Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition

Results of Operations

**(**Tables present dollars in millions, except per-share data)

General

Management's discussion and analysis of results of operations and financial condition is intended to assist the reader in understanding and assessing significant changes and trends related to the results of operations and financial position of our consolidated company. This discussion and analysis should be read in conjunction with the consolidated condensed financial statements and accompanying footnotes in Part I, Item 1 of this Quarterly Report on Form 10-Q. Certain statements in this Part I, Item 2 of this Quarterly Report on Form 10-Q constitute forward-looking statements. Various risks and uncertainties, including those discussed in "Forward-Looking Statements" in this Quarterly Report on Form 10-Q and "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021, may cause our actual results, financial position, and cash generated from operations to differ materially from these forward-looking statements.

Executive Overview

This section provides an overview of our financial results, recent product and late-stage pipeline developments, and other matters affecting our company and the pharmaceutical industry. Earnings per share (EPS) data are presented on a diluted basis.

COVID-19 Pandemic

In response to the COVID-19 pandemic, we have focused on maintaining a supply of our medicines; reducing the strain on the medical system; developing treatments for COVID-19; protecting the health, safety, and well-being of our employees; supporting our communities; and ensuring affordability of and access to our medicines, particularly insulin.

In February 2022, the United States Food and Drug Administration (FDA) granted an Emergency Use Authorization (EUA) for bebtelovimab for certain high-risk patients who have been recently diagnosed with mild-to-moderate COVID-19. We have received additional EUAs for other COVID-19 therapies as described in "Business" in Part I, Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2021. During the three months ended March 31, 2022, we supplied the United States (U.S.) government 600,000 doses of bebtelovimab. Our agreement with the U.S. government includes an option to supply up to 500,000 additional doses of bebtelovimab no later than July 31, 2022, but it is uncertain whether the option will be exercised. In general, we expect additional revenue from sales of our COVID-19 antibodies will be limited beginning with the second quarter of 2022. The FDA has revised, and may in the future revise, any EUA for our COVID-19 therapies in response to the prevalence of variants against which our therapies have varying degrees of efficacy.

The COVID-19 pandemic has, and may continue to, adversely impact our business and operations. Strain on global transportation, logistics, manufacturing, and labor markets, including as aggravated by the pandemic and global unrest, the focus of resources on COVID-19, widespread protective measures implemented to control the spread of COVID-19, and an increase in overall demand in our industry for certain materials resulting in changed buying patterns and constrained supply, have negatively impacted development, manufacturing, supply, distribution, and sales of our medicines. If the COVID-19 pandemic undergoes resurgent or more severe waves, its impact and the impact of any associated supply chain disruption, labor market impact, increased costs, recession, or depression on our business and results of operations could be exacerbated.

It remains difficult to reasonably assess or predict the full extent of the ongoing impact of the COVID-19 pandemic on us. The degree to which the COVID-19 pandemic continues to affect us will depend on developments that are highly uncertain and beyond our knowledge or control. We are currently unable to predict the full extent to which the COVID-19 pandemic or any future pandemic, epidemic or similar public health threat will adversely impact our business and operations in the future.

See "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021 for additional information on risk factors that could impact our business and operations.

Financial Results

The following table summarizes our key operating results:

			Three Months Ended March 31,
			2022						2021						Percent Change
Revenue			$	7,810.0					$	6,805.6					15
Gross margin			5,737.9						4,927.0						16
Gross margin as a percent of revenue			73.5		%				72.4		%
Research and development			$	1,610.1					$	1,672.1					(4)
Marketing, selling, and administrative			1,557.9						1,576.0						(1)
Acquired in-process research and development (IPR&D) and development milestones			165.6						312.0						(47)
Asset impairment, restructuring, and other special charges			—						211.6						NM
Other–net, (income) expense			350.7						(321.1)						NM
Net income			1,902.9						1,355.3						40
EPS - diluted			2.10						1.49						41

NM - not meaningful

Revenue increased for the three months ended March 31, 2022, driven by increased volume, partially offset by lower realized prices and the unfavorable impact of foreign exchange rates. Research and development expenses decreased for the three months ended March 31, 2022, largely driven by lower development expenses for COVID-19 antibodies, partially offset by higher development expenses for late-stage assets.

The following highlighted items also affect comparisons of our financial results for the three months ended March 31, 2022 and 2021:

2022

Acquired IPR&D and Development Milestones (See Note 3 to the consolidated condensed financial statements)

• We recognized $165.6 million of acquired IPR&D and development milestones primarily related to a purchase of a Priority Review Voucher.

Other-Net, (Income) Expense (See Note 11 to the consolidated condensed financial statements)

• We recognized $425.4 million of net investment losses on equity securities.

2021

Acquired IPR&D and Development Milestones (See Note 3 to the consolidated condensed financial statements)

• We recognized $312.0 million of acquired IPR&D and development milestones primarily related to acquired IPR&D charges resulting from business development transactions with Rigel Pharmaceuticals, Inc. (Rigel) and Precision Biosciences, Inc. (Precision).

Asset Impairment, Restructuring, and Other Special Charges (See Note 5 to the consolidated condensed financial statements)

• We recognized charges of $211.6 million largely related to an intangible asset impairment resulting from the sale of the rights to Qbrexza®, as well as acquisition and integration costs associated with the acquisition of Prevail Therapeutics Inc. (Prevail).

Other-Net, (Income) Expense (See Note 11 to the consolidated condensed financial statements)

• We recognized $301.5 million of net investment gains on equity securities.

Late-Stage Pipeline

Our long-term success depends on our ability to continually discover or acquire, develop, and commercialize innovative new medicines. We currently have approximately 45 new medicine candidates in clinical development or under regulatory review, and a larger number of projects in the discovery phase.

The following certain new molecular entities (NMEs) are currently in Phase II or Phase III clinical trials or have been submitted for regulatory review in the U.S., Europe, or Japan. The following table reflects the status of these NMEs, including certain other developments since our Annual Report on Form 10-K for the year ended December 31, 2021.

Compound			Indication			Status			Developments
Diabetes
Tirzepatide			Type 2 diabetes			Submitted			Submitted in the U.S. using a Priority Review Voucher and in Europe and Japan in 2021.
Heart failure with preserved ejection fraction			Phase III			Phase III trials are ongoing.
Obesity			Phase III			Announced in April 2022 that the initial Phase III trial met co-primary and all key secondary endpoints. Phase III trials are ongoing.
Nonalcoholic steatohepatitis			Phase II			Phase II trial is ongoing.
Basal Insulin-Fc			Type 1 and 2 diabetes			Phase III			Phase III trial initiated in the first quarter of 2022.
GGG Tri-Agonist			Obesity			Phase II			Phase II trials are ongoing.
Type 2 diabetes
GLP-1R NPA			Obesity			Phase II			Phase II trials are ongoing.
Type 2 diabetes
Immunology
Mirikizumab			Ulcerative colitis			Submitted			Submitted in the U.S. in first quarter of 2022.
Crohn's Disease			Phase III			Phase III trials are ongoing.
Lebrikizumab(1)			Atopic dermatitis			Phase III			Granted FDA Fast Track designation(2). Announced in 2021 that Phase III trials met primary and all key secondary endpoints. Phase III trials are ongoing.
CXCR1/2 Ligands Monoclonal Antibody			Hidradenitis suppurativa			Phase II			Phase II trial is ongoing.
IL-2 Conjugate			Systemic lupus erythematosus			Phase II			Phase II trial is ongoing.
Ulcerative colitis			Discontinued			Announced in April 2022 that we have discontinued the Phase II trial due to lack of efficacy based on interim analysis.
Peresolimab (PD-1 MAB Agonist)			Rheumatoid arthritis			Phase II			Phase II trial is ongoing.

Compound			Indication			Status			Developments
Neuroscience
Donanemab			Early Alzheimer's disease			Submission initiated			Granted FDA Breakthrough Therapy designation(3). Initiated a rolling submission in the U.S. for accelerated approval in 2021. Phase III trials are ongoing.
Preclinical Alzheimer's disease			Phase III			Phase III trial is ongoing.
Solanezumab			Preclinical Alzheimer's disease			Phase III			Phase III trial is ongoing.
GBA1 Gene Therapy (PR001)			Parkinson's disease			Phase II			Granted FDA Fast Track designation(2). Phase II trials are ongoing.
GRN Gene Therapy (PR006)			Frontotemporal dementia			Phase II
O-glc-NAcase			Alzheimer's disease			Phase II			Phase II trial is ongoing.
PACAP38 Antibody			Chronic pain			Phase II			Phase II trial is ongoing.
SSTR4 Agonist			Chronic pain			Phase II			Phase II trials are ongoing.
TRPA1 Antagonist			Pain			Phase II			Phase II trials are ongoing.
Epiregulin/TGFα MAB			Chronic pain			Discontinued			Announced in April 2022 that we have discontinued the Phase II trial because it did not meet criteria for proceeding.
Oncology
Selpercatinib (Retevmo®)			Lung cancer			Approved(4)			Phase III trials are ongoing.
Thyroid cancer
Pirtobrutinib (LOXO-305)			Mantle cell lymphoma			Submission initiated			Initiated a rolling submission in the U.S. for accelerated approval in 2021. Phase II and Phase III trials are ongoing.
Chronic lymphocytic leukemia			Phase III			Phase III trials are ongoing.
B-cell malignancies			Phase II			Phase II trial is ongoing.
Imlunestrant			ER+HER2- metastatic breast cancer			Phase III			Phase III trial is ongoing.
Sintilimab injection(5)			Lung cancer			Not approved			In the first quarter of 2022 the FDA issued a complete response letter indicating that the FDA did not approve the application in its current form and recommended an additional multiregional clinical study be performed. In collaboration with Innovent, we are assessing next steps in the U.S.

(1) In collaboration with Almirall, S.A. in Europe.

(2) Fast Track designation is designed to expedite the development and review of new therapies to treat serious conditions and address unmet medical needs.

(3) Breakthrough Therapy designation is designed to expedite the development and review of potential medicines that are intended to treat a serious condition where preliminary clinical evidence indicates that the treatment may demonstrate substantial improvement over available therapy on a clinically significant endpoint.

(4) Continued approval may be contingent on verification and description of clinical benefit in confirmatory Phase III trials.

(5) In collaboration with Innovent Biologics, Inc.

Our pipeline also contains several new indication line extension (NILEX) products. The following certain NILEX products for use in the indication described are currently in Phase II or Phase III clinical trials or have been submitted for regulatory review in the U.S., Europe, or Japan. The following table reflects the status of these NILEX products, including certain other developments since our Annual Report on Form 10-K for the year ended December 31, 2021.

Compound			Indication			Status			Developments
Diabetes
Empagliflozin (Jardiance®)(1)			Heart failure with preserved ejection fraction			Approved			Approved in the U.S. and Europe in the first quarter of 2022 and in Japan in April 2022.
Chronic kidney disease			Phase III			Granted FDA Fast Track designation(2). In the first quarter of 2022 the Independent Data Monitoring Committee recommended stopping the Phase III trial early due to clear positive efficacy.
Immunology
Baricitinib (Olumiant**®**)			COVID-19			Emergency Use Authorization(3)			Submitted in the U.S. and the FDA granted priority review in the first quarter of 2022.
Alopecia areata			Submitted			Granted FDA Breakthrough Therapy designation(4). Submitted in U.S., Europe, and Japan in 2021. In the first quarter of 2022 the FDA granted priority review in severe alopecia areata.
Oncology
Abemaciclib (Verzenio**®**)			Prostate cancer			Phase III			Phase III trials are ongoing.

(1) In collaboration with Boehringer Ingelheim.

(2) Fast Track designation is designed to expedite the development and review of new therapies to treat serious conditions and address unmet medical needs.

(3) The FDA granted EUA for treatment with or without remdesivir in hospitalized COVID-19 patients.

(4) Breakthrough Therapy designation is designed to expedite the development and review of potential medicines that are intended to treat a serious condition where preliminary clinical evidence indicates that the treatment may demonstrate substantial improvement over available therapy on a clinically significant endpoint.

Other Matters

Patent Matters

We depend on patents or other forms of intellectual property protection for most of our revenue, cash flows, and earnings.

In June 2021, our vitamin regimen patents for Alimta® expired worldwide. Following the loss of patent exclusivity in major European countries and Japan, we faced, and remain exposed to, generic competition which has eroded revenue and is likely to continue to rapidly and severely erode revenue from current levels. In the U.S., we expect pediatric data exclusivity to provide us with protection through May 2022. However, we and Eagle Pharmaceuticals, Inc. (Eagle) reached an agreement in December 2019 to settle all pending U.S. patent litigation, allowing Eagle a limited initial entry into the market with an alternative form of pemetrexed during the first quarter of 2022 (up to an approximate three-week supply) and subsequent unlimited entry starting April 2022. We expect that the entry of multiple generics in the U.S. following the loss of exclusivity will cause a rapid and severe decline in revenue and will have a material adverse effect on our consolidated results of operations and cash flows. See Note 9 to the consolidated condensed financial statements for a more detailed account of the legal proceedings currently pending regarding, among others, our Alimta patents.

Our compound patent for Humalog® (insulin lispro) has expired in major markets. Global regulators have different legal pathways to approve similar versions of insulin lispro. A competitor has a similar version of insulin lispro in the U.S. and in certain European markets. While it is difficult to estimate the severity of the impact of insulin lispro products entering the market, we do not expect and have not experienced a rapid and severe decline in revenue; however, we expect additional pricing pressure and some loss of market share that may continue over time.

Our formulation and use patents for Forteo® have expired in major markets. We expect further decline in revenue as a result of the entry of generic and biosimilar competition due to the loss of patent exclusivity in major markets.

Foreign Currency Exchange Rates

As a global company, we face foreign currency risk exposure from fluctuating currency exchange rates, primarily the U.S. dollar against the euro, Japanese yen, and Chinese yuan. While we seek to manage a portion of these exposures through hedging and other risk management techniques, significant fluctuations in currency rates can have a material impact, either positive or negative, on operating expenses. While there is uncertainty in the future movements in foreign exchange rates, fluctuations in these rates could adversely impact our future consolidated results of operations and cash flows.

Trends Affecting Pharmaceutical Pricing, Reimbursement, and Access

Global concern over access to and affordability of pharmaceutical products continues to drive regulatory and legislative debate, as well as worldwide cost containment efforts by governmental authorities. Such measures may include the use of mandated discounts, price reporting requirements, mandated reference prices, restrictive formularies, changes to available intellectual property protections, as well as other efforts. In addition, consolidation of private payors in the U.S. has significantly impacted the market for pharmaceuticals by increasing payor leverage in negotiating manufacturer price concessions and pharmacy reimbursement rates. Furthermore, restrictive or unfavorable pricing, coverage, or reimbursement determinations for our medicines or product candidates by governments, regulatory agencies, or private payers, such as the Centers for Medicare & Medicaid Services' recently released National Coverage Determination for monoclonal antibodies for the treatment of Alzheimer's Disease, may adversely impact our business and financial results. We expect that these actions may intensify and could particularly affect certain products, such as insulin, as governments manage and emerge from the COVID-19 pandemic, which could adversely affect our business. In addition, we are engaged in litigation and investigations related to our 340B program that, if resolved adversely to us, could negatively impact our business and consolidated results of operations. It is not currently possible to predict the overall potential adverse impact to us or the general pharmaceutical industry of continued cost containment efforts worldwide.

In addition, evolving regulatory priorities have intensified governmental scrutiny of our operations and our industry, including with respect to current Good Manufacturing Practices, quality assurance, and similar regulations, and increased focus on business combinations in our industry. Any regulatory issues concerning these matters could lead to regulatory and legal actions, product recalls and seizures, fines and penalties, interruption of production leading to product shortages, import bans or denials of import certifications, delays or denials in the approvals of new products or supplemental approvals of current products pending resolution of the issues, impediments to the completion of business combinations, and reputational harm, any of which would adversely affect our business.

See "Business - Regulations and Private Payer Actions Affecting Pharmaceutical Pricing, Reimbursement, and Access" in Part I, Item 1 and "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021. See also Note 9 to the consolidated condensed financial statements.

Tax Matters

We are subject to income taxes and various other taxes in the U.S. and in many foreign jurisdictions; therefore, changes in both domestic and international tax laws or regulations have affected and may affect our effective tax rate, results of operations, and cash flows. In 2017, the U.S. enacted the Tax Cuts and Jobs Act (the 2017 Tax Act), which contains a provision that requires capitalization and amortization of research and development expenses for tax purposes starting in 2022. Previously, these expenses could be deducted in the year incurred. The implementation of this provision is expected to increase our 2022 cash payments of income taxes by up to $1.50 billion and subsequently decrease our cash payments of income taxes moderately over the five-year amortization period. For the three months ended March 31, 2022, the implementation of this provision favorably impacted other tax items that decreased our effective tax rate by approximately 4 percentage points. If this provision of the 2017 Tax Act is deferred or repealed by Congress effective for 2022, we expect our effective tax rate to be approximately 13 percent to 14 percent for 2022.

The U.S. and countries around the world are actively considering and enacting tax law changes. Tax proposals introduced by Congress and the U.S. presidential administration contain significant changes, including increases to the tax rates at which both domestic and foreign income of U.S. companies would be taxed. In addition, tax authorities in the U.S. and other jurisdictions in which we do business routinely examine our tax returns and are intensifying their scrutiny and examinations of profit allocations among jurisdictions, which could adversely impact our future consolidated results of operations and cash flows. Further, actions taken with respect to tax-related matters by associations such as the Organisation for Economic Co-operation and Development and the European Commission could influence tax laws in countries in which we operate.

Acquisitions

We opportunistically invest in external research and technologies that we believe complement and strengthen our own efforts. These investments can take many forms, including acquisitions, collaborations, investments, and licensing arrangements. We view our business development activity as a way to enhance our pipeline and strengthen our business.

See Note 3 to the consolidated condensed financial statements for further discussion regarding our recent acquisitions.

Revenue

The following table summarizes our revenue activity by region:

			Three Months Ended March 31,
			2022						2021						Percent Change
U.S.			$	5,174.6					$	3,941.3					31
Outside U.S.			2,635.4						2,864.3						(8)
Revenue			$	7,810.0					$	6,805.6					15

Numbers may not add due to rounding.

The following are components of the change in revenue compared with the prior year:

			Three Months Ended March 31,
			2022 vs. 2021
			U.S.			Outside U.S.			Consolidated
Volume			32		%	4		%	20		%
Price			(1)			(7)			(3)
Foreign exchange rates			—			(5)			(2)
Percent change			31		%	(8)		%	15		%

Numbers may not add due to rounding.

In the U.S. for the three months ended March 31, 2022, the increase in volume was primarily driven by COVID-19 antibodies, Trulicity®, Verzenio, and Jardiance.

Outside the U.S. for the three months ended March 31, 2022, the increase in volume was largely driven by Trulicity, Verzenio, Tyvyt®, Taltz®, and Jardiance, as well as sales of our rights to Cialis® in Taiwan and Saudi Arabia. This increase in volume outside the U.S. for the three months ended March 31, 2022 was partially offset by decreased volume for Alimta and Cymbalta® resulting from the entry of generic competition, as well as decreased volume for COVID-19 antibodies. Outside the U.S. for the three months ended March 31, 2022, the decrease in realized prices was primarily driven by the impact of the National Reimbursement Drug List formulary for certain products in China, particularly Tyvyt.

The following table summarizes our revenue activity by product for the three months ended March 31, 2022 and 2021:

			Three Months Ended March 31,
			2022																		2021
Product			U.S.						Outside U.S.						Total						Total			Percent Change
Trulicity			$	1,313.9					$	427.4					$	1,741.3					$	1,452.4					20
COVID-19 antibodies**(1)**			1,455.2						14.7						1,469.8						810.1						81
Humalog(2)			368.9						249.3						618.2						617.0						—
Taltz			307.2						180.8						488.1						403.2						21
Verzenio			301.5						167.9						469.4						269.0						74
Jardiance(3)			229.8						189.7						419.4						312.0						34
Alimta			254.3						89.7						343.9						559.0						(38)
Humulin®			190.4						82.8						273.2						321.7						(15)
Olumiant(4)			71.3						184.3						255.6						193.8						32
Cyramza®			79.2						151.1						230.3						240.5						(4)
Cialis			6.9						210.8						217.7						126.8						72
Basaglar®			119.3						72.2						191.5						246.6						(22)
Emgality®			108.3						41.0						149.3						119.5						25
Forteo			70.2						67.3						137.4						198.5						(31)
Erbitux®			109.7						13.0						122.7						122.4						—
Zyprexa®			9.6						83.5						93.1						95.8						(3)
Tyvyt			—						85.5						85.5						109.7						(22)
Cymbalta			9.1						71.9						81.1						176.6						(54)
Other products			169.8						252.5						422.5						431.0						(2)
Revenue			$	5,174.6					$	2,635.4					$	7,810.0					$	6,805.6					15

Numbers may not add due to rounding.

NM - not meaningful

(1) 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.

(2) Humalog revenue includes insulin lispro.

(3) Jardiance revenue includes Glyxambi®, Synjardy®, and Trijardy® XR.

(4) Olumiant revenue includes sales for baricitinib, for treatment in hospitalized COVID-19 patients, that were made pursuant to EUA or similar regulatory authorizations.

Revenue of Trulicity, a treatment for type 2 diabetes and to reduce the risk of major adverse cardiovascular events in adult patients with type 2 diabetes and established cardiovascular disease or multiple cardiovascular risk factors, increased 18 percent in the U.S. during the three months ended March 31, 2022, driven by increased demand, partially offset by lower realized prices as well as wholesale and retail buying patterns. Revenue outside the U.S. increased 27 percent during the three months ended March 31, 2022, driven by increased volume, partially offset by the unfavorable impact of foreign exchange rates and, to a lesser extent, lower realized prices.

Revenue of COVID-19 antibodies, treatments for mild to moderate COVID-19 for higher-risk patients and for post-exposure prophylaxis in certain individuals for the prevention of SARS-CoV-2 infection, was $1.46 billion in the U.S. during the three months ended March 31, 2022. Revenue outside the U.S. was $14.7 million during the three months ended March 31, 2022. The availability of superior or competitive therapies, including therapies that can be administered more easily, or preventative measures, such as vaccines, coupled with the unpredictable nature of pandemics, have and could further negatively impact or eliminate demand for these COVID-19 antibodies. The FDA has revised, and may in the future revise, any EUA for our COVID-19 antibodies in response to the prevalence of variants against which our antibodies have varying degrees of efficacy. Our agreement with the U.S. government includes an option to supply up to 500,000 doses of bebtelovimab no later than July 31, 2022, but it is uncertain whether the option will be exercised. In general, we expect additional revenue from sales of our COVID-19 antibodies will be limited beginning with the second quarter of 2022.

Revenue of Humalog, an injectable human insulin analog for the treatment of diabetes, increased 11 percent in the U.S. during the three months ended March 31, 2022, primarily driven by higher realized prices due to changes to estimates for rebates and discounts in both periods and, to a lesser extent, increased demand. Revenue outside the U.S. decreased 12 percent during the three months ended March 31, 2022, driven by decreased volume, the unfavorable impact of foreign exchange rates and, to a lesser extent, lower realized prices. While it is difficult to estimate the severity of the impact of insulin lispro products entering the market, we do not expect and have not experienced a rapid and severe decline in revenue. However, due to the impact of competition and due to pricing pressure in the U.S. and some international markets, we expect some realized price decline and loss of market share to continue over time.

Revenue of Taltz, a treatment for moderate-to-severe plaque psoriasis, active psoriatic arthritis, ankylosing spondylitis, and active non-radiographic axial spondyloarthritis, increased 23 percent in the U.S. during the three months ended March 31, 2022, driven by increased demand and higher realized prices due to segment mix, partially offset by specialty pharmacy buying patterns. Revenue outside the U.S. increased 18 percent during the three months ended March 31, 2022, driven by increased volume, partially offset by lower realized prices and the unfavorable impact of foreign exchange rates.

Revenue of Verzenio, a treatment for HR+, HER2- metastatic breast cancer and high risk early breast cancer, increased 74 percent in the U.S. during the three months ended March 31, 2022, primarily driven by increased demand. Revenue outside the U.S. increased 74 percent during the three months ended March 31, 2022, largely driven by increased volume, partially offset by the unfavorable impact of foreign exchange rates.

Revenue of Jardiance, a treatment for type 2 diabetes, to reduce the risk of cardiovascular death in adult patients with type 2 diabetes and established cardiovascular disease, and to reduce the risk of cardiovascular death and hospitalization for heart failure in adults with heart failure, regardless of left ventricular ejection fraction, increased 52 percent in the U.S. during the three months ended March 31, 2022, primarily driven by increased demand. Revenue outside the U.S. increased 18 percent during the three months ended March 31, 2022, driven by increased volume, partially offset by the unfavorable impact of foreign exchange rates. See Note 4 to the consolidated condensed financial statements for information regarding our collaboration with Boehringer Ingelheim involving Jardiance.

Revenue of Alimta, a treatment for various cancers, decreased 3 percent in the U.S. during the three months ended March 31, 2022, driven by decreased volume, partially offset by higher realized prices. Revenue outside the U.S. decreased 70 percent during the three months ended March 31, 2022, largely driven by decreased volume due to entry of generic competition in certain major markets and, to a lesser extent, lower realized prices. Following the loss of exclusivity in major European countries and Japan in June 2021, we faced, and remain exposed to, generic competition which has eroded revenue and is likely to continue to rapidly and severely erode revenue from current levels. In the U.S., an alternative form of pemetrexed launched during the first quarter of 2022, and we expect multiple generics to launch in the second quarter of 2022, causing a rapid and severe decline in revenue. See "Executive Overview - Other Matters- Patent Matters" for additional information.

Gross Margin, Costs, and Expenses

Gross margin as a percent of revenue was 73.5 percent for the three months ended March 31, 2022, an increase of 1.1 percentage points compared with the three months ended March 31, 2021, primarily driven by an unfavorable effect in the three months ended March 31, 2021 of foreign exchange rates on international inventories sold, partially offset by increased sales of COVID-19 antibodies and, to a lesser extent, lower realized prices.

Research and development expenses decreased 4 percent to $1.61 billion for the three months ended March 31, 2022, largely driven by lower development expenses for COVID-19 antibodies, partially offset by higher development expenses for late-stage assets.

Marketing, selling, and administrative expenses decreased 1 percent to $1.56 billion for the three months ended March 31, 2022.

We recognized $165.6 million of acquired IPR&D and development milestones for the three months ended March 31, 2022, primarily related to a purchase of a Priority Review Voucher. We recognized $312.0 million of acquired IPR&D and development milestones for the three months ended March 31, 2021, primarily related to acquired IPR&D charges from business development transactions with Rigel and Precision. See Note 3 to the consolidated condensed financial statements for additional information.

There were no asset impairment, restructuring, and other special charges recognized for the three months ended March 31, 2022. We recognized asset impairment, restructuring, and other special charges of $211.6 million for the three months ended March 31, 2021, largely related to an intangible asset impairment resulting from the sale of the rights to Qbrexza, as well as acquisition and integration costs associated with the acquisition of Prevail.

Other–net, (income) expense was expense of $350.7 million for the three months ended March 31, 2022, primarily driven by net investment losses on equity securities. Other–net, (income) expense was income of $321.1 million for the three months ended March 31, 2021, primarily driven by net investment gains on equity securities.

The effective tax rate was 7.3 percent for the three months ended March 31, 2022, compared with 8.2 percent for the three months ended March 31, 2021. The lower effective tax rate for the three months ended March 31, 2022 was largely driven by decreased tax expense related to net investment losses on equity securities compared to net investment gains on equity securities for the three months ended March 31, 2021 and decreased tax expense related to the implementation of the provision in the 2017 Tax Act that requires capitalization and amortization of research and development expenses for tax purposes starting in 2022, partially offset by a lower net discrete tax benefit compared to the three months ended March 31, 2021. If this provision of the 2017 Tax Act is deferred or repealed by Congress effective for 2022, we expect our effective tax rate to be approximately 13 percent to 14 percent for 2022.

Financial Condition and Liquidity

We believe our available cash and cash equivalents, together with our ability to generate operating cash flow and our access to short-term and long-term borrowings, are sufficient to fund our existing and planned capital requirements. For a discussion of our capital requirements, see "Management's Discussion and Analysis of Results of Operations and Financial Condition" in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021.

Cash and cash equivalents decreased to $2.46 billion as of March 31, 2022, compared with $3.82 billion as of December 31, 2021. Refer to the consolidated condensed statements of cash flows for additional information on the significant sources and uses of cash for the three months ended March 31, 2022 and 2021.

In addition to our cash and cash equivalents, we held total investments of $2.84 billion and $3.30 billion as of March 31, 2022 and December 31, 2021, respectively. See Note 6 to the consolidated condensed financial statements for additional information.

As of March 31, 2022, total debt was $16.51 billion, a decrease of $375.9 million compared with $16.88 billion as of December 31, 2021. See Note 6 to the consolidated condensed financial statements for additional information.

As of March 31, 2022, we had a total of $5.26 billion of unused committed bank credit facilities, $5.00 billion of which is available to support our commercial paper program. We believe that amounts accessible through existing commercial paper markets should be adequate to fund short-term borrowing needs.

During the three months ended March 31, 2022, we repurchased $1.50 billion of shares under our $5.00 billion share repurchase program authorized in May 2021. As of March 31, 2022, we had $3.25 billion remaining under this program.

During the three months ended March 31, 2022, we paid dividends of $885.5 million, or $0.98 per share, to our shareholders.

See "Executive Overview - Other Matters - Patent Matters" for information regarding recent and upcoming losses of patent protection.

Both domestically and abroad, we continue to monitor the potential impacts of the economic environment; the creditworthiness of our wholesalers and other customers, including foreign government-backed agencies and suppliers; the uncertain impact of health care legislation; various international government funding levels; and fluctuations in interest rates, foreign currency exchange rates (see "Executive Overview - Other Matters - Foreign Currency Exchange Rates"), and fair values of equity securities.

Critical Accounting Estimates

For a discussion of our critical accounting estimates, refer to "Management's Discussion and Analysis of Results of Operations and Financial Condition" in Part II, Item 7 and the notes to our consolidated financial statements in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2021. See also Note 1 to the consolidated condensed financial statements. There have been no material changes to our critical accounting estimates since our Annual Report on Form 10-K for the year ended December 31, 2021.

Available Information on our Website

We make available through our company website, free of charge, our company filings with the Securities and Exchange Commission (SEC) as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. The reports we make available include annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, registration statements, and any amendments to those documents.

The website link to our SEC filings is investor.lilly.com/financial-information/sec-filings. The information contained in, or that can be accessed through, our website is not a part of, or incorporated by reference in, this Quarterly Report.