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 May 2022, the United States Food and Drug Administration (FDA) approved Olumiant® for the treatment of certain hospitalized patients with COVID-19. In February 2022, the 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 various EUAs and other regulatory authorizations for our 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. We supplied the United States (U.S.) government 600,000 doses and approximately 71,000 doses of bebtelovimab during the first and second quarter of 2022, respectively, and we will supply the U.S. government approximately 79,000 doses of bebtelovimab in the third quarter of 2022. In collaboration with the U.S. government, we intend to make bebtelovimab commercially available for purchase by U.S. states/territories, hospitals, and a broad set of other providers beginning mid-August 2022, which is prior to the anticipated depletion of the U.S. government's currently available supply. 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, increased costs, and constrained supply, have negatively impacted and may continue to negatively impact the development, manufacturing, supply, distribution, and sales of our medicines.

The degree to which the COVID-19 pandemic continues to affect our business and operations will depend on developments that are highly uncertain and beyond our knowledge or control.

Product Supply

Accelerated demand for Trulicity in many international markets, due to market growth and the limited availability of competitor GLP-1s in select markets, may continue to challenge our ability to meet Trulicity demand in some markets at times. We are working to meet this increased demand while also implementing actions in select countries to manage growth and minimize patient impact. We do not expect a material impact on our consolidated results of operations. In general, we expect continued high utilization of supply resources to meet international demand for Trulicity until newly announced capacities, and perhaps further capital investments, are fully operational over the next several years.

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 June 30,																		Six Months Ended June 30,
			2022						2021						Percent Change						2022						2021						Percent Change
Revenue			$	6,488.0					$	6,740.1					(4)						$	14,298.0					$	13,545.7					6
Gross margin			5,057.5						4,786.9						6						10,795.4						9,713.9						11
Gross margin as a percent of revenue			78.0		%				71.0		%										75.5		%				71.7		%
Research and development			$	1,781.9					$	1,655.0					8						$	3,392.0					$	3,327.1					2
Marketing, selling, and administrative			1,625.1						1,685.7						(4)						3,183.0						3,261.7						(2)
Acquired in-process research and development (IPR&D) and development milestones			440.4						42.8						NM						606.0						354.8						71
Asset impairment, restructuring, and other special charges			—						—						—						—						211.6						NM
Other–net, (income) expense			119.2						(190.5)						NM						469.9						(511.6)						NM
Net income			952.5						1,390.2						(31)						2,855.4						2,745.5						4
EPS - diluted			1.05						1.53						(31)						3.16						3.01						5

NM - not meaningful

Revenue decreased for the three months ended June 30, 2022, driven by lower realized prices and the unfavorable impact of foreign exchange rates, partially offset by increased volume. Revenue increased for the six months ended June 30, 2022, driven by increased volume, partially offset by lower realized prices and the unfavorable impact of foreign exchange rates. Research and development expenses increased for the three and six months ended June 30, 2022, primarily driven by higher development expenses for late-stage assets, partially offset by lower development expenses for COVID-19 antibodies. Marketing, selling, and administrative expenses decreased for the three and six months ended June 30, 2022, primarily driven by the favorable impact of foreign exchange rates as well as reduced marketing costs.

The following highlighted items also affect comparisons of our financial results for the three and six months ended June 30, 2022 and 2021:

2022

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

• We recognized $440.4 million and $606.0 million of acquired IPR&D and development milestones for the three and six months ended June 30, 2022, respectively, primarily related to the buy-out of substantially all future obligations that were contingent upon the occurrence of certain events linked to the success of our mutant-selective PI3kα inhibitor. The charges for the six months ended June 30, 2022 also included a purchase of a Priority Review Voucher.

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

• We recognized $118.9 million and $544.3 million of net investment losses on equity securities for the three and six months ended June 30, 2022, respectively.

2021

Cost of Sales (See Note 5 to the consolidated condensed financial statements)

• We recognized inventory impairment charges related to our COVID-19 antibodies of $423.0 million and $504.5 million for the three and six months ended June 30, 2021, respectively. As part of our response to the COVID-19 pandemic, and at the request of the U.S. and international governments, we invested in large-scale manufacturing of COVID-19 antibodies at risk, in order to ensure rapid access to patients around the world. As the COVID-19 pandemic evolved during 2021, we incurred inventory impairment charges primarily due to the combination of changes to demand from U.S. and international governments, including changes to our agreement with the U.S. government, and near-term expiry dates of COVID-19 antibodies.

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

• We recognized $42.8 million and $354.8 million of acquired IPR&D and development milestones for the three and six months ended June 30, 2021, respectively. The charges for the six months ended June 30, 2021 were 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 for the six months ended June 30, 2021 primarily 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 $215.4 million and $517.0 million of net investment gains on equity securities for the three and six months ended June 30, 2021, respectively.

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 or have received regulatory approval 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 (Mounjaro®)			Type 2 diabetes			Approved			Approved in the U.S. in the second quarter of 2022. Submitted in Europe and Japan in 2021. Received a positive opinion from the European Medicines Agency's Committee for Medicinal Products for Human Use in July 2022.
Heart failure with preserved ejection fraction			Phase III			Phase III trials are ongoing.
Obesity			Phase III			Announced in the second quarter of 2022 that the initial Phase III trial met co-primary and all key secondary endpoints. Phase III trials are ongoing.
Obstructive sleep apnea			Phase III			Phase III trial initiated in July 2022.
Nonalcoholic steatohepatitis			Phase II			Phase II trial is ongoing.
Basal Insulin-Fc			Type 1 and 2 diabetes			Phase III			Phase III trials initiated in the first and second quarters of 2022.
GLP-1R NPA			Obesity			Phase II			Phase II trials are ongoing.
Type 2 diabetes
Retatrutide (GGG Tri-Agonist)			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 and in Europe and Japan in the second 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 and in the second quarter of 2022 that Phase III trials met primary and all key secondary endpoints. Phase III trials are ongoing.
BTLA MAB Agonist			Systemic lupus erythematosus			Phase II			Phase II trial initiated in the second quarter of 2022.
CXCR1/2 Ligands Monoclonal Antibody			Hidradenitis suppurativa			Phase II			Phase II trial is ongoing.
Peresolimab (PD-1 MAB Agonist)			Rheumatoid arthritis			Phase II			Phase II trial is ongoing.
Rezpegaldesleukin (IL-2 Conjugate)			Systemic lupus erythematosus			Phase II			Phase II trial is ongoing.

Compound			Indication			Status			Developments
Neuroscience
Donanemab			Early Alzheimer's disease			Submitted			Granted FDA Breakthrough Therapy designation(3). Submitted in the U.S. in the second quarter of 2022. Received Priority Review designation under the accelerated approval pathway. 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			Migraine			Phase II			Phase II trial is ongoing.
SSTR4 Agonist			Pain			Phase II			Phase II trials are ongoing.
TRPA1 Antagonist			Pain			Phase II			Phase II trials are ongoing.
Oncology
Selpercatinib (Retevmo®)			Lung cancer			Approved(4)			Phase III trials are ongoing.
Thyroid cancer
Pirtobrutinib (LOXO-305)			Mantle cell lymphoma			Submitted			Submitted in the U.S. in second quarter of 2022. Received Priority Review designation under the accelerated approval pathway. 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 pursuing submission			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. Lilly does not plan to further pursue submission.

(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 or have received regulatory approval 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 the second quarter of 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**®**)			Alopecia areata			Approved			Approved in the U.S., Europe and Japan in the second quarter of 2022.
COVID-19			Approved			Approved in the U.S. in the second quarter of 2022.
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.

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 rapidly and severely eroded revenue and is likely to continue to erode revenue from current levels. In addition, as a result of the entry of multiple generics in the U.S. following the loss of pediatric exclusivity in May 2022, we began facing, and remain exposed to, additional generic competition which has eroded revenue and is likely to continue to rapidly and severely erode revenue from current levels. This decline in revenue has had 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 description of legal proceedings currently pending regarding certain of our 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 have not experienced a rapid and severe decline in revenue. However, due to the impact of competition and pricing pressure in the U.S. and some international markets, we expect lower revenue due to some realized price decline and loss of market share to 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 our consolidated results of operations in any given period. During the three and six months ended June 30, 2022, revenue was unfavorably impacted by 3 percent due to foreign exchange rates. While there is uncertainty in the future movements in foreign exchange rates, fluctuations in these rates have and in the future 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. Additional policies, regulations, legislation, or enforcement, including those proposed and/or pursued by the U.S. Congress and executive branch of the administration and other regulatory authorities worldwide, could adversely impact our business and consolidated results of operations. For example, pending legislation in the U.S. could result in government negotiation of the price of some of our medicines. 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, courts, 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 and access to insulin 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 has increased, and is expected to continue to increase, our 2022 cash payments of income taxes and subsequently decrease our cash payments of income taxes moderately over the five-year amortization period. We expect the implementation of this provision to impact our 2022 cash payments of income taxes by up to $1.50 billion. For the three and six months ended June 30, 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 the U.S. 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 the U.S. Congress and 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. 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. Changes to existing tax law and increased scrutiny by tax authorities in the U.S. and other jurisdictions could adversely impact our future consolidated results of operations and cash flows.

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 June 30,															Six Months Ended June 30,
			2022						2021						Percent Change			2022						2021						Percent Change
U.S.			$	3,934.8					$	3,704.2					6			$	9,109.4					$	7,645.5					19
Outside U.S.			2,553.3						3,035.9						(16)			5,188.7						5,900.2						(12)
Revenue			$	6,488.0					$	6,740.1					(4)			$	14,298.0					$	13,545.7					6

Numbers may not add due to rounding.

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

			Three Months Ended June 30,												Six Months Ended June 30,
			2022 vs. 2021												2022 vs. 2021
			U.S.			Outside U.S.			Consolidated						U.S.			Outside U.S.			Consolidated
Volume			14		%	5		%	10		%				23		%	5		%	15		%
Price			(8)			(14)			(11)						(4)			(11)			(7)
Foreign exchange rates			—			(6)			(3)						—			(6)			(3)
Percent change			6		%	(16)		%	(4)		%				19		%	(12)		%	6		%

Numbers may not add due to rounding.

In the U.S. for the three and six months ended June 30, 2022, the increase in volume was primarily driven by COVID-19 antibodies, Trulicity, Verzenio, Jardiance, and Taltz®, partially offset by decreased volume for Alimta resulting from the entry of generic competition. In the U.S. for the three months ended June 30, 2022, the decrease in realized prices was primarily driven by Humalog, due to unfavorable segment mix, as more highly rebated segments made up a larger portion of the business, and a list price reduction of insulin lispro injection; Alimta and Forteo, due to higher contracted rebates and unfavorable segment mix; and Taltz, due to changes to estimates for rebates and discounts and unfavorable segment mix. In the U.S. for the six months ended June 30, 2022, the lower realized prices were primarily driven by Humalog, due to a list price reduction of insulin lispro injection, and Trulicity and Basaglar®, due to higher contracted rebates and unfavorable segment mix.

Outside the U.S. for the three and six months ended June 30, 2022, the increase in volume was largely driven by Verzenio, Trulicity, Tyvyt®, Taltz, and Jardiance, partially offset by Alimta and Cymbalta® resulting from the entry of generic competition, COVID-19 antibodies, and the sale of the rights to Cialis® in China in the second quarter of 2021. Outside the U.S. for the three and six months ended June 30, 2022, the decrease in realized prices was primarily driven by the impact of government pricing in China from the National Reimbursement Drug List (NRDL) formulary for certain products, particularly Tyvyt and Verzenio, and volume-based procurement (VBP) for Humalog.

The following table summarizes our revenue activity by product for the three months ended June 30, 2022 and 2021:

			Three Months Ended June 30,
			2022																		2021
Product			U.S.						Outside U.S.						Total						Total			Percent Change
Trulicity			$	1,430.1					$	481.7					$	1,911.9					$	1,535.6					25
Taltz			411.6						194.7						606.2						569.1						7
Verzenio			384.3						204.2						588.5						341.3						72
Jardiance(1)			250.7						210.3						461.0						356.5						29
Humalog(2)			238.8						208.3						447.1						607.6						(26)
Humulin®			202.3						71.7						274.0						315.3						(13)
Cyramza®			92.6						138.6						231.3						268.7						(14)
Alimta			171.7						56.1						227.7						610.6						(63)
Olumiant(3)			10.4						175.8						186.2						208.4						(11)
Basaglar			95.8						78.4						174.2						210.7						(17)
Emgality®			108.6						48.9						157.5						156.3						1
Cialis			10.8						136.2						147.0						281.0						(48)
Erbitux®			125.1						15.7						140.8						147.0						(4)
Forteo			78.5						60.0						138.5						218.4						(37)
COVID-19 antibodies(4)			129.1						—						129.1						148.9						(13)
Zyprexa®			8.7						78.6						87.3						95.4						(8)
Cymbalta			8.1						67.4						75.5						175.6						(57)
Tyvyt			—						73.6						73.6						105.0						(30)
Other products			177.6						253.1						430.6						388.7						11
Revenue			$	3,934.8					$	2,553.3					$	6,488.0					$	6,740.1					(4)

Numbers may not add due to rounding.

NM - not meaningful

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

(2) Humalog revenue includes insulin lispro.

(3) Olumiant revenue includes sales for baricitinib that were made pursuant to EUA or similar regulatory authorizations.

(4) 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.

The following table summarizes our revenue activity by product for the six months ended June 30, 2022 and 2021:

			Six Months Ended June 30,
			2022																		2021
Product			U.S.						Outside U.S.						Total						Total			Percent Change
Trulicity			$	2,744.1					$	909.1					$	3,653.2					$	2,988.1					22
COVID-19 antibodies(1)			1,584.3						14.7						1,598.9						959.1						67
Taltz			718.8						375.5						1,094.3						972.4						13
Humalog(2)			607.7						457.6						1,065.3						1,224.6						(13)
Verzenio			685.7						372.1						1,057.9						610.3						73
Jardiance(3)			480.4						400.0						880.4						668.5						32
Alimta			425.9						145.8						571.7						1,169.6						(51)
Humulin			392.8						154.5						547.2						637.0						(14)
Cyramza			171.8						289.7						461.5						509.2						(9)
Olumiant(4)			81.7						360.1						441.8						402.2						10
Basaglar			215.1						150.6						365.7						457.3						(20)
Cialis			17.7						347.0						364.7						407.8						(11)
Emgality			216.9						89.8						306.7						275.7						11
Forteo			148.7						127.2						275.9						416.9						(34)
Erbitux			234.7						28.7						263.4						269.4						(2)
Zyprexa			18.3						162.1						180.4						191.1						(6)
Tyvyt			—						159.0						159.0						214.6						(26)
Cymbalta			17.2						139.4						156.6						352.3						(56)
Other products			347.6						505.8						853.4						819.6						4
Revenue			$	9,109.4					$	5,188.7					$	14,298.0					$	13,545.7					6

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 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 25 percent and 21 percent in the U.S. during the three and six months ended June 30, 2022, respectively, driven by increased demand, partially offset by lower realized prices. Revenue outside the U.S. increased 24 percent and 26 percent during the three and six months ended June 30, 2022, respectively, driven by increased demand, partially offset by the unfavorable impact of foreign exchange rates and 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 $129.1 million and $1.58 billion in the U.S. during the three and six months ended June 30, 2022, respectively. Revenue outside the U.S. was not material during the three and six months ended June 30, 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. We will supply the U.S. government approximately 79,000 doses of bebtelovimab in the third quarter of 2022. In collaboration with the U.S. government, we intend to make bebtelovimab commercially available for purchase by U.S. states/territories, hospitals, and a broad set of other providers beginning mid-August 2022, which is prior to the anticipated depletion of the U.S. government's currently available supply.

Revenue of Taltz, a treatment for moderate-to-severe plaque psoriasis, active psoriatic arthritis, ankylosing spondylitis, and active non-radiographic axial spondyloarthritis, increased 3 percent and 11 percent in the U.S. during the three and six months ended June 30, 2022, respectively, driven by increased demand. Taltz's increase in revenue in the U.S. for the three months ended June 30, 2022 was partially offset by lower realized prices due to changes to estimates for rebates and discounts as well as unfavorable segment mix. Revenue outside the U.S. increased 15 percent and 16 percent during the three and six months ended June 30, 2022, respectively, driven by increased volume, partially offset by lower realized prices and the unfavorable impact of foreign exchange rates.

Revenue of Humalog, an injectable human insulin analog for the treatment of diabetes, decreased 27 percent in the U.S. during the three months ended June 30, 2022, driven by lower realized prices due to unfavorable segment mix, as more highly rebated segments made up a larger portion of the business, and a list price reduction of insulin lispro injection. Revenue of Humalog decreased 8 percent in the U.S. during the six months ended June 30, 2022, driven by lower realized prices due to a list price reduction of insulin lispro injection. Revenue outside the U.S. decreased 25 percent and 19 percent during the three and six months ended June 30, 2022, respectively, primarily driven by lower realized prices due to the impact of VBP in China and, to a lesser extent, the unfavorable impact of foreign exchange rates. While it is difficult to estimate the severity of the impact of insulin lispro products entering the market, we have not experienced a rapid and severe decline in revenue. However, due to the impact of competition and pricing pressure in the U.S. and some international markets, we expect lower revenue due to some realized price decline and loss of market share to continue over time.

Revenue of Verzenio, a treatment for HR+, HER2- metastatic breast cancer and high risk early breast cancer, increased 83 percent and 79 percent in the U.S. during the three and six months ended June 30, 2022, respectively, primarily driven by increased demand. Revenue outside the U.S. increased 55 percent and 63 percent during the three and six months ended June 30, 2022, respectively, driven by increased demand, partially offset by lower realized prices due to the impact of the NRDL formulary in China and, to a lesser extent, 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 29 percent and 39 percent in the U.S. during the three and six months ended June 30, 2022, respectively, primarily driven by increased demand. Revenue outside the U.S. increased 30 percent and 24 percent during the three and six months ended June 30, 2022, respectively, driven by increased demand, 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 51 percent and 31 percent in the U.S. during the three and six months ended June 30, 2022, respectively, driven by decreased demand and lower realized prices due to the entry of multiple generics in the second quarter of 2022. Revenue outside the U.S. decreased 78 percent and 74 percent during the three and six months ended June 30, 2022, respectively, largely driven by decreased demand due to entry of generic competition. Following the loss of patent exclusivity in major European countries and Japan, we faced, and remain exposed to, generic competition which has rapidly and severely eroded revenue and is likely to continue to erode revenue from current levels. In addition, as a result of the entry of multiple generics in the U.S. following the loss of pediatric exclusivity in May 2022, we began facing, and remain exposed to, additional generic competition which has eroded revenue and is likely to continue to rapidly and severely erode revenue from current levels. See "Executive Overview - Other Matters- Patent Matters" for additional information.

Gross Margin, Costs, and Expenses

Gross margin as a percent of revenue increased 6.9 percentage points to 78.0 percent and increased 3.8 percentage points to 75.5 percent for the three and six months ended June 30, 2022, respectively. The increase in gross margin percent for the three and six months ended June 30, 2022 was primarily driven by inventory impairment charges recognized related to our COVID-19 antibodies in 2021 and, to a lesser extent, the unfavorable effect of foreign exchange rates on international inventories sold in 2021 and favorable product mix, partially offset by lower realized prices.

Research and development expenses increased 8 percent to $1.78 billion and 2 percent to $3.39 billion for the three and six months ended June 30, 2022, respectively, primarily driven by higher development expenses for late-stage assets, partially offset by lower development expenses for COVID-19 antibodies.

Marketing, selling, and administrative expenses decreased 4 percent to $1.63 billion and 2 percent to $3.18 billion for the three and six months ended June 30, 2022, respectively, primarily driven by the favorable impact of foreign exchange rates as well as reduced marketing costs.

We recognized $440.4 million and $606.0 million of acquired IPR&D and development milestones for the three and six months ended June 30, 2022, respectively, primarily related to the buy-out of substantially all future obligations that were contingent upon the occurrence of certain events linked to the success of our mutant-selective PI3kα inhibitor. The charges for the six months ended June 30, 2022 also included the purchase of a Priority Review Voucher. We recognized $42.8 million and $354.8 million of acquired IPR&D and development milestones for the three and six months ended June 30, 2021, respectively. The charges for the six months ended June 30, 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 and six months ended June 30, 2022 and for the three months ended June 30, 2021. We recognized asset impairment, restructuring, and other special charges of $211.6 million for the six months ended June 30, 2021, primarily 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 $119.2 million and $469.9 million for the three and six months ended June 30, 2022, respectively, compared with income of $190.5 million and $511.6 million for the three and six months ended June 30, 2021, respectively. The decrease in other–net, (income) expense was primarily driven by net investment losses on equity securities in 2022 compared with net investment gains on equity securities in 2021.

The effective tax rates were 12.7 percent and 9.2 percent for the three and six months ended June 30, 2022, respectively, reflecting the favorable tax impact of the implementation of a provision in the 2017 Tax Act that requires capitalization and amortization of research and development expenses for tax purposes starting in 2022 and of net investment losses on equity securities, partially offset by the tax impact related to non-deductible development milestones. We expect our effective tax rate to be approximately 13 percent to 14 percent for 2022 if the capitalization and amortization of research and development expenses provision of the 2017 Tax Act is deferred or repealed by U.S. Congress effective for 2022.

The effective tax rates were 12.8 percent and 10.6 percent for the three and six months ended June 30, 2021, respectively, reflecting the favorable tax impact of inventory impairment charges related to our COVID-19 antibodies, partially offset by the tax impact of net investment gains on equity securities. The effective tax rate for the six months ended June 30, 2021 was also impacted favorably by a net discrete tax benefit.

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.

We plan to invest more than $2 billion over several years in two new facilities in Lebanon, Indiana to manufacture existing and future products and more than $1 billion over several years in a new facility in Concord, North Carolina to manufacture parenteral (injectable) products and devices. We plan to invest more than 400 million euro over several years in a new facility in Limerick, Ireland to expand our manufacturing network for biologic active ingredients.

Cash and cash equivalents decreased to $2.62 billion as of June 30, 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 six months ended June 30, 2022 and 2021.

In addition to our cash and cash equivalents, we held total investments of $2.70 billion and $3.30 billion as of June 30, 2022 and December 31, 2021, respectively. See Note 6 to the consolidated condensed financial statements for additional information.

As of June 30, 2022, total debt was $16.81 billion, consistent with $16.88 billion as of December 31, 2021. See Note 6 to the consolidated condensed financial statements for additional information.

As of June 30, 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 six months ended June 30, 2022, we repurchased $1.50 billion of shares under our $5.00 billion share repurchase program authorized in May 2021. As of June 30, 2022, we had $3.25 billion remaining under this program.

During the six months ended June 30, 2022, we paid dividends of $1.77 billion, or $1.96 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.