Eli Lilly and Co LLY · USD

Segment InformationWe operate as a single reportable 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. Our 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 nature of our operations and the financial information regularly reviewed by the chief executive officer, in his capacity as the chief operating decision maker (CODM), for the purposes of evaluating performance, allocating resources, setting incentive compensation targets, and planning and forecasting for future periods.Our purpose is to unite caring with discovery to create medicines that make life better for people around the world. Our long-term success is significantly dependent on our ability to research and develop innovative medicines. The CODM uses consolidated net income to assess performance of our company, ensuring that we are investing in future research and development while efficiently delivering products to patients. The CODM allocates research and development resources based upon several factors, including the likelihood of technical success, unmet medical needs, and the viability of commercial success. A significant component of the CODM’s decision-making process is to ensure a balanced investment in our research and development portfolio to drive near-term success and sustain for the long-term.The following table summarizes information for our single reportable segment, including significant segment expenses:202520242023Revenue$65,179 $45,043 $34,124 Less:Cost of sales11,052 8,418 7,082 Early-stage research and development(1)4,881 3,917 3,093 Late-stage research and development(1)8,456 7,074 6,221 Marketing, selling, and administrative11,094 8,594 7,404 Acquired in-process research and development2,910 3,280 3,800 Other segment items(2)6,146 3,170 1,285 Net income$20,640 $10,590 $5,240 Expenditures for long-lived assets(3)$8,672 $5,561 $3,830 (1) Early-stage research and development primarily includes costs incurred from discovery through Phase 2 clinical trials. Late-stage research and development primarily includes costs incurred from Phase 3 clinical trials.

RevenueThe following table summarizes our revenue recognized in our consolidated statements of operations:202520242023Net product revenue$60,958 $40,748 $28,814 Collaboration and other revenue4,221 4,295 5,310 Revenue$65,179 $45,043 $34,124 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 3 for additional information related to our collaborations and other arrangements. Collaboration and other revenue disclosed above includes the revenue resulting from our collaboration with Boehringer Ingelheim, as well as the sale of product rights. Substantially all of the remainder of collaboration and other revenue is related to contracts accounted for as contracts with customers. Net Product RevenueRevenue from sales of products is recognized at the point where the customer obtains control of the goods and we satisfy our performance obligation, which generally is at the time we ship the product to the customer. Payment terms differ by jurisdiction and customer, but payment terms in most of our major jurisdictions typically range from 30 to 70 days from date of shipment. Provisions for rebates, discounts, and returns are established in the same period the related product sales are recognized. We generally ship product shortly after orders are received; therefore, we generally only have a few days of orders received but not yet shipped at the end of any reporting period. Shipping and handling activities are considered to be fulfillment activities and are not considered to be a separate performance obligation. We exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are imposed on our sales of product and collected from a customer.Most of our products are sold to wholesalers that serve pharmacies, physicians and other healthcare professionals, and hospitals. For the years ended December 31, 2025, 2024, and 2023, our three largest wholesalers each accounted for between 16 percent and 24 percent of consolidated revenue. Further, they each accounted for between 20 percent and 29 percent of accounts receivable as of December 31, 2025 and 2024.

Income TaxesDeferred taxes are recognized for the future tax effects of temporary differences between financial and income tax reporting based on enacted tax laws and rates. Deferred taxes related to global intangible low-taxed income (GILTI) are also recognized for the future tax effects of temporary differences.We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position, based on its technical merits, will be sustained upon examination by the taxing authority. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate resolution.Following is the composition of income tax expense:202520242023Current:Domestic$4,639 $3,343 $3,042 Foreign2,159 1,430 613 Total current tax expense6,798 4,773 3,655 Deferred:Domestic(1,149)(2,210)(2,375)Foreign(558)(473)34 Total deferred tax benefit(1,707)(2,683)(2,341)Income taxes$5,091 $2,090 $1,314 Cash payments of U.S. federal, state, and foreign income taxes, net of refunds, were as follows: 202520242023Cash payments of income taxes(1)$10,814 $6,562 $5,559 (1) 2025 included U.S. federal cash payments of $3.3 billion and cash payments to Ireland of $6.6 billion. Cash payments of income taxes increased $4.3 billion in 2025 compared with 2024, driven primarily by a $4.2 billion increase in Ireland resulting from higher production activity to meet growing global demand for our medicines and a prior year tax payment. U.S. federal cash payments decreased from $3.8 billion in 2024 to $3.3 billion in 2025, driven primarily by immediate deductibility of U.S. research and development expenses, a prior year tax refund, and accelerated depreciation on U.S. capital investments, partially offset by higher U.S. income. Refer to the composition of income tax expense above regarding current income tax expense on current-year income.At December 31, 2025 and 2024, prepaid expenses included prepaid taxes of $12.9 billion and $7.1 billion, respectively. Prepaid taxes largely reflect taxes paid on intercompany profit not yet recognized, primarily related to Ireland.As of December 31, 2025, we have long-term income taxes payables of $1.1 billion that we expect to pay in 2027 and $4.8 billion that we cannot reasonably estimate the timing of future cash outflows.Following is a reconciliation of the consolidated income tax expense applying the U.S.

Stock-Based CompensationOur stock-based compensation expense includes restricted stock units (RSUs), relative value awards (RVAs), shareholder value awards (SVAs), and performance awards (PAs). We recognize the fair value of stock-based compensation as expense over the requisite service period of the individual grantees, which generally equals the vesting period. Stock-based compensation expense was as follows:202520242023Stock-based compensation expense$626 $646 $629 As of December 31, 2025, the total estimated remaining unrecognized compensation cost of $554 million was primarily related to 2.3 million of nonvested RSUs and will be amortized over the weighted-average remaining requisite service period of 21 months. We provide newly issued shares of our common stock to satisfy the issuance of shares under our stock-based compensation awards. At December 31, 2025, stock-based compensation awards may be granted under the 2002 Lilly Stock Plan for not more than 42.4 million additional shares. RSUs are granted to certain employees with a vesting period of typically three years. RSU shares are accounted for at fair value based upon the closing stock price on the date of grant. RVAs are granted to officers and management. The number of shares actually issued, if any, varies depending on the growth of our stock price at the end of the three-year vesting period compared to our peers. We measure the fair value of the RVA unit on the grant date using a Monte Carlo simulation model. SVAs have been granted to officers and management. The number of shares actually issued, if any, varies depending on our stock price at the end of the three-year vesting period compared to pre-established target stock prices. We measure the fair value of the SVA unit on the grant date using a Monte Carlo simulation model.PAs were granted to officers and management prior to 2024, as we discontinued the program. The number of PA shares actually issued varied depending on the achievement of certain pre-established earnings-per-share targets over a two-year period. PA shares were accounted for at fair value based upon the closing stock price on the date of grant. The following table summarizes the weighted-average grant date fair value per share:202520242023RSUs$844.85 $749.74 $339.30 RVAs1,154.90 1,106.40 397.95 SVAs1,056.09 1,030.87 349.63 PAs335.

LeasesWe primarily have leases for corporate offices, research and development facilities, vehicles, and equipment. Information related to operating leases as of December 31 was as follows:20252024Balance Sheet ClassificationOperating lease right-of-use assets$1,260$1,050Other noncurrent assetsOperating lease liabilities, current portion222176Other current liabilitiesOperating lease liabilities, noncurrent portion1,140971Other noncurrent liabilitiesWeighted-average remaining lease term8 years9 yearsWeighted-average discount rate4.7 %4.6 %We determine the lease term by assuming the exercise of any renewal and/or early-termination options that are reasonably assured. We generally use our incremental borrowing rate in determining the present value of lease payments.

AcquisitionsWe engage in various forms of business development activities to enhance or refine 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 if the products are approved for commercialization and/or milestones based on the successful progress of compounds through the development process. We account for each arrangement as either a business combination or an asset acquisition in accordance with GAAP.Business CombinationsWhen an acquisition met the definition of a business under GAAP, the assets acquired and liabilities assumed were recorded at their respective fair values as of the acquisition date in our consolidated 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 was recorded as goodwill. The results of operations of the acquisition are included in our consolidated financial statements from the date of acquisition.Verve AcquisitionOverview of TransactionIn July 2025, we acquired all shares of Verve Therapeutics, Inc. (Verve) for a purchase price of $10.50 per share in cash (or an aggregate of $549 million, net of cash acquired), plus one non-tradeable contingent value right (CVR) per share that entitles the holder to receive up to an additional $3.00 per share (or an aggregate of up to approximately $300 million) payable, subject to certain terms and conditions, upon the achievement of a certain specified milestone. Verve is developing genetic medicines for cardiovascular disease.Assets Acquired and Liabilities AssumedOur access to information was limited prior to this acquisition. As a consequence, we are in the process of determining fair values and tax bases 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.

Risk Management and StrategyWe manage cybersecurity threats as part of our oversight, evaluation, and mitigation of enterprise-level risks. We have based our cybersecurity program on industry frameworks, including, among others, the U.S. National Institute of Standards and Technology Cybersecurity Framework, with the goal of building enterprise resilience against an evolving landscape of cybersecurity threats and responding to cybersecurity threats as they materialize. Our program includes monitoring, identification, assessment, and management components, as well as information sharing and escalation components designed to inform management and the board of directors of prospective risks and developments.Our information security program encompasses functions dedicated to both proactive and reactive management of cybersecurity threats. We implement our cybersecurity program internally through established policies, standards, reference architectures, and the use of enterprise security services that focus on emerging and ongoing cybersecurity risks. Our proactive management of cybersecurity risks entails many actions, including the maintenance of system access restrictions, utilization of data security technology, employee education and training initiatives, and retention of cyber liability insurance, among other measures. We regularly engage third-party auditors and consultants and leverage our internal audit function to assess various facets of our cybersecurity program. These engagements include completion of industry-standard assessments or certifications, maturity model reviews, threat simulations, as well as internal reviews to assess the effectiveness of our cybersecurity processes. We also maintain enterprise-wide processes to oversee and identify risks from cybersecurity threats associated with our use of third-party service providers. As examples, we generally review current and prospective third-party service providers for unacceptable cybersecurity risks, negotiate contractual provisions that require the establishment of third-party cybersecurity controls, and deploy security measures to protect third-party communications. For companies we acquire, the integration process includes plans for alignment with relevant information security policies and procedures.We assess cybersecurity contingencies within our overall business continuity risk management planning process.

BorrowingsDebt at December 31 consisted of the following:Stated Interest Rate20252024Long-term notes: Notes due 20252.750% - 7.125%$— $778 Notes due 20261.625% - 5.000%1,632 1,529 Notes due 20273.100% - 5.500%2,516 2,516 Notes due 20280.450% - 4.550%(1)3,256 442 Notes due 20290.420% - 4.500%3,077 3,076 Notes due 20302.125% - 4.750%2,132 779 Notes due 2031 - 20400.500% - 6.770%11,582 6,166 Notes due 2041 - 20500.970% - 4.650%4,543 4,381 Notes due 2051 - 20601.125% - 5.550%8,280 5,961 Notes due 2061 - 20701.375% - 5.650%5,824 3,977 Other long term debt and adjustments(339)(298)Short-term commercial paper borrowings— 4,338 Total debt42,503 33,644 Less current portion(1,635)(5,117)Long-term debt$40,868 $28,527 (1) Included in the 2028 tranche is $750 million of floating-rate notes issued in August 2025, with interest reset and paid quarterly using the Secured Overnight Financing Rate (SOFR) plus .530 percent. The weighted-average effective borrowing rate on short-term commercial paper borrowings was 4.61 percent at December 31, 2024.At December 31, 2025, we had $10.1 billion of unused committed bank credit facilities, which consisted primarily of a $4.0 billion credit facility that expires in December 2029 and a $6.0 billion 364-day facility that expires in August 2026, both of which are available to support our commercial paper program.Below are the details of our issuances of long-term debt for the periods presented, from which the cash proceeds were used for business development activities and general business purposes, including the repayment of commercial paper:Date of IssuanceAmountMaturityStated Interest RateAugust 2025$6,750 2028-20654.000%-5.650%(1)February 20256,500 2028-20654.550%-5.600%August 20245,000 2027-20644.150%-5.200%February 20246,500 2027-20644.500%-5.100%February 20234,000 2026-20634.700%-5.000%(1) Included in the 2028 tranche is $750 million of floating-rate notes, with interest reset and paid quarterly using SOFR plus .530 percent.