01—Abstract
Summary
Summary of the 10-K filed February 19, 2019. Cited figures are marked; the original filing is the authoritative source.
Eli Lilly and Company's 2018 10-K filing highlights a strong year for revenue growth, primarily driven by the strong performance of key products like Trulicity, Taltz, Basaglar, and Jardiance.
The company reported a net profit after a net loss in the prior year, bolstered by increased revenue and a lower effective tax rate following the 2017 Tax Act. A significant strategic development was the initial public offering (IPO) of its animal health division, Elanco, with plans for a full divestiture. The company also made substantial investments in research and development and strategic acquisitions, notably ARMO Biosciences, indicating a focus on expanding its pipeline, particularly in immunology and oncology.
However, the report also flags ongoing challenges, including patent expirations for key products like Cialis and Forteo, which are expected to lead to revenue declines and increased generic competition. The company also faces scrutiny and potential pricing pressures from governments and private payers regarding drug pricing and access.
02—Key points
Key Highlights
- Revenue increased by 7% in 2018, reaching $24.56 billion, driven by strong volume growth in key pharmaceutical products such as Trulicity, Taltz, Basaglar, and Jardiance.
- The company achieved net income of $3.23 billion in 2018, a significant improvement from a net loss of $204.1 million in 2017, partly due to a lower effective tax rate following the 2017 Tax Act.
- Eli Lilly completed the initial public offering (IPO) of its animal health subsidiary, Elanco Animal Health Incorporated, retaining a significant stake, with plans for further divestiture.
- Significant investments were made in R&D and acquisitions, including the acquisition of ARMO Biosciences for $1.98 billion, focusing on expanding the pipeline in areas like oncology and immunology.
- The company faces patent expirations for key products like Cialis (expired in 2018) and Forteo (use patents expiring in August 2019), anticipating revenue declines and increased generic competition in these areas.
- Lilly is actively managing its product portfolio, with notable revenue declines for Cialis, Forteo, Strattera, and Zyprexa due to patent expiries and generic competition.
- The company anticipates ongoing pricing and reimbursement pressures from both governmental and private payers in the U.S. and internationally, which could impact future financial performance.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 19, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $21.49B$19.97B | +7.6% |
| Cost of Revenue | $4.68B$4.45B | +5.3% |
| Gross Profit | $16.81B$15.53B | +8.3% |
| R&D Expenses | $5.05B$5.10B | −0.9% |
| SG&A Expenses | $5.98B$5.98B | −0.1% |
| Interest Expense | $242.50M$225.00M | +7.8% |
| Net Income | $3.23B-$204.10M | +1683.5% |
| EPS (Basic) | $3.14$-0.19 | +1752.6% |
| EPS (Diluted) | $3.13$-0.19 | +1747.4% |
| Shares Outstanding (Basic) | 1.03B1.05B | −2.3% |
| Shares Outstanding (Diluted) | 1.03B1.05B | −1.7% |
05—Questions
Frequently Asked Questions
What were the main drivers of revenue growth in 2018?
Revenue growth in 2018 was primarily driven by increased volume from newer pharmaceutical products, including Trulicity, Taltz, Basaglar, Jardiance, Verzenio, and Cyramza. These products showed strong demand in both U.S. and international markets.
What is the company's strategy regarding its animal health business, Elanco?
Eli Lilly completed the initial public offering (IPO) of Elanco Animal Health Incorporated in September 2018, selling a 19.8% stake. The company has announced its intent to divest its remaining interest through an exchange offer, subject to certain conditions. This indicates a strategic move to focus more on its human pharmaceutical business.
What are the key risks associated with upcoming patent expirations?
Eli Lilly faces significant risks from upcoming patent expirations for key products like Cialis (major European markets in Nov 2017, U.S. Sept 2018) and Forteo (U.S. use patents expiring August 2019). The loss of patent exclusivity typically leads to the entry of generic competitors, resulting in rapid and severe declines in revenue for these products, which could materially affect the company's consolidated results of operations and cash flows.
How is the company managing research and development investments?
Eli Lilly invests heavily in R&D, focusing on areas like oncology, diabetes, neurodegeneration, immunology, and pain. The company has a substantial pipeline with approximately 45 drug candidates in human testing or under regulatory review. It supplements internal efforts through collaborations and acquisitions, such as the acquisition of ARMO Biosciences, to bolster its pipeline and pursue innovative treatments.
06—Continue