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

(Tables present dollars in millions, except per-share data, and numbers may not add due to rounding)

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 our results of operations and financial position. 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, 2024, may cause our actual results, financial position, and cash generated from operations to differ from these forward-looking statements.

EXECUTIVE OVERVIEW

This section provides an overview of our financial results, updates to our clinical development pipeline, and other matters affecting our company and industry.

Financial Results

The following table summarizes certain financial information:

			Three Months Ended March 31,												Percent Change
			2025						2024
Revenue			$	12,728.5					$	8,768.0					45
Net income			2,759.3						2,242.9						23
Earnings per share - diluted			3.06						2.48						23

Revenue increased for the three months ended March 31, 2025 driven by increased volume, partially offset by lower realized prices and unfavorable impact of foreign exchange rates. The increase in revenue during the three months ended March 31, 2025 was primarily driven by Mounjaro and Zepbound.

Net income and earnings per share for the three months ended March 31, 2025 increased primarily due to higher gross margin, partially offset by increased acquired IPR&D charges and marketing, selling, and administrative expenses.

See "Results of Operations" for additional information.

Clinical Development Pipeline Updates

Our long-term success depends on our ability to continually discover or acquire, develop, and commercialize innovative new medicines. See “Management’s Discussion and Analysis of Results of Operations and Financial Condition—Executive Overview—Clinical Development Pipeline” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2024 for select new molecular entities (NMEs) and new indication line extension (NILEX) products in Phase 2 or Phase 3 clinical trials or that were submitted for regulatory review or received regulatory approval in the U.S., European Union (EU), or Japan. The following reflects certain developments since our Annual Report on Form 10-K for the year ended December 31, 2024:

Compound			Development
Tirzepatide			In 2025, we withdrew our U.S. application for tirzepatide for heart failure with preserved ejection fraction.
Orforglipron			In 2025, we announced positive results for oral GLP-1, orforglipron, in the Phase 3 ACHIEVE-1 trial for type 2 diabetes.
Mirikizumab (Omvoh)			In 2025, Japan's Ministry of Health, Labour and Welfare approved mirikizumab for treatment of Crohn’s disease.
Donanemab			In 2025, the European Medicines Agency’s (EMA) Committee for Medicinal Products for Human Use (CHMP) issued an opinion that does not recommend donanemab for approval for the treatment of early symptomatic Alzheimer's disease. We are seeking re-examination by CHMP.
Pirtobrutinib (Jaypirca)			In 2025, the European Commission approved pirtobrutinib for treatment of chronic lymphocytic leukemia.
Olomorasib			In 2025, a Phase 3 trial was initiated for olomorasib for resected adjuvant non-small cell lung cancer.

Other Matters

Trends Affecting Pharmaceutical Pricing, Reimbursement, and Access and Certain Other Regulatory Developments

Reforms, including those that may stem from political initiatives, periods of uneven economic growth or downturns, or as a result of inflation or deflation, trade and other global disputes and interruptions including related to tariffs, trade protection measures, and similar restrictions, the emergence or escalation of, and responses to, international tension and conflicts, or government budgeting priorities, are expected to continue to result in added pressure on cost, pricing, reimbursement, and access for our products.

Global concern over access to, and affordability of, pharmaceutical products continues to drive regulatory and legislative debate and action, as well as cost containment efforts by governmental authorities and scrutiny of pricing and access disparities. Cost containment measures 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. Among other measures, the Inflation Reduction Act of 2022 (IRA) requires HHS to effectively set prices for certain single-source drugs and biologics reimbursed under Medicare Part B and Part D. Currently, these government prices generally apply beginning at nine years (for medicines approved under a New Drug Application) or thirteen years (for medicines approved under a Biologics License Application) following FDA approval or licensure for the molecule, although the U.S. presidential administration has expressed support for legislation that would align these timelines through legislation. In August 2023, HHS selected Jardiance, which is part of our collaboration with Boehringer Ingelheim, as one of the first ten medicines subject to government-set prices effective in 2026 and we expect additional of our significant products will be selected in future years. The IRA has, and will continue to, meaningfully influence our business strategies and those of our competitors and could significantly impact our business and consolidated results of operations.

Other policies, regulations, legislation, or enforcement, including those proposed or pursued by lawmakers, regulators, and other authorities in the U.S. and worldwide, have and may continue to adversely impact our business and consolidated results of operations. For example, the U.S. and other countries have recently imposed new tariffs, some of which have been paused but may come into effect quickly and unpredictably. While pharmaceuticals are exempt from certain of these tariffs, such exemptions may be terminated or may not apply to any future tariffs. The precise impact of any further tariffs, trade protection measures, and other restrictions would depend on their ultimate scope, timing, and other factors. If enacted, any such restrictions could result in supply disruptions or delays, further increase costs, or otherwise have a negative impact on our business. Given the nature of pharmaceutical regulation and commercialization, we may not be able to share the burden of increased costs from tariffs and related impacts to any meaningful degree.

The consolidation and integration of private payers and pharmacy benefit managers in the U.S. continues to significantly impact the market for pharmaceuticals by increasing payer leverage in negotiating manufacturer price or rebate 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 may adversely impact our business and consolidated results of operations. We expect that these actions may intensify and could particularly affect certain products, which could adversely affect our business. In addition, we are engaged in litigation and investigations related to the 340B program, access to insulin, pricing, product safety, and other matters 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, regulatory issues concerning compliance with current Good Manufacturing Practices, quality assurance, safety signals, evolving standards, and increased scrutiny around excipients and potential impurities such as nitrosamines, and similar regulations and standards (and comparable foreign regulations and standards) for our products in some cases 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, inability to realize the benefit of capital expenditures, or delays or denials in new product approvals, line extensions or supplemental approvals of current products pending resolution of the issues, or other negative impacts, any of which result in reputational harm or adversely affect our business.

Incretin Medicines

At various times during 2024, demand for our incretin medicines exceeded production. Tirzepatide supply currently exceeds demand in the U.S. Demand in launched markets remains dynamic, and increases or changes in demand, by dose or overall, as well as the complex supply chain, may result in periodic unavailability of certain presentations and dose levels at certain locations even when total tirzepatide supply can meet demand. Supply considerations will continue to influence the timing and approach (including available presentations) of tirzepatide launches in new markets. Production increases and delivery presentation initiatives are ongoing, and additional capacity is expected to be operational over the next several years.

We continue to see the production, marketing, and sale of counterfeit, misbranded, adulterated, and compounded incretins. These practices may impact patient safety and undermine regulatory drug approval processes. While the FDA has confirmed that the previous shortage of tirzepatide has ended and that compounding pharmacies are required to cease mass production, we cannot guarantee adequate regulation or compliance. Lilly will continue to consider all options, including filing lawsuits where appropriate, to address unlawful practices and the patient safety risks of unapproved, untested, and manipulated drugs.

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. The U.S. and countries around the world are actively proposing and enacting tax law changes. Further, actions taken with respect to tax-related matters by associations such as the Organisation for Economic Co-operation and Development (OECD) and the European Commission could influence tax laws in countries in which we operate. Tax authorities in the U.S. and other jurisdictions in which we do business routinely examine our tax returns and are expected to increase their scrutiny of cross-border tax issues. Changes to existing U.S. and foreign tax laws and increased scrutiny by tax authorities in the U.S. and other jurisdictions could have a material adverse impact our future consolidated results of operations and cash flows.

Effective January 1, 2024, several EU and non-EU countries enacted legislation (known as "Pillar Two") that provided for a minimum level of taxation of multinational companies. The increase to income tax expense as a result of the global minimum tax is not expected to be material in current and future years. Our assessment of the impact for 2025 and subsequent years could be affected by legislative guidance and future enactment of additional provisions.

Acquisitions

We invest in external research and technologies and manufacturing capabilities 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 or refine our pipeline and strengthen our business.

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

Continued regulatory focus on business combinations in our industry, including by the Federal Trade Commission and competition authorities in Europe and other jurisdictions, could continue to delay, jeopardize, or increase the costs of our business development activities and may negatively impact our consolidated financial position or results of operations.

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. There is uncertainty in the future movements in foreign currency exchange rates, and fluctuations in these rates have and could adversely impact our consolidated results of operations and cash flows.

Other Factors

Other factors have had, and may continue to have, an impact on our consolidated results of operations. These factors include cost and wage inflation, supply chain and labor market complexities, international tension and conflicts, uneven economic growth, downturns or uncertainty, and an increase in overall demand in our industry for certain products and materials.

See "Business" in Part 1, Item 1 and "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024 and Note 9 to the consolidated condensed financial statements for additional information and risks and uncertainties that could impact our business and operations, including the matters described within this Executive Overview.

RESULTS OF OPERATIONS

Revenue

The following table summarizes our revenue activity by region:

			Three Months Ended March 31,												Percent Change
			2025						2024
U.S.			$	8,489.4					$	5,694.4					49
Outside U.S.			4,239.1						3,073.7						38
Revenue			$	12,728.5					$	8,768.0					45

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

			Three Months Ended March 31,
			2025 vs. 2024
			U.S.			Outside U.S.			Consolidated
Volume			57		%	46		%	53		%
Price			(7)			(3)			(6)
Foreign exchange rates			—			(5)			(2)
Percent change			49		%	38		%	45		%

In the U.S. for the three months ended March 31, 2025, the volume increase and the lower realized prices were driven by Zepbound and Mounjaro.

Outside the U.S. for the three months ended March 31, 2025, the increase in volume was driven by Mounjaro and, to a lesser extent, Jardiance. Jardiance revenue included a one-time benefit of $370.0 million associated with an amendment to our collaboration with Boehringer Ingelheim. Pursuant to the amendment, we and Boehringer Ingelheim adjusted commercialization responsibilities for Jardiance within certain markets.

The following table summarizes our revenue, including net product revenue and collaboration and other revenue, by product:

			Three Months Ended March 31,																								Percent Change
			2025																		2024
			U.S.						Outside U.S.						Total						Total
Mounjaro			$	2,655.9					$	1,185.9					$	3,841.8					$	1,806.5					113
Zepbound			2,305.4						6.5						2,311.9						517.4						NM
Verzenio			657.6						501.3						1,158.9						1,050.3						10
Other products			2,870.5						2,545.4						5,415.9						5,393.8						—
Revenue			$	8,489.4					$	4,239.1					$	12,728.5					$	8,768.0					45

NM - not meaningful

Revenue of Mounjaro increased 75 percent in the U.S. during the three months ended March 31, 2025, reflecting continued strong demand, partially offset by lower realized prices. Revenue outside the U.S. during the three months ended March 31, 2025 was $1.19 billion compared to $286.2 million during the three months ended March 31, 2024, primarily driven by volume growth, including entry into new markets, partially offset by lower realized prices.

Revenue of Zepbound in the U.S. during the three months ended March 31, 2025 was $2.31 billion, compared to $517.4 million for the three months ended March 31, 2024, primarily driven by increased demand, partially offset by lower realized prices.

Revenue of Verzenio increased 3 percent in the U.S. during the three months ended March 31, 2025, driven by higher realized prices. Increased demand was more than offset by wholesaler buying patterns and competitive dynamics. Revenue outside of the U.S. increased 22 percent during the three months ended March 31, 2025, primarily driven by volume growth, partially offset by the unfavorable impact of foreign exchange rates.

Gross Margin, Costs, and Expenses

The following table summarizes our gross margin, costs, and expenses:

			Three Months Ended March 31,												Percent Change
			2025						2024
Gross margin			$	10,504.3					$	7,094.5					48
Gross margin as a percent of revenue			82.5		%				80.9		%
Research and development			$	2,733.7					$	2,522.8					8
Marketing, selling, and administrative			2,468.8						1,952.2						26
Acquired IPR&D			1,571.7						110.5						NM
Asset impairment, restructuring, and other special charges			35.0						—						NM
Other–net, (income) expense			239.0						(27.1)						NM
Income taxes			696.8						293.2						138
Effective tax rate			20.2		%				11.6		%

NM - not meaningful

Gross margin as a percent of revenue for the three months ended March 31, 2025 increased 1.6 percentage points compared with the three months ended March 31, 2024, primarily driven by improved cost of production and favorable product mix, partially offset by lower realized prices.

Research and development expenses increased 8 percent for the three months ended March 31, 2025, driven by continued investments in our early and late-stage portfolio.

Marketing, selling, and administrative expenses increased 26 percent for the three months ended March 31, 2025, primarily driven by promotional efforts supporting ongoing and future launches.

Acquired IPR&D charges for the three months ended March 31, 2025 were primarily related to the acquisition of Scorpion's PI3Kα inhibitor program STX-478.

The effective tax rate was 20.2 percent for the three months ended March 31, 2025 compared to 11.6 percent for the three months ended March 31, 2024, primarily driven by the unfavorable tax impact of a non-deductible acquired IPR&D charge in 2025. The 2025 and 2024 effective tax rates were impacted by net discrete tax benefits in each period.

For additional information for other-net, (income) expense, see Note 11 to the consolidated condensed financial statements.

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, 2024.

We are making investments in global facilities to manufacture existing and future products. These investments, and other capital investments that support our operations, have increased our capital expenditures and will result in meaningfully higher capital expenditures over the next several years.

As we expand our manufacturing capacity in order to meet existing and expected demand of our medicines, we have entered, and expect to continue to enter, into various agreements for contract manufacturing and for supply of materials. Executed agreements related to our medicines in development could, under certain circumstances, require us to pay up to approximately $8 billion if we do not purchase specified amounts of goods or services over the durations of the agreements, which are generally up to 8 years.

Cash and cash equivalents decreased to $3.09 billion as of March 31, 2025, compared with $3.27 billion as of December 31, 2024. 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, 2025 and 2024.

In addition to our cash and cash equivalents, we held total investments of $3.35 billion and $3.37 billion as of March 31, 2025 and December 31, 2024, respectively. See Note 6 to the consolidated condensed financial statements for additional information.

For investments that were accounted for as asset acquisitions, we paid $1.76 billion in 2025 for acquired IPR&D primarily related to the acquisition of Scorpion's PI3Kα inhibitor program STX-478. See Note 3 to the consolidated condensed financial statements for additional information.

As of March 31, 2025, total debt was $38.52 billion, an increase of $4.87 billion compared with $33.64 billion as of December 31, 2024. In February 2025, we issued $6.50 billion of fixed-rate notes and used the net cash proceeds to fund the acquisition of Scorpion's PI3Kα inhibitor program STX-478 and related fees and expenses and for general business purposes, including the repayment of outstanding commercial paper. See Note 6 to the consolidated condensed financial statements for additional information.

As of March 31, 2025, we had a total of $8.42 billion of unused committed bank credit facilities, $8.00 billion of which is available to support our commercial paper program. See Note 6 to the consolidated condensed financial statements for additional information. 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, 2025, we repurchased $1.20 billion of shares under our $15.00 billion share repurchase program authorized in December 2024. As of March 31, 2025, we had $13.80 billion remaining under this program.

During the three months ended March 31, 2025, we paid dividends of $1.35 billion, or $1.50 per share, to our shareholders.

Both domestically and abroad, we monitor the potential impacts of the economic environment and international tension and conflicts; the creditworthiness of our wholesalers and other customers, including foreign government-backed agencies and suppliers; the uncertain impact of healthcare 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, 2024. 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, 2024.

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.

We routinely post important information for investors in the “Investors” section of our website, www.lilly.com. We may use our website as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor the “Investors” section of our website, in addition to following our press releases, filings with the SEC, public conference calls, presentations, and webcasts. We and our executive officers may also use social media channels to communicate with investors and the public about our business, products and other matters, and those communications could be deemed to be material information. The information contained on, or that may be accessed through, our website or our or our executive officers' social media channels, is not incorporated by reference into, and is not a part of, this Quarterly Report on Form 10-Q.