On December 17, 2019 Eli Lilly and Company (NYSE: LLY) reported its 2020 financial guidance, highlighted by volume-based revenue growth and improving productivity, which are expected to result in operating margin expansion and strong earnings performance (Press release, Eli Lilly, DEC 17, 2019, View Source [SID1234552420]). The company also revised certain elements of its 2019 financial guidance and reviewed potential key events for the upcoming year, including important data readouts for several investigational medicines in its clinical pipeline, the possibility for two regulatory approvals, and up to three new launches in 2020.

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Josh Smiley, Lilly’s chief financial officer, outlined the company’s near-term growth prospects and provided 2020 financial guidance. "We expect 2020 to be a year of strong operating and financial performance for Lilly, characterized by revenue growth for our key medicines both in the U.S. and in international markets, ongoing productivity initiatives leading to further margin expansion, continued progress in our clinical pipeline of new medicines, and solid cash flow." said Smiley. "We are confident in our ability to deliver on our 2020 expectations, and thereby achieve or exceed the financial and pipeline commitments we had previously made for the period 2015-2020."

Commenting on the company’s cash flow expectations, Smiley added, "Our robust financial performance is expected to generate strong cash flow, which we will continue to deploy thoughtfully. Our capital allocation priorities remain unchanged, starting with funding our promising pipeline and our recently launched medicines, then leveraging business development to access additional external innovation opportunities, followed by returning cash to shareholders through our recently-increased dividend and our ongoing share repurchase program."

"Lilly is in the early phase of an exciting period of prolonged growth for the company, driven by an expanding portfolio of new medicines focused on diabetes, oncology, immunology, and neuroscience," said David A. Ricks, Lilly’s chairman and chief executive officer. "With an attractive commercial portfolio and limited patent exposure through the latter half of the upcoming decade, we are well positioned to deliver sustainable volume-based revenue growth and drive further operating margin expansion. As we continue to invest in our innovation-based strategy, we are confident in our ability to discover and develop important new medicines for patients."

2019 Financial Guidance

The company has updated certain elements of its 2019 financial guidance. On a reported basis, earnings per share for 2019 are now expected to be in the range of $8.57 to $8.67. The decrease in expected earnings per share on a reported basis is due to a net charge related to the repurchase of debt, and additional asset impairment, restructuring, and other special charges related to global cost reduction initiatives, largely offset by a gain on the sale of the company’s antibiotics business in China. On a non-GAAP basis, earnings per share for 2019 are still expected to be in the range of $5.75 to $5.85.

Non-GAAP guidance reflects adjustments presented in the earnings per share table above.

2020 Financial Guidance
The company today issued its 2020 financial guidance. Earnings per share for 2020 are expected to be in the range of $6.38 to $6.48 on a reported basis and $6.70 to $6.80 on a non-GAAP basis. Non-GAAP earnings per share for 2020 exclude amortization of intangible assets.

Numbers may not add due to rounding

The company anticipates 2020 revenue between $23.6 billion and $24.1 billion. Meeting its 2020 revenue forecast would allow the company to achieve or exceed the 7 percent revenue CAGR target it previously communicated for the time period 2015 – 2020. Revenue growth is expected to be driven by volume from key growth products including Trulicity, Taltz, Basaglar, Jardiance, Verzenio, Cyramza, Olumiant, Emgality, BaqsimiTM, and the expected launch of ReyvowTM. Revenue growth could also benefit from the potential launch of other new medicines. Revenue growth is expected to be partially offset by lower revenue for products that have lost patent exclusivity, including the expected entry of generic competition for Forteo in the U.S. Revenue growth is also expected to be partially offset by a low-single digit net price decline in the U.S. driven primarily by rebates and legislated increases to Medicare Part D cost sharing, patient affordability programs, and net price declines in China, Japan and Europe.

Gross margin as a percent of revenue rate is expected to be approximately 79 percent on a reported basis, and approximately 81 percent on a non-GAAP basis.

Marketing, selling and administrative expenses are expected to be in the range of $6.1 billion to $6.3 billion. Research and development expenses are expected to be in the range of $5.6 billion to $5.9 billion.

Operating margin, defined as operating income as a percent of revenue, is expected to be 31 percent on a non-GAAP basis in 2020.

Other income (expense) is expected to be expense in the range of $100 million and $250 million.

The 2020 effective tax rate is expected to be approximately 15 percent on both a reported basis and on a non-GAAP basis.

The following table summarizes the company’s 2020 financial guidance.

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 2020 financial guidance conference call through a link on Lilly’s website at www.lilly.com. The conference call will begin at 9:00 a.m. Eastern time (ET) today and will be available for replay via the website.