Revenue

12 Months Ended

Dec. 31, 2019

Revenue from Contract with Customer [Abstract]

The following table summarizes our revenue recognized in our consolidated statements of operations:



	2019		2018		2017
Net product revenue	$	20,377.3	$	19,866.4	$	18,776.5
Collaboration and other revenue⁽¹⁾	1,942.2		1,626.9		1,197.3
Revenue	$	22,319.5	$	21,493.3	$	19,973.8

⁽¹⁾Collaboration and other revenue associated with prior period transfers of intellectual property was $301.5 million, $303.2 million, and $144.9 million during the years ended 2019, 2018, and 2017, respectively.

We recognize revenue primarily from two different types of contracts, product sales to customers (net product revenue) and collaborations and other arrangements. Revenue recognized from collaborations and other arrangements will include our share of profits from the collaboration, as well as royalties, upfront and milestone payments we receive under these types of contracts. See Note 4 for additional information related to our collaborations and other arrangements. Collaboration and other revenue disclosed above includes the revenue from the Trajenta^® and Jardiance^® families of products resulting from our collaboration with Boehringer Ingelheim discussed in Note 4. Substantially all of the remainder of collaboration and other revenue is related to contracts accounted for as contracts with customers.

Net Product Revenue

Revenue from sales of products is recognized at the point where the customer obtains control of the goods and we satisfy our performance obligation, which generally is at the time we ship the product to the customer. Payment terms differ by jurisdiction and customer, but payment terms in most of our major jurisdictions typically range from 30 to 70 days from date of shipment. Revenue for our product sales has not been adjusted for the effects of a financing component as we expect, at contract inception, that the period between when we transfer control of the product and when we receive payment will be one year or less. Any exceptions are either not material or we collect interest for payments made after the due date. Provisions for rebates, discounts, and returns are established in the same period the related sales are recognized. We generally ship product shortly after orders are received; therefore, we generally only have a few days of orders received but not yet shipped at the end of any reporting period. Shipping and handling activities are considered to be fulfillment activities and are not considered to be a separate performance obligation. We exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are imposed on our sales of product and collected from a customer.

Most of our products are sold to wholesalers that serve pharmacies, physicians and other health care professionals, and hospitals. For the years ended December 31, 2019, 2018, and 2017, our three largest wholesalers each accounted for between 14 percent and 21 percent of consolidated total revenue. Further, they each accounted for between 19 percent and 25 percent of accounts receivable as of December 31, 2019 and 2018.

Significant judgments must be made in determining the transaction price for our sales of products related to anticipated rebates, discounts and returns. The following describe the most significant of these judgments:

Sales Rebates and Discounts - Background and Uncertainties

•

We initially invoice our customers at contractual list prices. Contracts with direct and indirect customers may provide for various rebates and discounts that may differ in each contract. As a consequence, to determine the appropriate transaction price for our product sales at the time we recognize a sale to a direct customer, we must estimate any rebates or discounts that ultimately will be due to the direct customer and other customers in the distribution chain under the terms of our contracts. Significant judgments are required in making these estimates.


•	The rebate and discount amounts are recorded as a deduction to arrive at our net product revenue. Sales rebates and discounts that require the use of judgment in the establishment of the accrual

include managed care, Medicare, Medicaid, chargebacks, long-term care, hospital, patient assistance programs, and various other programs. We estimate these accruals using an expected value approach.

•

The largest of our sales rebate and discount amounts are rebates associated with sales covered by managed care, Medicare, Medicaid, chargeback, and patient assistance programs in the U.S. In determining the appropriate accrual amount, we consider our historical rebate payments for these programs by product as a percentage of our historical sales as well as any significant changes in sales trends (e.g., patent expiries and product launches), an evaluation of the current contracts for these programs, the percentage of our products that are sold via these programs, and our product pricing. Although we accrue a liability for rebates related to these programs at the time we record the sale, the rebate related to that sale is typically paid up to six months later. Because of this time lag, in any particular period our rebate adjustments may incorporate revisions of accruals for several periods.

•

Most of our rebates outside the U.S. are contractual or legislatively mandated and are estimated and recognized in the same period as the related sales. In some large European countries, government rebates are based on the anticipated budget for pharmaceutical payments in the country. An estimate of these rebates, updated as governmental authorities revise budgeted deficits, is recognized in the same period as the related sale.

Sales Returns - Background and Uncertainties

•

When product sales occur, to determine the appropriate transaction price for our sales, we estimate a reserve for future product returns related to those sales using an expected value approach. This estimate is based on several factors, including: historical return rates, expiration date by product (on average, approximately 24 months after the initial sale of a product to our customer), and estimated levels of inventory in the wholesale and retail channels, as well as any other specifically-identified anticipated returns due to known factors such as the loss of patent exclusivity, product recalls and discontinuances, or a changing competitive environment. We maintain a returns policy that allows U.S. customers to return product for dating issues within a specified period prior to and subsequent to the product's expiration date. Following the loss of exclusivity for a patent-dependent product, we expect to experience an elevated level of product returns as product inventory remaining in the wholesale and retail channels expires. Adjustments to the returns reserve have been and may in the future be required based on revised estimates to our assumptions. We record the return amounts as a deduction to arrive at our net product revenue. Once the product is returned, it is destroyed; we do not record a right of return asset. Our returns policies outside the U.S. are generally more restrictive than in the U.S. as returns are not allowed for reasons other than failure to meet product specifications in many countries. Our reserve for future product returns for product sales outside the U.S. is not material.

•

As a part of our process to estimate a reserve for product returns, we regularly review the supply levels of our significant products sold to major wholesalers in the U.S. and in major markets outside the U.S., primarily by reviewing periodic inventory reports supplied by our major wholesalers and available prescription volume information for our products, or alternative approaches. We attempt to maintain U.S. wholesaler inventory levels at an average of approximately one month or less on a consistent basis across our product portfolio. Causes of unusual wholesaler buying patterns include actual or anticipated product-supply issues, weather patterns, anticipated changes in the transportation network, redundant holiday stocking, and changes in wholesaler business operations. In the U.S., the current structure of our arrangements provides us with data on inventory levels at our wholesalers; however, our data on inventory levels in the retail channel is more limited. Wholesaler stocking and destocking activity historically has not caused any material changes in the rate of actual product returns.


•	Actual product returns have been less than 2 percent of our net revenue over each of the past three years and have not fluctuated significantly as a percentage of revenue, although fluctuations are more likely in periods following loss of patent exclusivity for major products in the U.S. market.

Adjustments to Revenue

Adjustments to revenue recognized as a result of changes in estimates for the judgments described above for our most significant U.S. sales returns, rebates, and discounts liability balances for products shipped in previous periods were approximately 2 percent and 1 percent of U.S revenue during 2019 and 2018, respectively.

Collaboration and Other Arrangements

We recognize several types of revenue from our collaborations and other arrangements, which we discuss in general terms immediately below and more specifically in Note 4 for each of our material collaborations and other arrangements. Our collaborations and other arrangements are not contracts with customers but are evaluated to determine whether any aspects of the arrangements are contracts with customers.


•	Revenue related to products we sell pursuant to these arrangements is included in net product revenue, while other sources of revenue (e.g., royalties and profit sharing from our partner) are included in collaboration and other revenue.


•	Initial fees and developmental milestones we receive in collaborative and other similar arrangements from the partnering of our compounds under development are generally deferred and amortized into income through the expected product approval date.


•	Profit-sharing due from our collaboration partners, which is based upon gross margins reported to us by our partners, is recognized as collaboration and other revenue as earned.


•	Royalty revenue from licensees, which is based on sales to third-parties of licensed products and technology, is recorded when the third-party sale occurs and the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). This royalty revenue is included in collaboration and other revenue.

•

For arrangements involving multiple goods or services (e.g., research and development, marketing and selling, manufacturing, and distribution), each required good or service is evaluated to determine whether it is distinct. If a good or service does not qualify as distinct, it is combined with the other non-distinct goods or services within the arrangement and these combined goods or services are treated as a single performance obligation for accounting purposes. The arrangement's transaction price is then allocated to each performance obligation based on the relative standalone selling price of each performance obligation. For arrangements that involve variable consideration where we have sold intellectual property, we recognize revenue based on estimates of the amount of consideration we believe we will be entitled to receive from the other party, subject to a constraint. These estimates are adjusted to reflect the actual amounts to be collected when those facts and circumstances become known.


•	Significant judgments must be made in determining the transaction price for our sales of intellectual property. Because of the risk that products in development will not receive regulatory approval, we generally do not recognize any contingent payments that would be due to us upon or after regulatory approval.


•	We have entered into arrangements whereby we transferred rights to products and committed to supply for a period of time. For those arrangements for which we concluded that the obligations were not distinct, any amounts received upfront are being amortized to revenue as net product revenue over the period of the supply arrangement as the performance obligation is satisfied.

Contract Liabilities

Our contract liabilities result from arrangements where we have received payment in advance of performance under the contract and do not include sales returns, rebates, and discounts. Changes in contract liabilities are generally due to either receipt of additional advance payments or our performance under the contract.

The following table summarizes contract liability balances:



	2019		2018
Contract liabilities	$	264.6	$	294.9

The contract liabilities balances disclosed above as of December 31, 2019 and 2018 were primarily related to the remaining license period of symbolic intellectual property and obligations to supply product for a defined period of time.

During the years ended December 31, 2019 and 2018, revenue recognized from contract liabilities as of the beginning of the year was not material. Revenue expected to be recognized in the future from contract liabilities as the related performance obligations are satisfied is not expected to be material in any one year.

Disaggregation of Revenue

The following table summarizes revenue by product:



	U.S.⁽¹⁾						Outside U.S.
	2019		2018		2017		2019		2018		2017
Revenue—to unaffiliated customers:
Endocrinology:
Trulicity^®	$	3,155.2	$	2,515.8	$	1,609.8	$	972.7	$	683.3	$	419.9
Humalog^{® (2)}	1,669.7		1,787.8		1,717.8		1,151.0		1,208.7		1,147.4
Forteo^®	645.5		757.9		965.2		759.1		817.7		783.8
Humulin^®	879.7		910.2		884.6		410.4		421.2		450.7
Basaglar^®	876.2		622.8		311.1		236.3		178.5		121.0
Jardiance⁽³⁾	565.9		400.2		290.4		378.3		258.1		157.0
Trajenta ⁽⁴⁾	224.8		224.2		213.2		365.8		350.5		324.7
Other Endocrinology	293.7		292.7		380.9		230.1		272.5		307.7
Total Endocrinology	8,310.7		7,511.6		6,373.0		4,503.7		4,190.5		3,712.2
Oncology:
Alimta^®	1,219.5		1,131.0		1,034.3		896.4		1,001.9		1,028.2
Cyramza^®	335.3		291.5		278.8		589.9		529.9		479.6
Verzenio^®	454.8		248.5		21.0		124.9		6.6		—
Erbitux^®	487.9		531.6		541.7		55.4		103.8		104.2
Other Oncology	111.0		200.6		174.6		339.3		215.1		149.6
Total Oncology	2,608.5		2,403.2		2,050.4		2,005.9		1,857.3		1,761.6
Immunology:
Taltz^®	1,016.8		738.7		486.0		349.6		198.7		73.2
Olumiant^®	42.2		6.7		—		384.7		195.9		45.8
Total Immunology	1,059.0		745.4		486.0		734.3		394.6		119.0
Neuroscience:
Cymbalta^®	49.6		54.3		114.9		675.8		653.7		642.2
Zyprexa^®	41.0		36.2		75.5		377.6		435.1		505.7
Strattera^®	30.8		89.7		284.9		211.7		361.1		333.3
Emgality^®	154.9		4.9		—		7.7		—		—
Other Neuroscience	80.2		92.3		115.7		93.6		93.4		98.9
Total Neuroscience	356.5		277.4		591.0		1,366.4		1,543.3		1,580.1
Other:
Cialis ^®	231.7		1,129.2		1,358.6		658.8		722.7		964.5
Other	156.2		325.1		555.4		327.7		393.0		422.0
Total Other	387.9		1,454.3		1,914.0		986.5		1,115.7		1,386.5
Revenue	$	12,722.6	$	12,391.9	$	11,414.4	$	9,596.8	$	9,101.4	$	8,559.4

Numbers may not add due to rounding.

⁽¹⁾ U.S. revenue includes revenue in Puerto Rico.

⁽²⁾Humalog revenue includes insulin lispro.

⁽³⁾Jardiance revenue includes Glyxambi^®and Synjardy^®.

⁽⁴⁾Trajenta revenue includes Jentadueto^®.

The following table summarizes revenue by geographical area:



	2019		2018		2017
Revenue—to unaffiliated customers⁽¹⁾:
U.S.	$	12,722.6	$	12,391.9	$	11,414.4
Europe	3,765.0		3,663.1		3,390.6
Japan	2,547.6		2,407.4		2,339.5
Other foreign countries	3,284.3		3,030.9		2,829.3
Revenue	$	22,319.5	$	21,493.3	$	19,973.8

Numbers may not add due to rounding.

⁽¹⁾Revenue is attributed to the countries based on the location of the customer.