UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

For the quarterly period ended March 31, 2023

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 and zip code 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 Symbols	Name of Each Exchange On Which Registered
Common Stock (no par value)	LLY	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
0.500% Notes due 2033	LLY33	New York Stock Exchange
6.77% Notes due 2036	LLY36	New York Stock Exchange
1.625% Notes due 2043	LLY43	New York Stock Exchange
1.700% Notes due 2049	LLY49A	New York Stock Exchange
1.125% Notes due 2051	LLY51	New York Stock Exchange
1.375% Notes due 2061	LLY61	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 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 "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 April 24, 2023:

Class	Number of Shares Outstanding
Common	949,272,933

Eli Lilly and Company

Form 10-Q

For the Quarter Ended March 31, 2023

Table of Contents

		Page
PART I. Financial Information		5
Item 1.	Financial Statements	5
	Consolidated Condensed Statements of Operations	5
	Consolidated Condensed Statements of Comprehensive Income	6
	Consolidated Condensed Balance Sheets	7
	Consolidated Condensed Statements of Equity	8
	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	32
	Executive Overview	32
	Results of Operations	38
	Financial Condition and Liquidity	41
	Critical Accounting Estimates	41
	Available Information on our Website	42
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	43
PART II. Other Information		44
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 6.	Exhibits	45
Signatures		45

2

Forward-Looking Statements

This Quarterly Report on Form 10-Q and our other publicly available documents include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (Exchange Act), and are subject to the safe harbor created thereby under the Private Securities Litigation Reform Act of 1995. In particular, information appearing under "Management's Discussion and Analysis of Results of Operations and Financial Condition" includes forward-looking statements. Forward-looking statements include all statements that do not relate solely to historical or current facts, and generally can be identified by the use of words such as "may," "believe," "will," "expect," "project," "estimate," "intend," "anticipate," "plan," "continue," or similar expressions or future or conditional verbs.

Forward-looking statements inherently involve many risks and uncertainties that could cause actual results to differ materially from those expressed in forward-looking statements. Where, in any forward-looking statement, we 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. Investors therefore should not place undue reliance on forward-looking statements. The following include some but not all of the factors that could cause actual results or events to differ materially from those anticipated:

•the significant costs and uncertainties in the pharmaceutical research and development process, including with respect to the timing and process of obtaining regulatory approvals;

•the impact and outcome of acquisitions and business development transactions and related costs;

•the expiration of intellectual property protection for certain of our products and competition from generic and/or biosimilar products;

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

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

•competitive developments affecting current products and our pipeline;

•market uptake of recently launched products;

•information technology system inadequacies, breaches, or operating failures;

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

•the impact of global macroeconomic conditions, trade disruptions, disputes, unrest, war, regional dependencies, or other costs, uncertainties and risks related to engaging in business globally;

•unexpected safety or efficacy concerns associated with our products;

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

•issues with product supply and regulatory approvals stemming from manufacturing difficulties, disruptions, or shortages, including as a result of unpredictability and variability in demand, labor shortages, third-party performance, quality, or regulatory actions related to our facilities;

•dependence on certain products for a significant percentage of our total revenue and an increasingly consolidated supply chain;

•reliance on third-party relationships and outsourcing arrangements;

•the impact of public health outbreaks, epidemics, or pandemics, such as the COVID-19 pandemic;

•regulatory changes or other developments;

•regulatory actions regarding operations and products;

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

•devaluations in foreign currency exchange rates or changes in interest rates and inflation;

•changes in tax law, tax rates, or events that differ from our assumptions related to tax positions;

•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);

•regulatory compliance problems or government investigations; and

•actual or perceived deviation from environmental-, social-, or governance-related requirements or expectations.

3

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 our Annual Report on Form 10-K for the year ended December 31, 2022, particularly under the caption "Risk Factors." Investors should understand that it is not possible to predict or identify all such factors and should not consider the risks described above and under Part I, Item 1A, "Risk Factors" of our Annual Report on Form 10-K to be a complete statement of all potential risks and uncertainties.

All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are expressly qualified in their entirety by the cautionary statements included in or incorporated by reference into this Quarterly Report on Form 10-Q. 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 Quarterly Report on Form 10-Q.

4

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 March 31,
	2023		2022
Revenue (Note 2)	$	6,960.0	$	7,810.0
Costs, expenses, and other:
Cost of sales	1,626.7		2,072.1
Research and development	1,985.1		1,610.1
Marketing, selling, and administrative	1,749.2		1,557.9
Acquired in-process research and development (Note 3)	105.0		165.6
Other–net, (income) expense (Note 10)	(35.7)		350.7
	5,430.3		5,756.4
Income before income taxes	1,529.7		2,053.6
Income taxes (Note 6)	184.8		150.7
Net income	$	1,344.9	$	1,902.9
Earnings per share:
Basic	$	1.49	$	2.11
Diluted	$	1.49	$	2.10
Shares used in calculation of earnings per share:
Basic	901.0		903.7
Diluted	903.3		906.4

See notes to consolidated condensed financial statements.

5

Consolidated Condensed Statements of Comprehensive Income

(Unaudited)

ELI LILLY AND COMPANY AND SUBSIDIARIES

(Dollars in millions)

	Three Months Ended March 31,
	2023		2022
Net income	$	1,344.9	$	1,902.9
Other comprehensive income, net of tax (Note 9)	67.3		117.8
Comprehensive income	$	1,412.2	$	2,020.7

See notes to consolidated condensed financial statements.

6

Consolidated Condensed Balance Sheets

ELI LILLY AND COMPANY AND SUBSIDIARIES

(Dollars in millions)

	March 31, 2023		December 31, 2022
Assets	(Unaudited)
Current Assets
Cash and cash equivalents (Note 5)	$	3,545.9	$	2,067.0
Short-term investments (Note 5)	123.4		144.8
Accounts receivable, net of allowances of $14.0 (2023) and $16.0 (2022)	7,526.2		6,896.0
Other receivables	1,495.9		1,662.9
Inventories	4,544.8		4,309.7
Prepaid expenses and other current assets	3,575.2		2,954.1
Total current assets	20,811.4		18,034.5
Investments (Note 5)	2,750.4		2,901.8
Goodwill	4,073.1		4,073.0
Other intangibles, net	7,087.1		7,206.6
Deferred tax assets	3,406.7		2,792.9
Property and equipment, net of accumulated depreciation of $10,486.0 (2023) and $10,233.4 (2022)	10,546.2		10,144.0
Other noncurrent assets	4,488.1		4,337.0
Total assets	$	53,163.0	$	49,489.8
Liabilities and Equity
Current Liabilities
Short-term borrowings and current maturities of long-term debt	$	3.1	$	1,501.1
Accounts payable	2,015.9		1,930.6
Employee compensation	739.7		1,059.8
Sales rebates and discounts	9,529.5		8,784.1
Dividends payable	—		1,017.2
Income taxes payable	1,528.3		475.1
Other current liabilities	2,193.5		2,370.3
Total current liabilities	16,010.0		17,138.2
Other Liabilities
Long-term debt	18,880.5		14,737.5
Accrued retirement benefits (Note 7)	1,313.0		1,305.1
Long-term income taxes payable	3,842.1		3,709.6
Other noncurrent liabilities	1,822.5		1,824.0
Total other liabilities	25,858.1		21,576.2
Commitments and Contingencies (Note 8)
Eli Lilly and Company Shareholders' Equity
Common stock	593.5		594.1
Additional paid-in capital	6,793.1		6,921.4
Retained earnings	10,639.3		10,042.6
Employee benefit trust	(3,013.2)		(3,013.2)
Accumulated other comprehensive loss (Note 9)	(3,777.3)		(3,844.6)
Cost of common stock in treasury	(45.0)		(50.5)
Total Eli Lilly and Company shareholders' equity	11,190.4		10,649.8
Noncontrolling interests	104.5		125.6
Total equity	11,294.9		10,775.4
Total liabilities and equity	$	53,163.0	$	49,489.8

See notes to consolidated condensed financial statements.

7

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(1)			Noncontrolling Interests
	Shares	Amount										Shares	Amount
Balance at January 1, 2022	954,116	$	596.3	$	6,833.4	$	8,958.5	$	(3,013.2)	$	(4,343.1)	463	$	(52.7)	$	175.6
Net income (loss)						1,902.9									(36.6)
Other comprehensive income, net of tax										117.8
Retirement of treasury shares	(5,607)	(3.5)				(1,496.5)						(5,607)	1,500.0
Purchase of treasury shares												5,607	(1,500.0)
Issuance of stock under employee stock plans, net	2,096	1.3		(278.1)								(13)	2.2
Stock-based compensation				101.0
Other						4.5									(7.8)
Balance at March 31, 2022	950,605	$	594.1	$	6,656.3	$	9,369.4	$	(3,013.2)	$	(4,225.3)	450	$	(50.5)	$	131.2
Balance at January 1, 2023	950,632	$	594.1	$	6,921.4	$	10,042.6	$	(3,013.2)	$	(3,844.6)	450	$	(50.5)	$	125.6
Net income						1,344.9									10.0
Other comprehensive income, net of tax										67.3
Retirement of treasury shares	(2,299)	(1.4)				(748.6)						(2,299)	750.0
Purchase of treasury shares												2,299	(750.0)
Issuance of stock under employee stock plans, net	1,336	0.8		(259.5)								(48)	8.8
Stock-based compensation				131.2
Other						0.4							(3.3)		(31.1)
Balance at March 31, 2023	949,669	$	593.5	$	6,793.1	$	10,639.3	$	(3,013.2)	$	(3,777.3)	402	$	(45.0)	$	104.5

(1) As of March 31, 2023, there was $2.50 billion remaining under our $5.00 billion share repurchase program authorized in May 2021.

See notes to consolidated condensed financial statements.

8

Consolidated Condensed Statements of Cash Flows

(Unaudited)

ELI LILLY AND COMPANY AND SUBSIDIARIES

(Dollars in millions)

	Three Months Ended March 31,
	2023		2022
Cash Flows from Operating Activities
Net income	$	1,344.9	$	1,902.9
Adjustments to Reconcile Net Income to Cash Flows from Operating Activities:
Depreciation and amortization	362.3		435.7
Change in deferred income taxes	(559.4)		(506.6)
Stock-based compensation expense	131.2		101.0
Net investment losses	14.2		426.1
Acquired in-process research and development	105.0		165.6
Other changes in operating assets and liabilities, net of acquisitions and divestitures	164.1		(34.3)
Other operating activities, net	168.3		32.6
Net Cash Provided by Operating Activities	1,730.6		2,523.0
Cash Flows from Investing Activities
Purchases of property and equipment	(668.5)		(365.4)
Proceeds from sales and maturities of short-term investments	61.5		26.7
Purchases of short-term investments	(23.0)		(14.6)
Proceeds from sales of and distributions from noncurrent investments	281.9		81.4
Purchases of noncurrent investments	(146.0)		(116.7)
Purchases of in-process research and development	(235.0)		(515.6)
Other investing activities, net	40.3		(133.4)
Net Cash Used for Investing Activities	(688.8)		(1,037.6)
Cash Flows from Financing Activities
Dividends paid	(1,017.2)		(885.5)
Net change in short-term borrowings	(1,498.0)		499.7
Proceeds from issuance of long-term debt	3,958.5		—
Repayments of long-term debt	—		(710.1)
Purchases of common stock	(750.0)		(1,500.0)
Other financing activities, net	(281.0)		(282.4)
Net Cash Provided by (Used for) Financing Activities	412.3		(2,878.3)
Effect of exchange rate changes on cash and cash equivalents	24.8		33.6
Net increase (decrease) in cash and cash equivalents	1,478.9		(1,359.3)
Cash and cash equivalents at January 1	2,067.0		3,818.5
Cash and Cash Equivalents at March 31	$	3,545.9	$	2,459.2

See notes to consolidated condensed financial statements.

9

Notes to Consolidated Condensed Financial Statements

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

Note 1: Basis of Presentation

We have prepared the accompanying unaudited consolidated condensed financial statements in accordance with the requirements of Form 10-Q and, therefore, they do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States (GAAP). In our opinion, the consolidated condensed financial statements reflect all adjustments (including those that are normal and recurring) that are necessary for a fair presentation of the results of operations for the periods shown. In preparing financial statements in conformity with GAAP, we must make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures at the date of the financial statements and during the reporting period. Actual results could differ from those estimates.

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with our consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2022. We issued our financial statements by filing them with the Securities and Exchange Commission and have evaluated subsequent events up to the time of the filing of this Quarterly Report on Form 10-Q.

All per-share amounts, unless otherwise noted in the footnotes, are presented on a diluted basis; that is, based on the weighted-average number of common shares outstanding plus the effect of incremental shares from our stock-based compensation programs.

We operate as a single operating segment engaged in the discovery, development, manufacturing, marketing, and sales of pharmaceutical products worldwide. A global research and development organization and a supply chain organization are responsible for the discovery, development, manufacturing, and supply of our products. Regional commercial organizations market, distribute, and sell the products. The business is also supported by global corporate staff functions. Our determination that we operate as a single segment is consistent with the financial information regularly reviewed by the chief operating decision maker for purposes of evaluating performance, allocating resources, setting incentive compensation targets, and planning and forecasting for future periods.

Research and Development Expenses and Acquired In-Process Research and Development (IPR&D)

Research and development costs are expensed as incurred. Research and development costs consist of expenses incurred in performing research and development activities, including but not limited to, compensation and benefits, facilities and overhead expense, clinical trial expense, and fees paid to contract research organizations.

Acquired IPR&D includes the initial costs and development milestones incurred related to externally developed IPR&D projects, acquired directly in a transaction other than a business combination, that do not have an alternative future use. Development milestones are milestone payment obligations that are incurred prior to regulatory approval of the compound and are expensed when the event triggering an obligation to pay the milestone occurs.

Reclassifications

Certain reclassifications have been made to prior periods in the consolidated condensed financial statements and accompanying notes to conform with the current presentation. Development milestone payments related to externally developed IPR&D projects, acquired directly in a transaction other than a business combination, were previously included in cash flows from operating activities in the consolidated condensed statements of cash flows and are now included in purchases of IPR&D in cash flows from investing activities. The reclassification resulted in an increase to net cash provided by operating activities and net cash used in investing activities of $23.8 million for the three months ended March 31, 2022.

10

Note 2: Revenue

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

	Three Months Ended March 31,
	2023		2022
Net product revenue	$	6,238.2	$	7,132.9
Collaboration and other revenue(1)	721.8		677.1
Revenue	$	6,960.0	$	7,810.0

(1) Collaboration and other revenue associated with prior period transfers of intellectual property was $25.1 million and $53.2 million during the three months ended March 31, 2023 and 2022, 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 includes our share of profits from the collaborations, 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 Jardiance® and Trajenta® 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.

Adjustments to Revenue

Adjustments to increase revenue recognized as a result of changes in estimates for our most significant United States (U.S.) sales returns, rebates, and discounts liability balances for products shipped in previous periods were less than 1 percent of U.S. revenue during each of the three months ended March 31, 2023 and 2022.

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:

	March 31, 2023		December 31, 2022
Contract liabilities	$	220.3	$	219.2

During the three months ended March 31, 2023 and 2022, revenue recognized from contract liabilities as of the beginning of the respective 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.

11

Disaggregation of Revenue

The following table summarizes revenue by product for the three months ended March 31, 2023 and 2022:

	Three Months Ended March 31,
	2023						2022
	U.S.		Outside U.S.		Total		U.S.		Outside U.S.		Total
Revenue—to unaffiliated customers:
Diabetes:
Trulicity®	$	1,547.4	$	429.7	$	1,977.1	$	1,313.9	$	427.4	$	1,741.3
Jardiance(1)	329.4		248.1		577.5		229.8		189.7		419.4
Mounjaro®	536.4		32.0		568.5		—		—		—
Humalog® (2)	271.6		189.3		460.9		368.9		249.3		618.2
Humulin®	198.8		53.2		252.0		190.4		82.8		273.2
Basaglar®	135.4		73.9		209.3		119.3		72.2		191.5
Other diabetes	56.0		89.2		145.1		54.3		90.2		144.6
Total diabetes	3,075.0		1,115.4		4,190.4		2,276.6		1,111.6		3,388.2
Oncology:
Verzenio®	461.1		289.8		750.9		301.5		167.9		469.4
Cyramza®	100.6		136.1		236.8		79.2		151.1		230.3
Erbitux®	118.8		11.1		129.9		109.7		13.0		122.7
Alimta®	20.1		38.1		58.2		254.3		89.7		343.9
Other oncology	52.8		127.5		180.2		39.0		147.5		186.7
Total oncology	753.4		602.6		1,356.0		783.7		569.2		1,353.0
Immunology:
Taltz®	312.2		214.8		527.0		307.2		180.8		488.1
Olumiant® (3)	42.3		186.5		228.9		71.3		184.3		255.6
Other immunology	—		22.0		22.0		—		4.5		4.5
Total immunology	354.5		423.3		777.8		378.5		369.6		748.1
Neuroscience:
Emgality®	108.7		45.6		154.3		108.3		41.0		149.3
Other neuroscience	35.8		170.4		206.2		45.1		203.4		248.4
Total neuroscience	144.5		216.0		360.5		153.4		244.4		397.7
Other:
Forteo®	70.7		51.7		122.3		70.2		67.3		137.4
Cialis®	7.6		92.7		100.3		6.9		210.8		217.7
COVID-19 antibodies(4)	—		—		—		1,455.2		14.7		1,469.8
Other	30.5		22.2		52.8		50.1		47.8		98.1
Total other	108.7		166.6		275.3		1,582.4		340.6		1,923.0
Revenue	$	4,436.2	$	2,523.9	$	6,960.0	$	5,174.6	$	2,635.4	$	7,810.0

Numbers may not add due to rounding.

(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 Emergency Use Authorization (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.

12

The following table summarizes revenue by geographical area:

	Three Months Ended March 31,
	2023		2022
Revenue—to unaffiliated customers(1):
U.S.	$	4,436.2	$	5,174.6
Europe	1,090.9		1,067.3
Japan	387.2		410.2
China	372.7		406.5
Other foreign countries	673.1		751.5
Revenue	$	6,960.0	$	7,810.0

Numbers may not add due to rounding.

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

Note 3: Acquisitions and Divestitures

We engage in various forms of business development activities to enhance our product pipeline, including acquisitions, collaborations, investments, and licensing arrangements. In connection with these arrangements, our partners may be entitled to future royalties and/or commercial milestones based on sales should products be approved for commercialization and/or milestones based on the successful progress of compounds through the development process.

In December 2022, we completed the acquisition of Akouos, Inc. (Akouos). This transaction, as further discussed below in Acquisition of a Business, was accounted for as a business combination under the acquisition method of accounting. Under this method, the assets acquired and liabilities assumed were recorded at their respective fair values as of the acquisition date in our consolidated condensed financial statements. The determination of estimated fair value required management to make significant estimates and assumptions. The excess of the purchase price over the fair value of the acquired net assets, where applicable, has been recorded as goodwill. The results of operations of this acquisition is included in our consolidated condensed financial statements from the date of acquisition.

We also acquired assets in development which are further discussed below in Asset Acquisitions. Upon each acquisition, the cost allocated to acquired IPR&D was immediately expensed if the compound has no alternative future use. Milestone payment obligations incurred prior to regulatory approval of the compound are expensed as acquired IPR&D when the event triggering an obligation to pay the milestone occurs. We recognized acquired IPR&D charges of $105.0 million and $165.6 million for the three months ended March 31, 2023 and 2022, respectively.

Acquisition of a Business

Akouos Acquisition

Overview of Transaction

In December 2022, we acquired all shares of Akouos for a purchase price that included $12.50 per share in cash (or an aggregate of $327.2 million, net of cash acquired) plus one non-tradable contingent value right (CVR) per share. The CVR entitles the Akouos shareholders up to an additional $3.00 per share in cash (or an aggregate of approximately $122 million) payable, subject to certain terms and conditions, upon the achievement of certain specified milestones.

Under the terms of the agreement, we acquired potential gene therapy treatments for hearing loss and other inner ear conditions. The lead gene therapies in clinical development that we acquired included GJB2 (which encodes connexin 26) for a common form of monogenic deafness and hearing loss; AK-OTOF for hearing loss due to mutations in the otoferlin gene; AK-CLRN1 for Usher Type 3A, an autosomal recessive disorder characterized by progressive loss of both hearing and vision; and AK-antiVEGF for vestibular schwannoma.

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Assets Acquired and Liabilities Assumed

Our access to Akouos information was limited prior to the acquisition. As a consequence, we are in the process of determining fair values and tax bases of a significant portion of the assets acquired and liabilities assumed, including the identification and valuation of intangible assets and tax exposures. The final determination of these amounts will be completed as soon as possible but no later than one year from the acquisition date. The final determination may result in asset and liability fair values and tax bases that differ from the preliminary estimates and require changes to the preliminary amounts recognized.

The following table summarizes the preliminary amounts recognized for assets acquired and liabilities assumed as of the acquisition date:

Estimated Fair Value at December 1, 2022
Cash	$	153.2
Acquired IPR&D(1)	184.0
Goodwill(2)	181.2
Other assets and liabilities, net	28.9
Acquisition date fair value of consideration transferred	547.3
Less:
Cash acquired	(153.2)
Fair value of CVR liability(3)	(66.9)
Cash paid, net of cash acquired	$	327.2

(1) Acquired IPR&D intangibles primarily relate to GJB2.

(2) The goodwill recognized from this acquisition is attributable primarily to future unidentified projects and products and the assembled workforce for Akouos and is not deductible for tax purposes.

(3) See Note 5 for a discussion on the estimation of the CVR liability.

The results of operations attributable to Akouos for the three months ended March 31, 2023 were immaterial.

Pro forma information has not been included as this acquisition did not have a material impact on our consolidated condensed statements of operations for the three months ended March 31, 2022.

Asset Acquisitions

In February 2022, we acquired a Priority Review Voucher from BioMarin Pharmaceutical Inc. for $110.0 million. We recognized no other significant acquired IPR&D charges during the three months ended March 31, 2023 and 2022.

Subsequent Events - Divestitures

In April 2023, we entered into an agreement to sell the rights of the olanzapine portfolio, including Zyprexa®, to Cheplapharm Arzneimittel GmbH. Under the terms of the agreement, we will receive $1.05 billion in cash upon successful closing of the transaction and an additional $305 million in cash upon the one year anniversary of closing. We are also eligible to receive milestone payments of up to $50 million in aggregate.

In April 2023, we entered into an agreement to sell the rights of Baqsimi® to Amphastar Pharmaceuticals, Inc. Under the terms of the agreement, we will receive $500 million in cash upon successful closing of the transaction and an additional $125 million in cash upon the one year anniversary of closing. We are also eligible to receive sales-based milestone payments of up to $450 million in aggregate.

These transactions are subject to customary closing conditions and regulatory approval.

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Note 4: Collaborations and Other Arrangements

We often enter into collaborative and other similar arrangements to develop and commercialize drug candidates. Collaborative activities may include research and development, marketing and selling (including promotional activities and physician detailing), manufacturing, and distribution. These arrangements often require milestone as well as royalty or profit-share payments, contingent upon the occurrence of certain future events linked to the success of the asset in development, as well as expense reimbursements from or payments to the collaboration partner. See Note 2 for amounts of collaboration and other revenue recognized from these types of arrangements.

Operating expenses for costs incurred pursuant to these arrangements are reported in their respective expense line item, net of any payments due to or reimbursements due from our collaboration partners, with such reimbursements being recognized at the time the party becomes obligated to pay. Each collaboration is unique in nature, and our more significant arrangements are discussed below.

Boehringer Ingelheim Diabetes Collaboration

We and Boehringer Ingelheim have a global agreement to jointly develop and commercialize a portfolio of diabetes compounds. Currently included in the collaboration are Boehringer Ingelheim's oral diabetes products: Jardiance, Glyxambi, Synjardy, Trijardy XR, Trajenta, and Jentadueto® as well as our basal insulins, Basaglar and Rezvoglar®. Glyxambi, Synjardy, and Trijardy XR are included in the Jardiance product family. Jentadueto is included in the Trajenta product family. Rezvoglar is included in the Basaglar product family.

In connection with the regulatory approvals of Jardiance, Trajenta, and Basaglar in the U.S., Europe, and Japan, milestone payments made for Jardiance and Trajenta were capitalized as intangible assets and are being amortized to cost of sales, and milestone payments received for Basaglar were recorded as contract liabilities and are being amortized to collaboration and other revenue. The milestones pertaining to Jardiance and Trajenta are being amortized through their respective term under the collaboration, which, depending on country or region, is determined based on the latest to occur of (a) a defined number of years following launch date, (b) the expiration of the compound patent, or (c) the expiration of marketing authorization exclusivity. The milestones pertaining to Basaglar are being amortized through 2029. The table below summarizes the net milestones capitalized with respect to the Jardiance and Trajenta families of products and the net milestones deferred with respect to the Basaglar product family as of March 31, 2023 and December 31, 2022:

	Net Milestones Capitalized (Deferred)(1)
	March 31, 2023		December 31, 2022
Jardiance	$	111.2	$	116.2
Trajenta	57.3		63.5
Basaglar	(126.0)		(130.6)

(1) This represents the amounts that have been capitalized (deferred) from the start of this collaboration through the end of the reporting period, net of amount amortized.

For the Jardiance product family, we and Boehringer Ingelheim generally share equally the ongoing development and commercialization costs in the most significant markets, and we record our portion of the development and commercialization costs as research and development expense and marketing, selling, and administrative expense, respectively. We receive a royalty on net sales of Boehringer Ingelheim's products in the most significant markets and recognize the royalty as collaboration and other revenue. Boehringer Ingelheim is entitled to potential performance payments depending on the net sales of the Jardiance product family; therefore, our reported revenue for Jardiance may be reduced by any potential performance payments we make related to this product family. The royalty received by us related to the Jardiance product family may also be increased or decreased depending on whether net sales for this product family exceed or fall below certain thresholds. We pay to Boehringer Ingelheim a royalty on net sales for the Basaglar product family in the U.S. We record our sales of the Basaglar product family to third parties as net product revenue with the royalty payments made to Boehringer Ingelheim recorded as cost of sales.

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The following table summarizes our collaboration and other revenue recognized with respect to the Jardiance and Trajenta families of products and net product revenue recognized with respect to the Basaglar product family:

	Three Months Ended March 31,
	2023		2022
Jardiance	$	577.5	$	419.4
Basaglar	209.3		191.5
Trajenta	85.8		92.0

Olumiant

We have a worldwide license and collaboration agreement with Incyte Corporation (Incyte), which provides us the development and commercialization rights to baricitinib, which is branded and trademarked as Olumiant, and certain follow-on compounds, for the treatment of inflammatory and autoimmune diseases and COVID-19. Incyte has the right to receive tiered, double digit royalty payments on worldwide net sales with rates ranging up to 20 percent. Incyte has the right to receive an additional royalty ranging up to the low teens on worldwide net sales for the treatment of COVID-19 that exceed a specified aggregate worldwide net sales threshold. The agreement calls for payments by us to Incyte associated with certain development, success-based regulatory, and sales-based milestones.

In connection with the regulatory approvals of Olumiant in the U.S., Europe, and Japan, as well as achievement of a sales-based milestone, milestone payments of $330.0 million were capitalized as intangible assets as of March 31, 2023 and December 31, 2022 and are being amortized to cost of sales through the term of the collaboration. This represents the cumulative amounts that have been capitalized from the start of this collaboration through the end of each reporting period.

As of March 31, 2023, Incyte is eligible to receive up to $100.0 million of additional payments from us in potential sales-based milestones.

We record our sales of Olumiant, including sales of baricitinib that were made pursuant to EUA or similar regulatory authorizations, to third parties as net product revenue with the royalty payments made to Incyte recorded as cost of sales. The following table summarizes our net product revenue recognized with respect to Olumiant:

	Three Months Ended March 31,
	2023		2022
Olumiant	$	228.9	$	255.6

COVID-19 Antibodies

We have a worldwide license and collaboration agreement with AbCellera Biologics Inc. (AbCellera) to co-develop therapeutic antibodies for the potential prevention and treatment of COVID-19, including bamlanivimab and bebtelovimab, for which we hold development and commercialization rights. AbCellera has the right to receive tiered royalty payments on worldwide net sales of bamlanivimab and bebtelovimab with percentages ranging in the mid-teens to mid-twenties. Royalty payments made to AbCellera were recorded as cost of sales.

Pursuant to EUAs or similar regulatory authorizations, we recognized net product revenue associated with our sales of our COVID-19 antibodies of $1.47 billion, primarily related to bebtelovimab, for the three months ended March 31, 2022. We did not have sales of our COVID-19 antibodies during the three months ended March 31, 2023.

Lebrikizumab

We have a worldwide license agreement with F. Hoffmann-La Roche Ltd and Genentech, Inc. (collectively, Roche), which provides us the worldwide development and commercialization rights to lebrikizumab. Roche has the right to receive tiered royalty payments on future worldwide net sales ranging in percentages from high single digits to high teens if the product is successfully commercialized. As of March 31, 2023, Roche is eligible to receive up to $160.0 million of payments from us contingent upon the achievement of success-based regulatory milestones and up to $1.03 billion in a series of sales-based milestones, contingent upon the commercial success of lebrikizumab.

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We have a license agreement with Almirall, S.A. (Almirall), under which Almirall licensed the rights to develop and commercialize lebrikizumab for the treatment or prevention of dermatology indications, including, but not limited to, atopic dermatitis in Europe. We have the right to receive tiered royalty payments on future net sales in Europe ranging in percentages from low double digits to low twenties if the product is successfully commercialized. As of March 31, 2023, we are eligible to receive payments of $65.0 million from Almirall contingent upon the achievement of success-based regulatory milestones and up to $1.25 billion in a series of sales-based milestones, contingent upon the commercial success of lebrikizumab. During the three months ended March 31, 2023 and 2022, collaboration and other revenue recognized was not material.

Note 5: Financial Instruments

Investments in Equity and Debt Securities

Our equity investments are accounted for using three different methods depending on the type of equity investment:

•Investments in companies over which we have significant influence but not a controlling interest are accounted for using the equity method, with our share of earnings or losses reported in other-net, (income) expense.

•For equity investments that do not have readily determinable fair values, we measure these investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. Any change in recorded value is recorded in other-net, (income) expense.

•Our public equity investments are measured and carried at fair value. Any change in fair value is recognized in other-net, (income) expense.

We adjust our equity investments without readily determinable fair values based upon changes in the equity instruments' values resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. Downward adjustments resulting from an impairment are recorded based upon impairment considerations, including the financial condition and near term prospects of the issuer, general market conditions, and industry specific factors. Adjustments recorded for the three months ended March 31, 2023 and 2022 were not material.

The net losses recognized in our consolidated condensed statements of operations for equity