67 %
Total Revenue
7,301.8
7,999.9
(9) %
28,541.4
28,318.4
1 %
(a) Jardiance includes Glyxambi, Synjardy and Trijardy XR
(b) Humalog includes Insulin Lispro
(c) COVID-19 antibodies include sales for bamlanivimab administered alone, for bamlanivimab and etesevimab
administered together, and for bebtelovimab, and were made pursuant to EUAs or similar regulatory authorizations
(d) Olumiant includes sales of baricitinib that were made pursuant to EUA or similar regulatory authorizations
NM – not meaningful
Trulicity
For Q4 2022, worldwide Trulicity revenue was $1.94 billion, an increase of 3% compared with Q4 2021. U.S. revenue increased 5% to $1.53 billion, driven by increased demand, partially offset by lower realized prices. Revenue outside the U.S. was $409.8 million, a decrease of 6%, driven by the unfavorable impact of foreign exchange rates and to a lesser extent, lower realized prices, partially offset by increased demand. On a constant currency basis, revenue outside the U.S. increased 8%. Lilly experienced intermittent delays in fulfilling certain U.S. Trulicity orders during Q4 2022. Actions to manage strong demand across the company’s incretin portfolio, including measures to minimize existing patient impact in international markets, also affected volume.
Verzenio
For Q4 2022, worldwide Verzenio revenue increased 100% compared with Q4 2021 to $808.0 million. U.S. revenue was $552.7 million, an increase of 119%, primarily driven by increased demand. Revenue outside the U.S. was $255.3 million, an increase of 69%, driven by increased demand, partially offset by the unfavorable impact of foreign exchange rates and lower realized prices primarily due to the impact of the NRDL formulary in China.
Taltz
For Q4 2022, worldwide Taltz revenue increased 9% compared with Q4 2021 to $707.8 million. U.S. revenue increased 9% to $512.0 million, driven by increased demand, partially offset by lower realized prices. Revenue outside the U.S. increased 11% to $195.8 million, driven by increased volume, partially offset by the unfavorable impact of foreign exchange rates and lower realized prices.
Jardiance
The company’s worldwide Jardiance revenue for Q4 2022 was $612.3 million, an increase of 42% compared with Q4 2021. U.S. revenue increased 51% to $363.1 million, primarily driven by increased demand and to a lesser extent, an increased Q4 2022 royalty from Boehringer Ingelheim for exceeding certain annual thresholds. Revenue outside the U.S. was $249.2 million, an increase of 30%, primarily driven by increased demand, partially offset by the unfavorable impact of foreign exchange rates.
Jardiance is part of the company’s alliance with Boehringer Ingelheim. Lilly reports as revenue royalties received on net sales of Jardiance.
Humalog
For Q4 2022, worldwide Humalog revenue decreased 9% compared with Q4 2021 to $548.3 million. U.S. revenue increased 8% to $336.0 million, driven by higher realized prices due to changes in estimates for rebates and discounts in both periods. Revenue outside the U.S. decreased 27% to $212.3 million, driven by lower realized prices due to the impact of VBP in China and the unfavorable impact of foreign exchange rates.
Alimta
For Q4 2022, worldwide Alimta revenue decreased 46% compared with Q4 2021 to $236.6 million. U.S. revenue decreased 83% to $53.2 million, driven by decreased demand due to generic competition. Revenue outside the U.S. increased 63% to $183.4 million, driven by approximately $130 million of one-time revenue associated with the sale of the company’s rights to Alimta in Korea and Taiwan, partially offset by decreased demand due to generic competition, lower realized prices, and the unfavorable impact of foreign exchange rates.
The company expects continued volume and revenue decline for Alimta as a result of generic competition due to the loss of patent exclusivity in major markets.
Olumiant
For Q4 2022, worldwide Olumiant revenue decreased 33% compared with Q4 2021 to $205.8 million. U.S. revenue decreased 50% to $43.5 million, driven by a decline in utilization for COVID-19 treatment, partially offset by increased utilization for the treatment of alopecia areata. Revenue outside the U.S. was $162.3 million, a decrease of 26%, driven by the unfavorable impact of foreign exchange rates and a decline in utilization for COVID-19 treatment.
Emgality
For Q4 2022, Emgality generated worldwide revenue of $175.6 million, an increase of 9% compared with Q4 2021. U.S. revenue was $132.0 million, an increase of 9%, driven by increased demand and higher realized prices, partially offset by wholesaler buying patterns. Revenue outside the U.S. was $43.7 million, an increase of 8%, primarily driven by increased volume, partially offset by the unfavorable impact of foreign exchange rates and lower realized prices.
Mounjaro
For Q4 2022, worldwide Mounjaro revenue was $279.2 million. U.S. revenue was $256.7 million. Mounjaro launched in the U.S. for the treatment of type 2 diabetes in June 2022.
Tyvyt
For Q4 2022, the company’s Tyvyt revenue in China was $57.5 million, a decrease of 26% compared with Q4 2021, driven by the impact of the NRDL formulary in China as well as increased competitive pressures and impacts from COVID-19 disruptions.
Tyvyt is part of the company’s alliance with Innovent. Lilly reports total sales of Tyvyt made by Lilly as revenue, with payments made to Innovent for its portion of the gross margin reported as cost of sales. Lilly also reports as revenue a portion of the gross margin for Tyvyt sales made by Innovent.
2023 Financial Guidance
The company has updated its tax rate and EPS guidance and reaffirmed all other elements of its 2023 financial guidance. The previous tax rate guidance of approximately 16% for 2023 assumed deferral or repeal of the 2017 Tax Act provision that requires capitalization of research and development expenses. Such a deferral or repeal did not occur in 2022. Given the uncertainty as to whether any change to this provision will be enacted in 2023, the company has updated the tax rate guidance to be approximately 13% and 2023 EPS guidance has been increased to the range of $7.90 to $8.10 on a reported basis and $8.35 to $8.55 on a non-GAAP basis. The company’s 2023 financial guidance reflects adjustments shown in the reconciliation table below.
2023
Expectations
Earnings per share (reported)
$7.90 to $8.10
Amortization of intangible assets
.45
Earnings per share (non-GAAP)
$8.35 to $8.55
Numbers may not add due to rounding
The company’s 2023 financial guidance does not include any acquired IPR&D and
development milestone charges either incurred or that may potentially be incurred in 2023.
The following table summarizes the company’s updated 2023 financial guidance:
2023 Guidance
Prior
Updated
Revenue
$30.3 to $30.8 billion
Unchanged
Gross Margin % of Revenue (reported)
Approx. 77%
Unchanged
Gross Margin % of Revenue (non-GAAP)
Approx. 79%
Unchanged
Marketing, Selling & Administrative
$6.9 to $7.1 billion
Unchanged
Research & Development
$8.2 to $8.4 billion
Unchanged
Other Income/(Expense)
$(200) to $(100) million
Unchanged
Tax Rate
Approx. 16%
Approx. 13%
Earnings per Share (reported)
$7.65 to $7.85
$7.90 to $8.10
Earnings per Share (non-GAAP)
$8.10 to $8.30
$8.35 to $8.55
Non-GAAP guidance reflects adjustments presented in the earnings per share table above.
Webcast of Conference Call
As previously announced, investors and the general public can access a live webcast of the Q4 2022 financial results conference call through a link on Lilly’s website at investor.lilly.com/webcasts-and-presentations. The conference call will begin at 10 a.m. Eastern time today and will be available for replay via the website.
Non-GAAP Financial Measures
Certain financial information for 2022 and 2021 is presented on both a reported and a non-GAAP basis. Some numbers in this press release may not add due to rounding. Reported results were prepared in accordance with U.S. generally accepted accounting principles (GAAP) and include all revenue and expenses recognized during the periods. Non-GAAP measures reflect adjustments for the items described in the reconciliation tables later in the release. This press release and related materials provide certain GAAP and non-GAAP figures excluding the impact of foreign exchange rates. Lilly recalculates current period figures on a constant currency basis by keeping constant the exchange rates from the base period. Beginning in 2022, presentations of non-GAAP financial measures do not include adjustments for upfront charges and development milestones related to acquired IPR&D. Non-GAAP financial measures for Q4 and fiscal year 2021 have been adjusted to reflect this updated presentation. The company’s 2023 financial guidance is being provided on both a reported and a non-GAAP basis. The non-GAAP measures are presented to provide additional insights into the underlying trends in the company’s business.