lly-20200930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

Quarterly Report Under Section 13 or 15(d) of the

Securities Exchange Act of 1934

For the quarterly period ended September 30, 2020

COMMISSION FILE NUMBER 001-6351

ELI LILLY AND COMPANY

(Exact name of Registrant as specified in its charter)


Indiana						35-0470950
(State or other jurisdiction of						(I.R.S. Employer
incorporation or organization)						Identification No.)

Lilly Corporate Center, Indianapolis, Indiana 46285

(Address of principal executive offices)

Registrant’s telephone number, including area code (317) 276-2000

Securities registered pursuant to Section 12(b) of the Exchange Act:


Title of Each Class	Trading Symbol	Name of Each Exchange On Which Registered
Common Stock (no par value)	LLY	New York Stock Exchange
1.000% Notes due 2022	LLY22	New York Stock Exchange
7 1/8% Notes due 2025	LLY25	New York Stock Exchange
1.625% Notes due 2026	LLY26	New York Stock Exchange
2.125% Notes due 2030	LLY30	New York Stock Exchange
0.625% Notes due 2031	LLY31	New York Stock Exchange
6.77% Notes due 2036	LLY36	New York Stock Exchange
1.700% Notes due 2049	LLY49A	New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of a “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

The number of shares of common stock outstanding as of October 26, 2020:


Class						Number of Shares Outstanding
Common						956,581,598

Eli Lilly and Company

Form 10-Q

For the Quarter Ended September 30, 2020

Table of Contents


		Page
PART I. Financial Information		4

Item 1.	Financial Statements	4
	Consolidated Condensed Statements of Operations	4
	Consolidated Condensed Statements of Comprehensive Income (Loss)	5
	Consolidated Condensed Balance Sheets	6
	Consolidated Condensed Statements of Equity	7
	Consolidated Condensed Statements of Cash Flows	9
	Notes to Consolidated Condensed Financial Statements	10
Item 2.	Management's Discussion and Analysis of Results of Operations and Financial Condition	35
	Executive Overview	35
	Revenue	44
	Gross Margin, Costs, and Expenses	49
	Financial Condition	50
	Financial Expectations	51
	Available Information on our Website	51
Item 4.	Controls and Procedures	52

PART II. Other Information		53

Item 1.	Legal Proceedings	53
Item 1A.	Risk Factors	53
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 6.	Exhibits	54

Index to Exhibits		55
Signatures		55

Forward-Looking Statements

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that do not relate solely to historical or current facts, and can generally be identified by the use of words such as “may,” “believe,” “will,” “expect,” “project,” “estimate,” “intend,” “anticipate,” “plan,” “continue,” or similar expressions.

In particular, information appearing under “Management's Discussion and Analysis of Results of Operations and Financial Condition” includes forward-looking statements. Forward-looking statements inherently involve many risks and uncertainties that could cause actual results to differ materially from those projected in these statements. Where, in any forward-looking statement, we (Lilly or the Company) express an expectation or belief as to future results or events, it is based on management's current plans and expectations, expressed in good faith and believed to have a reasonable basis. However, we can give no assurance that any such expectation or belief will result or will be achieved or accomplished. The following include some but not all of the factors that could cause actual results or events to differ materially from those anticipated:

•uncertainties in the pharmaceutical research and development process, including with respect to the timing of anticipated regulatory approvals and launches of new products;

•market uptake of recently launched products;

•competitive developments affecting current products and our pipeline;

•the expiration of intellectual property protection for certain of our products;

•our ability to protect and enforce patents and other intellectual property;

•continued pricing pressures and the impact of actions of governmental and private payers affecting pricing of, reimbursement for, and access to pharmaceuticals;

•regulatory compliance problems or government investigations;

•regulatory actions regarding currently marketed products;

•unexpected safety or efficacy concerns associated with our products;

•issues with product supply stemming from manufacturing difficulties or disruptions;

•regulatory changes or other developments;

•changes in patent law or regulations related to data-package exclusivity;

•litigation, investigations, or other similar proceedings involving past, current, or future products or commercial activities as we are largely self-insured;

•unauthorized disclosure, misappropriation, or compromise of trade secrets or other confidential data stored in our information systems, networks, and facilities, or those of third parties with whom we share our data;

•changes in tax law, including the impact of United States tax reform legislation enacted in December 2017 and related guidance, or events that differ from our assumptions related to tax positions;

•changes in foreign currency exchange rates, interest rates, and inflation;

•asset impairments and restructuring charges;

•changes in accounting and reporting standards promulgated by the Financial Accounting Standards Board and the Securities and Exchange Commission (SEC);

•acquisitions and business development transactions and related integration costs;

•information technology system inadequacies or operating failures;

•the impact of the evolving COVID-19 pandemic and the global response thereto;

•reliance on third-party relationships and outsourcing arrangements; and

•the impact of global macroeconomic conditions.

More information on factors that could cause actual results or events to differ materially from those anticipated is included from time to time in our reports filed with the SEC, including in Part II, Item 1A of this Form 10-Q, our Quarterly Reports on Form 10-Q for the quarters ended Ma rch 31, 2020 and J une 30 , 2020, and in our Annual Report on Form 10-K for the year ended December 31, 2019, particularly under the caption “Risk Factors”.

All forward-looking statements speak only as of the date of this report and are expressly qualified in their entirety by the cautionary statements included in or incorporated by reference into this report. Except as is required by law, we expressly disclaim any obligation to publicly release any revisions to forward-looking statements to reflect events after the date of this report.

PART I. Financial Information

Item 1. Financial Statements

Consolidated Condensed Statements of Operations

(Unaudited)

ELI LILLY AND COMPANY AND SUBSIDIARIES

(Dollars and shares in millions, except per-share data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Revenue (Note 2)	$	5,740.6	$	5,476.6	$	17,099.8	$	16,205.5
Costs, expenses, and other:
Cost of sales	1,326.4		1,175.0		3,763.5		3,438.6
Research and development	1,465.4		1,380.9		4,247.7		4,013.6
Marketing, selling, and administrative	1,569.1		1,412.3		4,567.3		4,515.7
Acquired in-process research and development (Note 3)	—		77.7		294.1		239.6
Asset impairment, restructuring, and other special charges (Note 6)	101.4		—		161.3		423.9
Other–net, (income) expense (Note 12)	(158.9)		24.9		(694.9)		(28.7)
	4,303.4		4,070.8		12,339.0		12,602.7
Income before income taxes	1,437.2		1,405.8		4,760.8		3,602.8
Income taxes (Note 8)	228.8		151.9		683.9		460.6
Net income from continuing operations	1,208.4		1,253.9		4,076.9		3,142.2
Net income from discontinued operations (Note 5)	—		—		—		3,680.5
Net income	$	1,208.4	$	1,253.9	$	4,076.9	$	6,822.7

Earnings per share:
Earnings from continuing operations - basic	$	1.33	$	1.37	$	4.49	$	3.35
Earnings from discontinued operations - basic	—		—		—		3.92
Earnings per share - basic	$	1.33	$	1.37	$	4.49	$	7.27

Earnings from continuing operations - diluted	$	1.33	$	1.37	$	4.47	$	3.33
Earnings from discontinued operations - diluted	—		—		—		3.91
Earnings per share - diluted	$	1.33	$	1.37	$	4.47	$	7.24

Shares used in calculation of earnings per share:
Basic	907.2		913.9		907.5		938.2
Diluted	911.4		918.5		911.9		942.4

See notes to consolidated condensed financial statements.

Consolidated Condensed Statements of Comprehensive Income (Loss)

(Unaudited)

ELI LILLY AND COMPANY AND SUBSIDIARIES

(Dollars in millions)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net income	$	1,208.4	$	1,253.9	$	4,076.9	$	6,822.7
Other comprehensive income (loss) from continuing operations, net of tax (Note 11)	127.8		(134.0)		(31.5)		(51.1)
Other comprehensive income from discontinued operations, net of tax (Note 11)	—		—		—		56.8
Other comprehensive income (loss), net of tax (Note 11)	127.8		(134.0)		(31.5)		5.7
Comprehensive income	$	1,336.2	$	1,119.9	$	4,045.4	$	6,828.4

See notes to consolidated condensed financial statements.

Consolidated Condensed Balance Sheets

ELI LILLY AND COMPANY AND SUBSIDIARIES

(Dollars in millions)


	September 30, 2020		December 31, 2019
Assets	(Unaudited)
Current Assets
Cash and cash equivalents (Note 7)	$	3,595.3	$	2,337.5
Short-term investments (Note 7)	35.0		101.0
Accounts receivable, net of allowances of $26.4 (2020) and $22.4 (2019)	4,886.7		4,547.3
Other receivables	958.1		994.2
Inventories	3,555.4		3,190.7
Prepaid expenses and other	3,209.4		2,538.9
Total current assets	16,239.9		13,709.6
Investments (Note 7)	2,476.2		1,962.4
Goodwill	3,726.4		3,679.4
Other intangibles, net	7,588.6		6,618.0
Deferred tax assets	2,555.3		2,572.6
Property and equipment, net of accumulated depreciation of $9,600.5 (2020) and $9,161.6 (2019)	8,281.1		7,872.9
Other noncurrent assets	3,078.5		2,871.2
Total assets	$	43,946.0	$	39,286.1
Liabilities and Equity
Current Liabilities
Short-term borrowings and current maturities of long-term debt	$	587.5	$	1,499.3
Accounts payable	1,430.1		1,405.3
Employee compensation	795.6		915.5
Sales rebates and discounts	5,745.2		4,933.6
Dividends payable	—		671.5
Income taxes payable	1,173.5		160.6
Other current liabilities	2,245.0		2,189.4
Total current liabilities	11,976.9		11,775.2
Other Liabilities
Long-term debt	16,334.6		13,817.9
Accrued retirement benefits (Note 9)	3,435.5		3,698.2
Long-term income taxes payable	3,392.7		3,607.2
Deferred tax liabilities	2,107.7		2,187.5
Other noncurrent liabilities	1,702.6		1,501.0
Total other liabilities	26,973.1		24,811.8
Commitments and Contingencies (Note 10)
Eli Lilly and Company Shareholders’ Equity
Common stock	598.1		598.8
Additional paid-in capital	6,698.8		6,685.3
Retained earnings	7,154.0		4,920.4
Employee benefit trust	(3,013.2)		(3,013.2)
Accumulated other comprehensive loss (Note 11)	(6,555.1)		(6,523.6)
Cost of common stock in treasury	(55.7)		(60.8)
Total Eli Lilly and Company shareholders’ equity	4,826.9		2,606.9
Noncontrolling interests	169.1		92.2
Total equity	4,996.0		2,699.1
Total liabilities and equity	$	43,946.0	$	39,286.1

See notes to consolidated condensed financial statements.

Consolidated Condensed Statements of Equity

(Unaudited)

ELI LILLY AND COMPANY AND SUBSIDIARIES


	Equity of Eli Lilly and Company Shareholders
(Dollars in millions, except per-share data, and shares in thousands)	Common Stock			Additional Paid-in Capital		Retained Earnings		Employee Benefit Trust		Accumulated Other Comprehensive Loss		Common Stock in Treasury			Noncontrolling Interests
	Shares	Amount										Shares	Amount
Balance at July 1, 2019	965,957	$	603.7	$	6,534.5	$	4,318.1	$	(3,013.2)	$	(5,600.5)	541	$	(62.1)	$	76.8
Net income						1,253.9									4.6
Other comprehensive loss, net of tax										(134.0)

Retirement of treasury shares	(5,391)	(3.3)				(596.6)						(5,391)	600.0
Purchase of treasury shares												5,391	(600.0)
Issuance of stock under employee stock plans, net	10	—		(1.3)								(11)	1.3
Stock-based compensation				75.5


Other						6.5									(1.6)
Balance at September 30, 2019	960,576	$	600.4	$	6,608.7	$	4,981.9	$	(3,013.2)	$	(5,734.5)	530	$	(60.8)	$	79.8

Balance at July 1, 2020	956,953	$	598.1	$	6,629.4	$	6,617.2	$	(3,013.2)	$	(6,682.9)	487	$	(55.7)	$	179.1
Net income (loss)						1,208.4									(4.8)
Other comprehensive income, net of tax										127.8
Cash dividends declared per share: $0.74						(671.6)


Issuance of stock under employee stock plans, net	25	—		(2.3)
Stock-based compensation				71.7
Other															(5.2)
Balance at September 30, 2020	956,978	$	598.1	$	6,698.8	$	7,154.0	$	(3,013.2)	$	(6,555.1)	487	$	(55.7)	$	169.1

(1) As of September 30, 2020, there was $1.00 billion remaining under our $8.00 billion share repurchase program authorized in June 2018.

See notes to consolidated condensed financial statements.


	Equity of Eli Lilly and Company Shareholders
(Dollars in millions, except per-share data, and shares in thousands)	Common Stock			Additional Paid-in Capital		Retained Earnings		Employee Benefit Trust		Accumulated Other Comprehensive Loss		Common Stock in Treasury			Noncontrolling Interests
	Shares	Amount										Shares	Amount
Balance at January 1, 2019	1,057,639	$	661.0	$	6,583.6	$	11,395.9	$	(3,013.2)	$	(5,729.2)	604	$	(69.4)	$	1,080.4
Net income						6,822.7									25.7
Other comprehensive income (loss), net of tax										(5.3)					11.0
Cash dividends declared per share: $1.29						(1,171.6)
Retirement of treasury shares	(100,018)	(62.4)				(12,065.1)						(100,018)	12,127.5
Purchase of treasury shares												35,017	(4,100.0)
Issuance of stock under employee stock plans, net	2,955	1.8		(205.7)								(74)	8.6
Stock-based compensation				230.8
Acquisition of common stock in exchange offer												65,001	(8,027.5)
Deconsolidation of Elanco															(1,028.9)
Other															(8.4)
Balance at September 30, 2019	960,576	$	600.4	$	6,608.7	$	4,981.9	$	(3,013.2)	$	(5,734.5)	530	$	(60.8)	$	79.8

Balance at January 1, 2020	958,056	$	598.8	$	6,685.3	$	4,920.4	$	(3,013.2)	$	(6,523.6)	530	$	(60.8)	$	92.2
Net income						4,076.9									95.9
Other comprehensive loss, net of tax										(31.5)
Cash dividends declared per share: $1.48						(1,345.6)
Retirement of treasury shares	(3,627)	(2.3)				(497.7)						(3,627)	500.0
Purchase of treasury shares (1)												3,627	(500.0)
Issuance of stock under employee stock plans, net	2,549	1.6		(206.4)								(43)	5.1
Stock-based compensation				220.3
Other				(0.4)											(19.0)
Balance at September 30, 2020	956,978	$	598.1	$	6,698.8	$	7,154.0	$	(3,013.2)	$	(6,555.1)	487	$	(55.7)	$	169.1

(1) As of September 30, 2020, there was $1.00 billion remaining under our $8.00 billion share repurchase program authorized in June 2018.

See notes to consolidated condensed financial statements.

Consolidated Condensed Statements of Cash Flows

(Unaudited)

ELI LILLY AND COMPANY AND SUBSIDIARIES

(Dollars in millions)


	Nine Months Ended September 30,
	2020		2019
Cash Flows from Operating Activities
Net income	$	4,076.9	$	6,822.7
Adjustments to Reconcile Net Income to Cash Flows from Operating Activities:
Gain related to disposition of Elanco (Note 5)	—		(3,680.5)
Depreciation and amortization	956.4		891.9
Change in deferred income taxes	66.2		(23.4)

Stock-based compensation expense	220.3		230.8

Net investment gains	(909.5)		(177.6)
Acquired in-process research and development (Note 3)	294.1		239.6
Other changes in operating assets and liabilities, net of acquisitions and divestitures	(232.2)		(1,763.7)
Other non-cash operating activities, net	212.2		333.1
Net Cash Provided by Operating Activities	4,684.4		2,872.9
Cash Flows from Investing Activities
Net purchases of property and equipment	(933.2)		(707.4)
Proceeds from sales and maturities of short-term investments	118.8		116.3
Purchases of short-term investments	(11.4)		(34.1)
Proceeds from sales of noncurrent investments	574.1		498.4
Purchases of noncurrent investments	(223.7)		(196.7)
Cash paid for acquisitions, net of cash acquired (Note 3)	(849.3)		(6,917.7)

Purchases of in-process research and development	(276.4)		(319.6)
Other investing activities, net	16.3		(480.7)
Net Cash Used for Investing Activities	(1,584.8)		(8,041.5)
Cash Flows from Financing Activities
Dividends paid	(2,017.1)		(1,822.6)
Net change in short-term borrowings	(914.3)		1,058.9
Proceeds from issuance of long-term debt	2,062.3		4,448.3
Repayments of long-term debt	(276.3)		(600.3)
Purchases of common stock	(500.0)		(4,100.0)

Other financing activities, net	(200.2)		(195.2)
Net Cash Used for Financing Activities	(1,845.6)		(1,210.9)
Effect of exchange rate changes on cash and cash equivalents	3.8		(54.9)

Net increase (decrease) in cash and cash equivalents