Lilly Delivers Solid Third-Quarter 2018 Results, Revises EPS Guidance

INDIANAPOLIS, Nov. 6, 2018 /PRNewswire/ -- Eli Lilly and Company (NYSE: LLY) today announced financial results for the third quarter of 2018.




                           
      $ in millions, except 
           
       Third Quarter      
     
     %


       per share data



                                                       2018                   2017        Change




       Revenue                                              $
     6,061.9                          $
     5,658.0       7%



       Net Income - Reported                       1,149.5                               555.6              
     NM



       EPS - Reported                                 1.12                                0.53              
     NM







       Net Income - Non-GAAP                       1,424.2                             1,106.7          29%



       EPS - Non-GAAP                                 1.39                                1.05          32%

    ---

Certain financial information for 2018 and 2017 is presented on both a reported and a non-GAAP basis. Some numbers in this press release may not add due to rounding. Reported results were prepared in accordance with U.S. generally accepted accounting principles (GAAP) and include all revenue and expenses recognized during the periods. Non-GAAP measures exclude the items described in the reconciliation tables later in the release. The company's 2018 financial guidance is also being provided on both a reported and a non-GAAP basis. The non-GAAP measures are presented to provide additional insights into the underlying trends in the company's business. This press release does not constitute an offer of any securities for sale.

"Lilly delivered strong financial results in the third quarter. Revenue growth driven by greater use of our newest medicines, coupled with prudent expense management, led to strong EPS growth," said David A. Ricks, Lilly's chairman and CEO. "Our strategy is to focus on discovering and developing breakthrough medicines that can help doctors and patients who need new treatment options for serious diseases. We are pleased with our progress this quarter, achieving key development and regulatory milestones in pain and diabetes, while driving continued adoption of our new medicines around the world. Consistent with our revised guidance, we expect to finish 2018 by further delivering strong performance."

Key Events Over the Last Three Months

Regulatory

    --  The U.S. Food and Drug Administration (FDA) approved, and the company
        launched in the U.S., Emgality(TM) for the preventive treatment of
        migraine in adults. In addition, the European Medicines Agency's
        Committee for Medicinal Products for Human Use (CHMP) issued a positive
        opinion for Emgality for the prophylaxis of migraine in adults who have
        at least four migraine days per month.
    --  Verzenios(TM) was approved in Europe for the treatment of women with
        hormone receptor (HR) positive, human epidermal growth factor receptor 2
        (HER2) negative locally advanced or metastatic breast cancer in
        combination with an aromatase inhibitor or fulvestrant as initial
        endocrine-based therapy, or in women who have received prior endocrine
        therapy. Verzenio(®) was also approved in Japan, where it is indicated
        for HR+, HER2- unresectable or recurrent breast cancer.

Clinical

    --  The company announced that Trulicity(®) met the primary efficacy
        objective in the REWIND clinical trial, and significantly reduced major
        adverse cardiovascular events (MACE), a composite endpoint of
        cardiovascular (CV) death, non-fatal myocardial infarction (heart
        attack) or non-fatal stroke.
    --  The company announced that results from a Phase 2b clinical trial of its
        dual GIP and GLP-1 receptor agonist (GIP/GLP-1 RA, LY3298176) showed
        strong and clinically meaningful blood sugar reduction and weight loss
        in people with type 2 diabetes. Phase 3 studies for type 2 diabetes are
        expected to begin no later than early 2019 and to be completed in late
        2021.
    --  The company and Boehringer Ingelheim announced that empagliflozin met
        the primary efficacy endpoint, defined as a change from baseline in A1C
        versus placebo after 26 weeks of treatment, for all doses investigated
        in a Phase III study in adults with type 1 diabetes.
    --  The company announced that readouts from two Phase 3 clinical trials
        demonstrated that Ultra Rapid Lispro (URLi) met the primary efficacy
        endpoint of non-inferior A1C reduction from baseline compared to
        Humalog(®) and also demonstrated significantly improved post-meal
        glucose control in people with type 1 and type 2 diabetes. Based on
        these results, the company is planning to submit URLi to regulatory
        authorities in 2019.
    --  The company and its wholly-owned subsidiary, Avid Radiopharmaceuticals,
        Inc., announced that a Phase 3 study of flortaucipir F 18, a Positron
        Emission Tomography (PET) imaging agent, met its two primary endpoints,
        defined as predicting brain tau pathology and predicting Alzheimer's
        disease diagnosis.

Business Development/Other Developments

    --  Elanco Animal Health Incorporated became a publicly traded company via
        an initial public offering (IPO). As of the closing of the IPO, Lilly
        owns approximately 80.2 percent of Elanco, and is actively working to
        divest its remaining position through a tax-efficient transaction within
        one year of the IPO. Elanco raised over $4 billion in capital from the
        IPO and associated debt offering.
    --  The company announced a license agreement with Chugai Pharmaceutical
        Co., Ltd for OWL833, Chugai's oral non-peptidic GLP-1 receptor agonist.
        OWL833 is being studied for the treatment of type 2 diabetes. Under the
        terms of the agreement, Lilly will receive worldwide development and
        commercialization rights to OWL833. Chugai will receive an upfront
        payment of $50 million and is eligible for milestone payments based on
        achievement of certain predetermined milestones. If the molecule is
        successfully commercialized, Chugai would also be eligible for royalty
        payments.
    --  The company announced a global licensing and research collaboration with
        Dicerna Pharmaceuticals focused on the discovery, development and
        commercialization of potential new medicines in the areas of
        cardio-metabolic disease, neurodegeneration and pain, utilizing
        Dicerna's RNA interference (RNAi) technology platform.
    --  The company acquired a Priority Review Voucher (PRV) from SIGA
        Technologies for $80 million. The company intends to utilize this
        voucher to fast track a product application for an existing R&D project,
        although the specific project has not yet been determined. As a result
        of this transaction, the company will record an acquired in-process
        research and development charge of $80 million (pretax), or $0.06 EPS
        (after tax), in the fourth quarter of 2018.
    --  The company announced a multi-year collaboration with NextCure, Inc.
        focused on the discovery and development of immuno-oncology cancer
        therapies. NextCure will apply its discovery platform to identify novel,
        functional immune-related targets and Lilly will develop antibodies to
        these targets.

Third-Quarter Reported Results

In the third quarter of 2018, worldwide revenue was $6.062 billion, an increase of 7 percent compared with the third quarter of 2017. The increase in revenue was driven by a 12 percent increase due to volume, partially offset by a 4 percent decrease due to lower realized prices and a 1 percent decrease due to the unfavorable impact of foreign exchange rates.

Revenue in the U.S. increased 11 percent, to $3.447 billion, driven primarily by increased volume for new pharmaceutical products, including Trulicity, Basaglar(®), Taltz(®), and Verzenio. The increase in revenue was partially offset by lower realized prices, primarily driven by Basaglar, Humalog and Taltz, as well as decreased volume for products that have lost exclusivity, including Cialis(®), Strattera(®)and Effient(®).

Revenue outside the U.S. increased 2 percent, to $2.615 billion, driven by increased volume of 8 percent, which was primarily for new pharmaceutical products, including Trulicity, Olumiant(®) and Taltz. The increase in revenue was partially offset by lower realized prices for several pharmaceutical products, decreased volume for Cialis due to loss of exclusivity, as well as the unfavorable impact of foreign exchange rates.

Gross margin increased 11 percent, to $4.500 billion, in the third quarter of 2018 compared with the third quarter of 2017. Gross margin as a percent of revenue was 74.2 percent, an increase of 2.2 percentage points compared with the third quarter of 2017. The increase in gross margin percent was primarily due to manufacturing efficiencies and, to a lesser extent, the effect of foreign exchange rates on international inventories sold and the favorable impact of product mix, partially offset by the negative impact of price on revenue.

Operating expenses in the third quarter of 2018, defined as the sum of research and development and marketing, selling, and administrative expenses, increased 1 percent to $2.960 billion. Research and development expenses remained flat at $1.343 billion, or 22.2 percent of revenue, as additional late-stage development expenditures were offset by lower development milestone payments compared to the third quarter of 2017. Marketing, selling, and administrative expenses increased 2 percent, to $1.617 billion, primarily due to increased expenses related to new pharmaceutical product launches, partially offset by reduced expenses on late life-cycle products. Both research and development expenses and marketing, selling, and administrative expenses benefited from previously-announced actions taken to reduce the company's cost structure.

In the third quarter of 2018, the company recognized acquired in-process research and development charges of $30.0 million related to a collaboration with Anima Biotech for the discovery and development of translation inhibitors for several target proteins. In the third quarter of 2017, the company recognized acquired in-process research and development charges of $205.0 million associated with strategic collaborations with Nektar Therapeutics to co-develop NKTR-358 and with KeyBioscience focused on the development of Dual Amylin Calcitonin Receptor Agonists (DACRAs).

In the third quarter of 2018, the company recognized asset impairment, restructuring, and other special charges of $83.3 million. The charges are primarily associated with asset impairment and restructuring charges related to the sale of the Posilac(®) (rbST) brand and the October 2, 2018 sale of the Augusta, Georgia manufacturing site. The charges also include expenses associated with the initial public offering and separation of the Elanco animal health business. In the third quarter of 2017, the company recognized asset impairment, restructuring and other special charges of $406.5 million. These charges were partially associated with asset impairments related to lower projected revenue for Posilac. The charges were also associated with severance costs incurred as a result of actions taken to reduce the company's cost structure.

Operating income in the third quarter of 2018 was $1.426 billion, compared to $541.7 million in the third quarter of 2017. The increase to operating income was driven by higher gross margin, lower asset impairment, restructuring, and other special charges, and, to a lesser extent, lower acquired in-process research and development charges.

Other income (expense) was expense of $15.4 million in the third quarter of 2018, compared with income of $49.9 million in the third quarter of 2017. The reduction in other income (expense) was driven by foreign exchange losses (primarily related to Argentina), higher net interest expense and mark-to-market adjustments on investment securities.

The effective tax rate was 18.5 percent in the third quarter of 2018, compared with 6.1 percent in the third quarter of 2017. The higher effective tax rate for the third quarter of 2018 is primarily due to a higher income tax benefit in the third quarter of 2017 for acquired in-process research and development charges, asset impairment, restructuring, and other special charges.

In the third quarter of 2018, net income and earnings per share were $1.149 billion and $1.12, respectively, compared with net income of $555.6 million and earnings per share of $0.53 in the third quarter of 2017. The increases in net income and earnings per share were primarily driven by higher operating income, partially offset by higher tax expense.

Third-Quarter Non-GAAP Measures

On a non-GAAP basis, third-quarter 2018 gross margin increased 10 percent, to $4.651 billion. Gross margin as a percent of revenue was 76.7 percent, an increase of 1.9 percentage points compared with the third quarter of 2017. The increase in gross margin percent was primarily due to manufacturing efficiencies and, to a lesser extent, the effect of foreign exchange rates on international inventories sold and the favorable impact of product mix, partially offset by the negative impact of price on revenue.

Reflecting the company's previously-announced actions to reduce its cost structure, operating expenses were 48.8 percent of revenue in the third quarter of 2018, a reduction of 2.7 percentage points compared with the third quarter of 2017.

Operating income increased $377.5 million, or 29 percent, to $1.692 billion in the third quarter of 2018, primarily due to higher revenue.

The effective tax rate was 15.1 percent in the third quarter of 2018, compared with 18.9 percent in the third quarter of 2017. The lower effective tax rate for the third quarter of 2018 was primarily due to U.S. tax reform enacted in December 2017.

In the third quarter of 2018, net income increased 29 percent, to $1.424 billion, and earnings per share increased 32 percent, to $1.39, compared with $1.107 billion and $1.05, respectively, in the third quarter of 2017. The increases in net income and earnings per share were primarily driven by higher operating income.

For further detail of non-GAAP measures, see the reconciliation below as well as the Reconciliation of GAAP Reported to Selected Non-GAAP Adjusted Information table later in this press release.


                                                                                                                       
      
      Third Quarter



                                                                                                                  2018                     2017     % Change




       
                Earnings per share (reported)                                                                     $
      
      1.12                      $
       
     0.53 
     
      NM



       Amortization of intangible assets                                                                          .12                          .10



       Asset impairment, restructuring and other special charges                                                  .07                          .29



       Income taxes(a)                                                                                            .05



       Acquired in-process research and development                                                               .02                          .13



       
                Earnings per share (non-GAAP)                                                                     $
      
      1.39                      $
       
     1.05     32%






       Numbers may not add due to rounding.

        (a) Relates to adjustments to the 2017 Toll Tax for U.S. tax reform proposed regulations and tax expenses
         associated with the separation of the Elanco animal health business.

    ---

Year-to-Date Results

For the first nine months of 2018, worldwide revenue increased 8 percent, to $18.117 billion, compared with $16.711 billion in the same period in 2017. Reported net income and earnings per share were $2.107 billion and $2.03, respectively, for the first nine months of 2018.

Year-to-Date Non-GAAP Measures

For the first nine months of 2018, net income and earnings per share, on a non-GAAP basis, were $4.377 billion and $4.22, respectively.

For further detail of non-GAAP measures, see the reconciliation below as well as the Reconciliation of GAAP Reported to Selected Non-GAAP Adjusted Information table later in this press release.


                                                                                                                        
     
     Year-to-Date



                                                                                                                  2018                   2017     % Change




       
                Earnings per share (reported)                                                                     $
     
     2.03                      $
       
     1.37 48%



       Acquired in-process research and development                                                              1.57                        .94



       Amortization of intangible assets                                                                          .36                        .33



       Asset impairment, restructuring and other special charges                                                  .20                        .48



       Income taxes(a)                                                                                            .05



       Other, net                                                                                                 .01                        .02



       
                Earnings per share (non-GAAP)                                                                     $
     
     4.22                      $
       
     3.14 34%




       Numbers may not add due to rounding.

        (a) Relates to adjustments to the 2017 Toll Tax for U.S. tax reform proposed regulations and tax expenses
         associated with the separation of the Elanco animal health business.

    ---



              
                Selected Revenue Highlights

    ---



                            (Dollars in millions)                      
           Third Quarter                
            Year-to-Date


                            Established Pharma                       2018                    2017         
          % Change               2018             2017    
          % Change
    Products




              Humalog                                                      $
           664.6                    $
              696.2                  (5)%         $
       2,226.1                  $
       2,083.0      7%



              Alimta(R)                                            520.5                           514.5                            1%       1,576.0               1,537.3              3%



              Cialis                                               467.1                           564.9                         (17)%       1,501.2               1,725.7           (13)%



              Forteo(R)                                            390.8                           441.7                         (12)%       1,138.5               1,235.8            (8)%



              Humulin(R)                                           322.1                           300.5                            7%         994.0                 972.8              2%



              Cymbalta(R)                                          172.0                           183.2                          (6)%         523.5                 564.4            (7)%



              Erbitux(R)                                           159.5                           163.5                          (2)%         475.5                 477.0            (0)%



              Trajenta(a)                                          135.7                           153.3                         (12)%         418.5                 408.2              3%



              Zyprexa(R)                                           109.9                           140.6                         (22)%         360.4                 428.9           (16)%



              Strattera                                             98.7                           137.1                         (28)%         343.5                 519.9           (34)%





              
                Select Products
    Launched Since 2014



              Trulicity                                            816.2                           527.7                           55%       2,274.3               1,380.8             65%



              Taltz                                                263.9                           151.3                           74%         630.4                 386.7             63%



              Cyramza(R)                                           198.4                           196.0                            1%         600.8                 553.5              9%



              Basaglar                                             201.2                           145.7                           38%         569.0                 278.3                    
         NM



              Jardiance(b)(R)                                      166.9                           127.2                           31%         465.1                 304.3             53%



              Lartruvo(R)                                           76.9                            54.5                           41%         221.2                 144.0             54%



              Verzenio                                              84.5                                                            
       NM           171.9                                         
        NM



              Olumiant                                              55.6                            16.2                             
       NM           132.5                     22.8                 
        NM



              
                Subtotal                              1,863.6                         1,218.5                           53%       5,065.3               3,070.4             65%





              
                Animal Health                           772.7                           740.6                            4%       2,326.0               2,294.8              1%





              
                Total Revenue                         6,061.9                         5,658.0                            7%      18,117.1              16,710.6              8%





              
                (a) Trajenta includes Jentadueto(R)


              
                (b) Jardiance includes Glyxambi(R) and Synjardy(R)


              NM - not meaningful


              Numbers may not add due to rounding

    ---

Selected Established Pharma Products

Humalog

For the third quarter of 2018, worldwide Humalog revenue decreased 5 percent compared with the third quarter of 2017, to $664.6 million. Revenue in the U.S. decreased 12 percent, to $365.6 million, driven by lower realized prices primarily due to changes in segment mix and the impact of patient affordability programs, partially offset by increased volume. Revenue outside the U.S. increased 6 percent, to $299.0 million, driven by increased volume, partially offset by lower realized prices and the unfavorable impact of foreign exchange rates.

Alimta

For the third quarter of 2018, Alimta generated worldwide revenue of $520.5 million, which increased 1 percent compared with the third quarter of 2017. U.S. revenue increased 11 percent, to$288.5 million, driven by increased demand and, to a lesser extent, higher realized prices. Revenue outside the U.S. decreased 9 percent to $232.0 million, driven primarily by decreased volume due to competitive pressure and loss of exclusivity in several countries.

Cialis

For the third quarter of 2018, worldwide Cialis revenue decreased 17 percent to $467.1 million. U.S. revenue was $295.9 million in the third quarter, a 7 percent decrease compared with the third quarter of 2017, driven by decreased demand due to the entry of generic sildenafil, partially offset by higher realized prices. Cialis lost exclusivity, and generic tadalafil entered the U.S. market, in late September 2018. Revenue outside the U.S. decreased 30 percent to $171.2 million, primarily driven by the loss of exclusivity in Europe.

Forteo

For the third quarter of 2018, worldwide revenue for Forteo was $390.8 million, a 12 percent decrease compared with the third quarter of 2017. U.S. revenue decreased 22 percent, to $182.5 million, primarily due to decreased demand and, to a lesser extent, lower realized prices. Revenue outside the U.S. remained flat at $208.3 million, driven by increased volume, offset by lower realized prices and the unfavorable impact of foreign exchange rates.

Humulin

For the third quarter of 2018, worldwide Humulin revenue increased 7 percent compared with the third quarter of 2017, to $322.1 million. U.S. revenue increased 7 percent, to $216.9 million, driven by increased volume. Revenue outside the U.S. increased 8 percent, to $105.1 million, primarily due to buying patterns in China, partially offset by the unfavorable impact of foreign exchange rates.

Select Products Launched Since 2014

Trulicity

Third-quarter 2018 worldwide Trulicity revenue was $816.2 million, an increase of 55 percent compared with the third quarter of 2017. U.S. revenue increased 56 percent, to $645.9 million, driven by higher demand. Revenue outside the U.S. was $170.3 million, an increase of 48 percent, primarily driven by increased volume.

Taltz

For the third quarter of 2018, worldwide Taltz revenue was $263.9 million, an increase of 74 percent compared with the third quarter of 2017. U.S. revenue was $210.6 million, an increase of 60 percent, driven by higher demand, partially offset by lower realized prices. Revenue outside the U.S. was $53.3 million, an increase of $33.3 million, driven by increased volume from new launches.

Cyramza

For the third quarter of 2018, worldwide Cyramza revenue was $198.4 million, an increase of 1 percent compared with the third quarter of 2017. U.S. revenue was $67.0 million, a decrease of 4 percent, driven by lower realized prices. Revenue outside the U.S. was $131.4 million, an increase of 4 percent, driven by increased volume, partially offset by lower realized prices.

Basaglar

For the third quarter of 2018, Basaglar generated worldwide revenue of $201.2 million, an increase of 38 percent compared with the third quarter of 2017. U.S. revenue was $157.3 million, an increase of 37 percent, driven by increased demand, partially offset by lower realized prices due to increased volume in Medicare Part D and, to a lesser extent, changes to estimates for rebates and discounts. Revenue outside the U.S. was $43.9 million, an increase of 44 percent, primarily driven by increased demand. Basaglar is part of the company's alliance with Boehringer Ingelheim, and Lilly reports total sales as revenue, with payments made to Boehringer Ingelheim for its portion of the gross margin reported as cost of sales.

Jardiance

The company's worldwide Jardiance revenue during the third quarter of 2018 was $166.9 million, an increase of 31 percent compared with the third quarter of 2017. U.S. revenue increased 24 percent, to $104.2 million, driven by increased demand. Revenue outside the U.S. was $62.7 million, an increase of 45 percent, primarily driven by increased volume. Jardiance is part of the company's alliance with Boehringer Ingelheim, and Lilly reports as revenue a portion of Jardiance's gross margin.

Lartruvo

For the third quarter of 2018, Lartruvo generated worldwide revenue of $76.9 million, an increase of 41 percent compared with third quarter of 2017. U.S. revenue increased 12 percent, to $47.4 million, driven by increased demand. Revenue outside the U.S. was $29.5 million, an increase of $17.5 million, driven by increased volume from new launches.

Verzenio

For the third quarter of 2018, Verzenio, a treatment for women with HR+, HER2- advanced breast cancer, generated U.S. revenue of $84.5 million, an increase of $26.7 million compared with the second quarter of 2018.

Olumiant

For the third quarter of 2018, Olumiant generated worldwide revenue of $55.6 million. U.S. revenue was $0.8 million. Revenue outside the U.S. was $54.8 million, an increase of $11.9 million compared with the second quarter of 2018, reflecting uptake of new launches in Europe.

Animal Health

In the third quarter of 2018, worldwide animal health revenue totaled $772.7 million, an increase of 4 percent compared with the third quarter of 2017, driven by higher prices and higher volume, partially offset by the negative impact of foreign exchange rates. In terms of animal health product categories, higher sales of companion animal disease prevention, ruminants and swine, and companion animal therapeutics products were partially offset by lower sales of products that are being exited. For specific animal health product performance, refer to today's Elanco Animal Health Incorporated press release.

2018 Financial Guidance

The company has revised certain elements of its 2018 financial guidance on a reported basis and on a non-GAAP basis. On a reported basis, earnings per share for 2018 are now expected to be in the range of $3.04 to $3.09. On a non-GAAP basis, earnings per share are now expected to be in the range of $5.55 to $5.60.


                                                                                                                                       2018   
       % Change from
                                                                                                                                                                 2017
                                                                                                                    
       Expectations




       
                Earnings per share (reported)                                                                
       
          $3.04 to $3.09 
       
                NM



       Acquired in-process research and development                                                                                   1.80



       Amortization of intangible assets                                                                                               .43



       Asset impairment, restructuring and other special charges                                                                       .22



       Income taxes(a)                                                                                                                 .05



       Other, net                                                                                                                      .01



       
                Earnings per share (non-GAAP)                                                                
       
          $5.55 to $5.60                30% to 31%




       Numbers may not add due to rounding

        (a) Relates to adjustments to the 2017 Toll Tax for U.S. tax reform proposed regulations and tax expenses
         associated with the separation of the Elanco animal health business.

    ---

The company now anticipates 2018 revenue between $24.3 billion and $24.5 billion. The increase in the low end of the revenue range from prior guidance is due to strong performance across the pharmaceutical portfolio, particularly in diabetes. Revenue growth is still expected to be driven by new products including Trulicity, Taltz, Basaglar, Jardiance, Verzenio, Cyramza, Olumiant and Lartruvo.

Marketing, selling and administrative expenses are now expected to be in the range of $6.3 billion to $6.5 billion.

The 2018 effective tax rate is still expected to be approximately 22.5 percent on a reported basis and is now expected to be approximately 16 percent on a non-GAAP basis, reflecting recently issued guidance on elements of U.S. tax reform. The 2018 effective tax rate benefits from a lower corporate income tax rate, partially offset by the changes to certain business exclusions, deductions, credits and international tax provisions. The 2018 effective tax rate is subject to change based upon changes in the company's interpretations of the tax laws, along with subsequent regulations, interpretations, guidance, and accounting policy elections that the company continues to evaluate.

The following table summarizes the company's 2018 financial guidance:


                                                            2018 Guidance


                                                                Prior                                      Revised

                                                                                                                ---


       Revenue                         
              $24.0 to $24.5 billion            
           $24.3 to $24.5 billion




        Gross Margin % of
         Revenue (reported)                                 Approx. 73.5%                
             Unchanged


        Gross Margin % of
         Revenue (non-GAAP)                                   Approx. 76%                
             Unchanged




        Marketing, Selling &
         Administrative                   
              $6.2 to $6.5 billion              
           $6.3 to $6.5 billion




        Research &
         Development                      
              $5.2 to $5.4 billion                 
             Unchanged




        Other Income/
         (Expense)                         
              $75 to $200 million                 
             Unchanged




        Tax Rate (reported)                                 Approx. 22.5%                
             Unchanged


        Tax Rate (non-GAAP)                                   Approx. 17%                              Approx. 16%




        Earnings per share
         (reported)                             
              $3.19 to $3.29                  
             $3.04 to $3.09


        Earnings per share
         (non-GAAP)                             
              $5.40 to $5.50                  
             $5.55 to $5.60




        Capital Expenditures                      Approx. $1.2 billion                    
             Unchanged




        Non-GAAP adjustments are consistent with the earnings per share table above.

    ---

Webcast of Conference Call

As previously announced, investors and the general public can access a live webcast of the third-quarter 2018 financial results conference call through a link on Lilly's website at www.lilly.com. The conference call will be held today from 9 a.m. to 10:30 a.m. Eastern time (ET) and will be available for replay via the website.

Lilly is a global healthcare leader that unites caring with discovery to create medicines that make life better for people around the world. We were founded more than a century ago by a man committed to creating high-quality medicines that meet real needs, and today we remain true to that mission in all our work. Across the globe, Lilly employees work to discover and bring life-changing medicines to those who need them, improve the understanding and management of disease, and give back to communities through philanthropy and volunteerism. To learn more about Lilly, please visit us at www.lilly.com and http://newsroom.lilly.com/social-channels. F-LLY

This press release contains management's current intentions and expectations for the future, all of which are 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. The words "estimate", "project", "intend", "expect", "believe", "target", "anticipate" and similar expressions are intended to identify forward-looking statements. Actual results may differ materially due to various factors. There are significant risks and uncertainties in pharmaceutical research and development. There can be no guarantees that pipeline products will receive the necessary clinical and manufacturing regulatory approvals or that they will prove to be commercially successful. The company's results may also be affected by such factors as the timing of anticipated regulatory approvals and launches of new products; market uptake of recently launched products; competitive developments affecting current products; the expiration of intellectual property protection for certain of the company's products; the company's ability to protect and enforce patents and other intellectual property; the impact of governmental actions regarding pricing, importation, and reimbursement for pharmaceuticals, including U.S. health care reform; regulatory compliance problems or government investigations; regulatory actions regarding currently marketed products; unexpected safety or efficacy concerns associated with the company's 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 involving current or future products; the extent to which third-party indemnification obligations relating to product liability litigation and similar matters will be performed; unauthorized disclosure of trade secrets or other confidential data stored in the company's information systems and networks; changes in tax law and regulations, including the impact of tax reform legislation enacted in December 2017 and related guidance; changes in inflation, interest rates, and foreign currency exchange rates; asset impairments and restructuring charges; changes in accounting standards promulgated by the Financial Accounting Standards Board and the Securities and Exchange Commission (SEC); acquisitions and business development transactions and related integration costs; the impact of exchange rates and global macroeconomic conditions; and uncertainties and risks related to timing and potential value to both Elanco and Lilly of the planned separation of the Elanco animal health business, including business, industry, and market risks, as well as risks involving realizing the anticipated tax-free nature of the separation. For additional information about the factors that could cause actual results to differ materially from forward-looking statements, please see the company's latest Form 10-K filed with the SEC. You should not place undue reliance on forward-looking statements, which speak only as of the date of this release. Except as is required by law, the company expressly disclaims any obligation to publicly release any revisions to forward-looking statements to reflect events after the date of this release.



              Alimta(R) (pemetrexed disodium, Lilly)
    Basaglar(R) (insulin glargine injection, Lilly)
    Cialis(R) (tadalafil, Lilly)
    Cymbalta(R) (duloxetine hydrochloride, Lilly)
    Cyramza(R) (ramucirumab, Lilly)
    Effient(R) (prasugrel, Lilly)
    Emgality(TM) (galcanezumab-gnlm, Lilly)
    Erbitux(R) (cetuximab, Lilly)
    Forteo(R) (teriparatide of recombinant DNA origin injection,
     Lilly)
    Glyxambi(R) (empagliflozin/linagliptin, Boehringer
     Ingelheim)
    Humalog(R) (insulin lispro injection of recombinant DNA
     origin, Lilly)
    Humulin(R) (human insulin of recombinant DNA origin, Lilly)
    Jardiance(R) (empagliflozin, Boehringer Ingelheim)
    Jentadueto(R) (linagliptin/metformin HCl, Boehringer
     Ingelheim)
    Lartruvo(R) (olaratumab, Lilly)
    Olumiant(R) (baricitinib, Lilly)
    Posilac(R) (recombinant bovine somatotropin, Lilly)
    Strattera(R) (atomoxetine hydrochloride, Lilly)
    Synjardy(R) (empagliflozin/metformin, Boehringer Ingelheim)
    Taltz(R) (ixekizumab, Lilly)
    Trajenta(R) (linagliptin, Boehringer Ingelheim)
    Trulicity(R) (dulaglutide, Lilly)
    Verzenio(R), Verzenios(TM) (abemaciclib, Lilly)
    Zyprexa(R) (olanzapine, Lilly)



     Eli Lilly and Company Employment Information




                                                   September 30, 2018 December 31, 2017

                                                                                    ---

      Worldwide
       Employees                                               38,585             40,655



              Eli Lilly and Company



              Operating Results  (Unaudited) - REPORTED



              (Dollars in millions, except per share data)




                                                                                                                      
              Three Months Ended                                                                  
              Nine Months Ended


                                                                                                                         
              September 30,                                                                      
              September 30,


                                                                                                                  2018         2017               % Chg.                                                         2018         2017    
              % Chg.






              Revenue                                                                               $
              6,061.9                                    $
              5,658.0                            7
                                                                                                                                                                                                         %                                                $
              18,117.1                             $
            16,710.6        8





              Cost of sales                                                                                   1,562.3                                                1,586.3                          (2)

                                                                                                                                                                                                         %                                                             4,836.3                                        4,505.9        7



              Research and development                                                                        1,343.3                                                1,340.0                            0
                                                                                                                                                                                                         %                                                             3,853.3                                        3,870.4      (0)



              Marketing, selling and administrative                                                           1,616.6                                                1,578.5                            2
                                                                                                                                                                                                         %                                                             4,770.3                                        4,876.6       (2



              Acquired in-process research                                                                       30.0                                                  205.0                         (85)

                                                                                                                                                                                                         %                                                             1,654.5                                        1,062.6       56
      and development



              Asset impairment, restructuring and                                                                83.3                                                  406.5                         (80)

                                                                                                                                                                                                         %                                                               236.0                                          670.4     (65)
         other special charges






              Operating income                                                                                1,426.4                                                  541.7                
              NM                                                             2,766.7                                        1,724.7       60





              Net interest income (expense)                                                                    (37.3)                                                (16.8)                                                                   (75.1)                                          (47.5)



              Net other income (expense)                                                                         21.9                                                   66.7                                                                     165.2                                            236.1




              Other income (expense)                                                                           (15.4)                                                  49.9                
              NM                                                                90.1                                          188.6     (52)





              Income before income taxes                                                                      1,411.0                                                  591.6                
              NM                                                             2,856.8                                        1,913.3       49



              Income taxes                                                                                      261.5                                                   36.0                
              NM                                                               749.8                                          460.5       63






              Net income                                                                            $
              1,149.5                                      $
              555.6                
              NM                                                 $
              2,107.0                              $
            1,452.8       45






              Earnings per share - diluted                                                             $
              1.12                                       $
              0.53                
              NM                                                    $
              2.03                                 $
            1.37       48






              Dividends paid per share                                                               $
              0.5625                                       $
              0.52                            8                                                   $
              1.6875                                 $
            1.56        8



              Weighted-average shares                                                                       1,026,298                                              1,056,025                                                                 1,037,759                                        1,056,972
         outstanding (thousands) - diluted





              NM - not meaningful



              Beginning in 2018, pension and postretirement benefit cost components other than service costs are presented in other income (expense). As a result, comparable amounts for the three and nine months ended September 30, 2017 have been reclassified to conform with this new presentation.




           Eli Lilly and Company



           Reconciliation of GAAP Reported to Selected Non-GAAP Adjusted Information (Unaudited)



           (Dollars in millions, except per share data)




                                                                                                                          
              Three Months Ended                                                                          
              Three Months Ended

                                                                                                                          
              September 30, 2018                                                                          
              September 30, 2017

                                                                                                                                                                                                                                              ---



                                                                                                           GAAP                      Adjustments(c)              Non-GAAP                                    GAAP              Adjustments(d)              Non-GAAP
                                                                                                   Reported                                               Adjusted(a)                                Reported                                       Adjusted(a)

                                                                                                                                                                                                                                                                ---




           Cost of sales                                                                $
              
                1,562.3                                                      $
              (151.3)                                                 $
              1,411.0                          $
     
       1,586.3         $
     (160.0) $
       1,426.3





           Operating expenses(b)                                                                               2,959.9                                                                    (1.1)                                                             2,958.8                                 2,918.5              (1.3)      2,917.1


                                                                                  30.0                                                                                (30.0)                                                                                                              205.0                (205.0)


           Acquired in-process
      research and development



           Asset impairment, restructuring                                       83.3                                                                                (83.3)                                                                                                              406.5                (406.5)
      and other special charges





           Income taxes                                                                                          261.5                                                                    (9.1)                                                               252.5                                    36.0              221.9         257.8





           Net income                                                                                          1,149.5                                                                    274.7                                                              1,424.2                                   555.6              550.9       1,106.7





           Earnings per share - diluted                                                                           1.12                                                                     0.27                                                                 1.39                                    0.53               0.52          1.05





           Numbers may not add due to rounding.



           The table above reflects only line items with non-GAAP adjustments.



           Beginning in 2018, pension and postretirement benefit cost components other than service costs are presented in other income (expense). As a result, comparable amounts for the three months ended September 30, 2017 have been reclassified to conform with this new presentation.

               (a)               The company
                                  uses non-
                                  GAAP
                                  financial
                                  measures that
                                  differ from
                                  financial
                                  statements
                                  reported in
                                  conformity
                                  with U.S.
                                  generally
                                  accepted
                                  accounting
                                  principles
                                  (GAAP). The
                                  company's
                                  non-GAAP
                                  measures
                                  adjust
                                  reported
                                  results to
                                  exclude
                                  amortization
                                  of
                                  intangibles
                                  and items
                                  that are
                                  typically
                                  highly
                                  variable,
                                  difficult to
                                  predict, and/
                                  or of a size
                                  that could
                                  have a
                                  substantial
                                  impact on the
                                  company's
                                  reported
                                  operations
                                  for a period.
                                  The company
                                  believes that
                                  these non-
                                  GAAP measures
                                  provide
                                  useful
                                  information
                                  to investors.
                                  Among other
                                  things, they
                                  may help
                                  investors
                                  evaluate the
                                  company's
                                  ongoing
                                  operations.
                                  They can
                                  assist in
                                  making
                                  meaningful
                                  period-over-
                                  period
                                  comparisons
                                  and in
                                  identifying
                                  operating
                                  trends that
                                  would
                                  otherwise be
                                  masked or
                                  distorted by
                                  the items
                                  subject to
                                  the
                                  adjustments.
                                  Management
                                  uses these
                                  non-GAAP
                                  measures
                                  internally to
                                  evaluate the
                                  performance
                                  of the
                                  business,
                                  including to
                                  allocate
                                  resources and
                                  to evaluate
                                  results
                                  relative to
                                  incentive
                                  compensation
                                  targets.
                                  Investors
                                  should
                                  consider
                                  these non-
                                  GAAP measures
                                  in addition
                                  to, not as a
                                  substitute
                                  for or
                                  superior to,
                                  measures of
                                  financial
                                  performance
                                  prepared in
                                  accordance
                                  with GAAP.


               (b)               Operating
                                  expenses
                                  include
                                  research and
                                  development
                                  and
                                  marketing,
                                  selling and
                                  administrative
                                  expenses.


               (c)               Adjustments to
                                  certain GAAP
                                  reported
                                  measures for
                                  the three
                                  months ended
                                  September 30,
                                  2018, include
                                  the
                                  following:


              (Dollars in millions, except per                                    Amortization(i)    IPR&D(ii)           Other           Income              Total
    share data)                                                                                                  specified       taxes(iv)       Adjustments
                                                                                                                items(iii)

                                                                                                                                                                ---


              Cost of sales                                                                       $
       (152.3)                     
              $                            $
     1.0           
     $ $
     
     (151.3)





              Operating expenses                                                            (1.1)                                                                                  (1.1)



              Acquired in-process research and                                                  -                       (30.0)                                                    (30.0)
         development



              Asset impairment, restructuring and                                               -                                                           (83.3)                (83.3)
         other special charges





              Income taxes                                                                   29.9                           6.3                                 10.2 (55.5)           (9.1)





              Net income                                                                    123.5                          23.7                                 72.1   55.5            274.7





              Earnings per share - diluted                                                   0.12                          0.02                                 0.07   0.05             0.27





              Numbers may not add due to rounding.



              The table above reflects only line items with non-GAAP adjustments.

          i.           Exclude amortization of intangibles
                        primarily associated with costs of
                        marketed products acquired or
                        licensed from third parties.


      ii.    Exclude costs associated with
                        upfront payments for acquired in-
                        process research and development
                        projects acquired in a transaction
                        other than a business combination.
                        These costs were related to
                        business development activity for
                        the collaboration with Anima
                        Biotech for the discovery and
                        development of translation
                        inhibitors for several target
                        proteins.


     iii.    Exclude charges primarily
                        associated with asset impairment
                        and restructuring charges related
                        to the asset impairment and
                        restructuring charges related to
                        the sale of the Posilac (rbST)
                        brand and the October 2, 2018 sale
                        of the Augusta, Georgia
                        manufacturing site. The charges
                        also include expenses associated
                        with the initial public offering
                        and separation of the Elanco
                        animal health business.


      iv.    Relates to adjustments to the 2017
                        Toll Tax for U.S. tax reform
                        proposed regulations and tax
                        expenses associated with the
                        separation of the Elanco animal
                        health business.



               (d)               Adjustments to certain GAAP
                                  reported measures for the three
                                  months ended September 30,
                                  2017, include the following:


              (Dollars in millions, except per                                    Amortization(i)    IPR&D(ii)           Other              Total
    share data)                                                                                                  specified       Adjustments
                                                                                                                items(iii)

                                                                                                                                               ---


              Cost of sales                                                                       $
       (154.5)                            
         $                     $
     (5.5) $
     
     (160.0)





              Operating expenses                                                            (1.3)                                                             (1.3)



              Acquired in-process research and                                                  -                      (205.0)                              (205.0)
         development



              Asset impairment, restructuring and other                                         -                                                 (406.5)   (406.5)
         special charges





              Income taxes                                                                   46.8                          71.8                       103.3      221.9





              Net income                                                                    109.0                         133.3                       308.7      550.9





              Earnings per share - diluted                                                   0.10                          0.13                        0.29       0.52





              Numbers may not add due to rounding.



              The table above reflects only line items with non-GAAP adjustments.



          i.           Exclude amortization of intangibles
                        primarily associated with costs of
                        marketed products acquired or
                        licensed from third parties.


      ii.    Exclude costs associated with upfront
                        payments for acquired in-process
                        research and development projects
                        acquired in a transaction other than
                        a business combination.  These costs
                        are related to collaborations with
                        Nektar Therapeutics and with
                        KeyBioscience.


     iii.    Exclude charges primarily associated
                        with asset impairments related to
                        lower projected revenue for Posilac
                        (rbST) and severance costs incurred
                        as a result of actions taken to
                        reduce the company's cost structure.



           Eli Lilly and Company



           Reconciliation of GAAP Reported to Selected Non-GAAP Adjusted Information (Unaudited)



           (Dollars in millions, except per share data)




                                                                                                                                    
     Nine Months Ended                                                 
              Nine Months Ended
                                                                                                                                                                                                               September 30, 2017
                                                                                                                                    
     September 30, 2018

                                                                                                                                                                                                  ---



                                                                                                                     GAAP             Adjustments(c)            Non-GAAP                         GAAP Adjustments(d)              Non-GAAP
                                                                                                             Reported                                    Adjusted(a)                     Reported                          Adjusted(a)

                                                                                                                                                                                                                                       ---




           Cost of sales                                                                                 $
       
                4,836.3                                         $
       (487.8)                                  $
              4,348.5          $
     
       4,505.9           $
      (537.1)       $
       3,968.8





           Operating expenses(b)                                                                                         8,623.6                                                (3.7)                                              8,619.9                 8,747.0                 (4.9)            8,742.1



           Acquired in-process research and                                                      1,654.5                                                         (1,654.5)                                                                   1,062.6                 (1,062.6)
      development



           Asset impairment, restructuring and other                                               236.0                                                           (236.0)                                                                     670.4                   (670.4)
      special charges





           Other income (expense)                                                                   90.1                                                            (25.8)                                        64.3                          188.6                                      188.6





           Income taxes                                                                                                    749.8                                                 86.2                                                 836.0                   460.5                 404.2               864.6





           Net income                                                                                                    2,107.0                                              2,270.0                                               4,377.0                 1,452.8               1,870.8             3,323.7





           Earnings per share - diluted                                                                                     2.03                                                 2.19                                                  4.22                    1.37                  1.77                3.14





           Numbers may not add due to rounding.



           The table above reflects only line items with non-GAAP adjustments.



               (a)               The company uses non-GAAP
                                  financial measures that differ
                                  from financial statements reported
                                  in conformity with U.S. generally
                                  accepted accounting principles
                                  (GAAP). The company's non-GAAP
                                  measures adjust reported results
                                  to exclude amortization of
                                  intangibles and items that are
                                  typically highly variable,
                                  difficult to predict, and/or of a
                                  size that could have a substantial
                                  impact on the company's reported
                                  operations for a period. The
                                  company believes that these non-
                                  GAAP measures provide useful
                                  information to investors. Among
                                  other things, they may help
                                  investors evaluate the company's
                                  ongoing operations. They can
                                  assist in making meaningful
                                  period-over-period comparisons
                                  and in identifying operating
                                  trends that would otherwise be
                                  masked or distorted by the items
                                  subject to the adjustments.
                                  Management uses these non-GAAP
                                  measures internally to evaluate
                                  the performance of the business,
                                  including to allocate resources
                                  and to evaluate results relative
                                  to incentive compensation targets.
                                  Investors should consider these
                                  non-GAAP measures in addition to,
                                  not as a substitute for or
                                  superior to, measures of financial
                                  performance prepared in accordance
                                  with GAAP.


               (b)               Operating expenses include research
                                  and development and marketing,
                                  selling and administrative
                                  expenses.


               (c)               Adjustments to certain GAAP
                                  reported measures for the nine
                                  months ended September 30, 2018,
                                  include the following:


              (Dollars in millions, except per                                    Amortization(i)    IPR&D(ii)           Other           Income               Total
    share data)                                                                                                  specified       taxes(iv)       Adjustments
                                                                                                                items(iii)

                                                                                                                                                                 ---


              Cost of sales                                                                       $
       (455.0)                     
              $                             $
     (32.8)             
     $ $
     
     (487.8)





              Operating expenses                                                            (3.7)                                                                                         (3.7)



              Acquired in-process research and development                                      -                    (1,654.5)                                                        (1,654.5)



              Asset impairment, restructuring and other special charges                         -                                                           (236.0)                     (236.0)





              Other income (expense)                                                            -                                                            (25.8)                      (25.8)





              Income taxes                                                                   89.8                          20.3                                  31.5 (55.5)                  86.2





              Net income                                                                    368.9                       1,634.1                                 211.4   55.5                2,270.0





              Earnings per share - diluted                                                   0.36                          1.57                                  0.21   0.05                   2.19





              Numbers may not add due to rounding.



              The table above reflects only line items with non-GAAP adjustments.

                      i.              Exclude amortization of intangibles
                                       primarily associated with costs of
                                       marketed products acquired or
                                       licensed from third parties.


          ii.              Exclude costs associated with
                                       upfront payments for acquired in-
                                       process research and development
                                       projects acquired in a transaction
                                       other than a business combination.
                                       These costs were related to
                                       business development activity,
                                       primarily driven by the
                                       acquisitions of ARMO BioSciences
                                       ($1.476B) and AurKa Pharma
                                       ($81.8M), as well as
                                       collaborations with Sigilon
                                       Therapeutics ($66.9M) and Anima
                                       Biotech ($30.0M).


         iii.              Exclude charges primarily
                                       associated with asset impairment
                                       and restructuring charges related
                                       to expenses associated with the
                                       sale of the Posilac(R) (rbST)
                                       brand and Augusta, Georgia
                                       manufacturing site, the review of
                                       strategic alternatives for,
                                       including expenses associated with
                                       the initial public offering and
                                       separation of, the Elanco animal
                                       health business, as well as
                                       charges related to the suspension
                                       of commercial activities for
                                       Imrestor.


          iv.              Relates to adjustments to the 2017
                                       Toll Tax for U.S. tax reform
                                       proposed regulations and tax
                                       expenses associated with the
                                       separation of the Elanco animal
                                       health business.




     (d) Adjustments to certain
          GAAP reported
          measures for the nine
          months ended
          September 30, 2017,
          include the
          following:




              (Dollars in millions, except per                                    Amortization(i)    IPR&D(ii)           Other              Total
    share data)                                                                                                  specified       Adjustments
                                                                                                                items(iii)

                                                                                                                                               ---


              Cost of sales                                                                       $
       (505.1)                            
         $                       $
     (32.0) $
     
     (537.1)





              Operating expenses                                                            (4.9)                                                               (4.9)



              Acquired in-process research and                                                  -                    (1,062.6)                              (1,062.6)
         development



              Asset impairment, restructuring and other                                         -                                                 (670.4)     (670.4)
         special charges





              Income taxes                                                                  157.5                          71.8                       174.9        404.2





              Net income                                                                    352.6                         990.8                       527.4      1,870.8





              Earnings per share - diluted                                                   0.33                          0.94                        0.50         1.77





              Numbers may not add due to rounding.



              The table above reflects only line items with non-GAAP adjustments.



          i.           Exclude amortization of intangibles
                        primarily associated with costs of
                        marketed products acquired or licensed
                        from third parties.


      ii.    Exclude costs associated with upfront
                        payments for acquired in-process
                        research and development projects
                        acquired in a transaction other than a
                        business combination.  These costs are
                        related to the acquisition of CoLucid
                        Pharmaceuticals and to collaborations
                        with Nektar Therapeutics and with
                        KeyBioscience.


     iii.    Exclude charges related to severance
                        costs incurred as a result of actions
                        taken to reduce the company's cost
                        structure, asset impairments related to
                        lower projected revenue for Posilac
                        (rbST), and integration costs, asset
                        impairments related to the acquisition
                        and integration of Novartis Animal
                        Health, as well as inventory step-up
                        costs associated with the acquisition
                        of Boehringer Ingelheim Vetmedica's
                        U.S. feline, canine and rabies vaccine
                        portfolio.

Refer to:
Mark Taylor; mark.taylor@lilly.com; (317) 276-5795 (Media)
Kevin Hern; hern_kevin_r@lilly.com; (317) 277-1838 (Investors)

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SOURCE Eli Lilly and Company