Lilly discovers, makes and sells prescription medicines, and reports a single segment: the chief executive reviews one consolidated figure, so the only disaggregation the filing offers is revenue by product and by geography. Products are sold in about 90 countries and made in the U.S., Puerto Rico, Ireland and elsewhere. About 50,000 people work there, up from 47,000, some 12,000 of them in research.
The business in one page
One molecule now carries the company. Tirzepatide — Mounjaro for diabetes, Zepbound for obesity — produced US$36,507 million, 56% of revenue, after US$16,466 million and US$5,339 million in the two prior years. The six products above US$3 billion each produced 82% of revenue against 75% a year earlier, and Europe grew 67.0%, almost all of it Mounjaro, whose revenue outside the U.S. rose from US$2.6 billion to US$9.3 billion.
A U.S. sale runs like this. Lilly invoices a wholesaler at list price — three wholesalers each account for between 16% and 24% of revenue — and at the moment of sale estimates what it will later pay back to managed-care plans, Medicare, Medicaid, chargeback and patient-assistance programmes, booking revenue net of it. In 2025 those reductions were US$62.1 billion against U.S. revenue of US$43.5 billion: **for every dollar kept, about US$1.43 of list value went back to the payment chain.** Of what remains, cost of sales takes 17%. Much of the production runs through Ireland, where tax on intercompany profit is paid before the product is sold to a third party — which is what the US$14,315 million of prepaid expenses on the balance sheet is.
The year’s result is volume, not price. Growth split into about +50% volume against −6% price consolidated and −10% in the U.S., and the constructed operating margin went from 18.9% to 28.6% to 40.4% because every operating cost line grew more slowly than revenue. But net income of US$20,640 million became US$16,813 million of operating cash and US$8,972 million of free cash flow: receivables, inventory and prepaid Irish taxes absorbed US$18.3 billion in one year. Over three years dividends and buybacks took 159% of free cash flow, and US$25.6 billion of net new debt paid for the difference.
Figures for 3 fiscal years, taken from the Key Metrics tables of each annual report. When a later filing restates a figure, we use the figure reported for that year's own filing.
Key metrics
| Metric | FY2023 | FY2024 | FY2025 |
|---|---|---|---|
| Revenue | $34.1B | $45.0B | $65.2B |
| Gross margin | 79.2% | 81.3% | 83.0% |
| Operating margin | 18.9% | 28.6% | 40.4% |
| Net margin (GAAP) | 15.4% | 23.5% | 31.7% |
| Operating cash flow | $4.24B | $8.82B | $16.8B |
| Capex | $3.45B | $5.06B | $7.84B |
| Free cash flow | $0.79B | $3.76B | $8.97B |
| Stock-based compensation | $0.63B | $0.65B | $0.63B |
| Dividends + buybacks | $4.82B | $7.18B | $9.49B |
| Net cash | -$22.4B | -$30.4B | -$35.2B |
| Total debt | $25.2B | $33.6B | $42.5B |
| Shareholders’ equity | $10.9B | $14.3B | $26.5B |
| Effective tax rate | 20.1% | 16.5% | 19.8% |
| ROIC (our construction) | – | 27.7% | 39.7% |
How Eli Lilly and Company makes money
Competitive advantage
The evidence is mixed and must be read in the filing’s own terms. Price did not hold: the company attributes the fall in realised U.S. prices primarily to Mounjaro and Zepbound, the same products that carried volume.
Research spending kept rising in absolute terms while falling as a share of revenue, from 27.3% to 20.5%.
Compound patents on tirzepatide run to 2036 in the U.S. and 2037 in major European countries, but U.S. data protection ends in 2027, and Trulicity loses U.S. compound and biologics protection the same year.
Manufacturing know-how and LillyDirect are company assertions, and the filing gives LillyDirect no revenue figure. It also names what erodes the position — mass-compounded and counterfeit incretins it says it cannot ensure are adequately regulated, payers requiring employers to opt in to obesity coverage, Chinese competitors licensing into major markets — and quantifies none of it. Whether the advantage is widening or narrowing cannot be established.
Pricing power
There is none on the main products, and the filing says so: the realised U.S. price fell 10% and the consolidated price component was −6%.
The number that decides the case is how much of each list dollar Lilly keeps: U.S. rebate reductions of US$62.1 billion against U.S. revenue of US$43.5 billion mean about US$1.43 of list value goes back for every dollar kept, and the share rose about one point in the year.
The accrual for sales rebates and discounts rose from US$11.5 billion to US$17.4 billion.
Transparency of growth
Growth was organic in the sense that matters: the acquisitions of the period brought pipeline, not revenue, so no organic and acquired split is material.
The company publishes the consolidated split of growth into volume, price and currency, but not by product, and no units.
Every product other than tirzepatide took one line in the bridge: Verzenio added US$416 million and the rest of the portfolio lost US$321 million net, within which Trulicity fell US$978 million.
Scalability
This is where the year was made. Revenue grew 44.7% while cost of sales grew 31.3%, research 21.3% and selling and administrative 29.1%.
Acquired in-process research fell from US$3,280 million to US$2,910 million, adding further to the margin.
Research and selling together take 37.5% of revenue against capital expenditure at 12.0%, and acquired research another 4.5% — so plant is the smaller part of what Lilly spends on growth.
The limit is the denominator of the return: added capital includes US$4.8 billion more construction in progress, US$5.8 billion more prepaid taxes and US$6.2 billion more inventory, none of which had produced revenue at year end.
Catalysts identified in the filing
- Capacity entering service
US$13.0 billion of construction in progress, about a third of gross plant, with no start-up dates given. Capital expenditure ran at 3.93 times depreciation and amortisation.
- Mounjaro outside the United States
Revenue outside the U.S. went from US$2.6 billion to US$9.3 billion, and Europe grew 67.0%. The non-U.S. channels carry a different rebate structure from the U.S. one.
- The pipeline bought with acquired research
US$10.0 billion of acquired in-process research charged over three years, plus US$2.7 billion of cash acquisitions. None of it added revenue in the period.
- The November 2025 government agreements
They commit to discounts with Medicare access from July 2026. The company states the concessions may not be offset by increased volume.
- The working capital unwinding
Prepaid Irish taxes of US$12.9 billion and inventories of US$13.7 billion are cash already spent. If they fall as capacity reaches production, free cash flow rises without any change in the business.
Financial analysis
Click any line to chart it.
| Income statement · $ millions | FY2023 | FY2024 | FY2025 | Where in the filing |
|---|---|---|---|---|
| Revenue | 34,124 | 45,043 | 65,179 | |
| % change year on year | – | 32.0% | 44.7% | computed |
| of which net product revenue (Note 2) | 28,814 | 40,748 | 60,958 | |
| of which collaboration and other revenue (Note 2) | 5,310 | 4,295 | 4,221 | |
| Cost of sales | 7,082 | 8,418 | 11,052 | |
| Gross profit (revenue − cost of sales; the 10-K calls it "gross margin") | 27,042 | 36,625 | 54,127 | |
| % gross margin | 79.2% | 81.3% | 83.0% | computed |
| Research and development | 9,313 | 10,991 | 13,337 | |
| — early-stage R&D (Note 17) | 3,093 | 3,917 | 4,881 | |
| — late-stage R&D (Note 17) | 6,221 | 7,074 | 8,456 | |
| Marketing, selling, and administrative | 7,404 | 8,594 | 11,094 | |
| Acquired in-process research and development | 3,800 | 3,280 | 2,910 | |
| Asset impairment, restructuring, and other special charges | 68 | 861 | 484 | |
| Other—net, (income) expense | (97) | 219 | 571 | |
| Total costs, expenses, and other | 27,570 | 32,363 | 39,448 | |
| Income before income taxes | 6,554 | 12,680 | 25,731 | |
| Income taxes | 1,314 | 2,090 | 5,091 | |
| Net income | 5,240 | 10,590 | 20,640 | |
| % net margin | 15.4% | 23.5% | 31.7% | computed |
| EPS basic (US$) | 6 | 12 | 23 | |
| EPS diluted (US$) | 6 | 12 | 23 | |
| Weighted-average shares, basic | 900 | 901 | 897 | |
| Weighted-average shares, diluted | 903 | 904 | 899 | |
| Operating income | – | – | not applicable: the statement has no operating-income line | |
| Effective tax rate (Note 14) | 20 | 17 | 20 |
| Balance sheet · $ millions | FY2023 | FY2024 | FY2025 | Where in the filing |
|---|---|---|---|---|
| Cash and cash equivalents | 2,819 | 3,268 | 7,268 | |
| Accounts receivable | 9,091 | 11,006 | 17,760 | |
| Other receivables | 2,246 | 2,270 | 2,395 | |
| Inventories | 5,773 | 7,589 | 13,744 | |
| Prepaid expenses | 5,541 | 8,341 | 14,315 | |
| Other current assets (2023: short-term investments 109.1 + other 149.5) | 259 | 266 | 147 | |
| Total current assets | 25,727 | 32,740 | 55,629 | |
| Investments | 3,052 | 3,216 | 2,802 | |
| Goodwill | 4,940 | 5,770 | 5,898 | |
| Other intangibles, net | 6,907 | 6,166 | 6,521 | |
| Deferred tax assets | 5,477 | 8,001 | 9,959 | |
| Property and equipment, net | 12,914 | 17,102 | 24,675 | |
| Other noncurrent assets | 4,990 | 5,720 | 6,992 | |
| Total assets | 64,006 | 78,715 | 112,476 | |
| Short-term borrowings and current maturities of LTD | 6,905 | 5,117 | 1,635 | |
| Accounts payable | 2,599 | 3,229 | 5,379 | |
| Employee compensation | 1,650 | 2,094 | 2,375 | |
| Sales rebates and discounts | 11,689 | 11,539 | 17,382 | |
| Other current liabilities (2023 incl. dividends payable 1,169.2) | 4,451 | 6,397 | 8,457 | |
| Total current liabilities | 27,293 | 28,376 | 35,228 | |
| Long-term debt | 18,321 | 28,527 | 40,868 | |
| Long-term income taxes payable | 3,849 | 4,061 | 5,875 | |
| Other noncurrent liabilities (2023 incl. accrued retirement benefits 1,438.8) | 3,679 | 3,479 | 3,970 | |
| Total noncurrent liabilities | 25,849 | 36,067 | 50,713 | |
| Common stock | 594 | 592 | 590 | |
| Additional paid-in capital | 7,250 | 7,439 | 7,346 | |
| Retained earnings | 10,312 | 13,545 | 24,470 | |
| Employee benefit trust | (3,013) | (3,013) | (3,013) | |
| Accumulated other comprehensive loss | (4,327) | (4,322) | (2,880) | |
| Other equity (2023: treasury (44.2) + noncontrolling interests 91.8) | 48 | 31 | 22 | |
| Total equity | 10,864 | 14,272 | 26,535 | |
| Issued shares (mn) | 950 | 948 | 945 |
| Cash flow statement · $ millions | FY2023 | FY2024 | FY2025 | Where in the filing |
|---|---|---|---|---|
| Net income | 5,240 | 10,590 | 20,640 | |
| Depreciation and amortization | 1,527 | 1,767 | 1,997 | |
| Change in deferred income taxes | (2,341) | (2,683) | (1,707) | |
| Stock-based compensation expense | 629 | 646 | 626 | |
| Gains on sale of product rights | (1,879) | (224) | (180) | |
| Acquired IPR&D (non-cash add-back; paid in investing) | 3,800 | 3,280 | 2,910 | |
| Other operating activities, net | 319 | 826 | 620 | |
| Receivables (increase) | (2,451) | (2,155) | (7,000) | |
| Inventories (increase) | (1,425) | (2,507) | (4,671) | |
| Prepaid expenses and other assets (increase) | (3,453) | (3,331) | (6,609) | |
| Accounts payable and other liabilities increase | 4,274 | 2,609 | 10,187 | |
| Net cash from operating activities | 4,240 | 8,818 | 16,813 | |
| Purchases of property and equipment | (3,448) | (5,058) | (7,841) | |
| Proceeds from noncurrent investments | 508 | 374 | 964 | |
| Purchases of noncurrent investments | (731) | (677) | (645) | |
| Proceeds from sale of product rights | 1,604 | 601 | 218 | |
| Purchases of in-process R&D | (3,944) | (3,346) | (3,008) | |
| Cash paid for acquisitions, net of cash acquired | (1,044) | (948) | (661) | |
| Other investing, net | (98) | (248) | 1 | |
| Net cash used for investing | (7,153) | (9,302) | (10,972) | |
| Dividends paid | (4,069) | (4,680) | (5,384) | |
| Net change in short-term borrowings | 4,691 | (1,852) | (4,338) | |
| Proceeds from long-term debt | 3,959 | 11,417 | 13,167 | |
| Repayments of long-term debt | – | (664) | (778) | |
| Purchases of common stock | (750) | (2,500) | (4,108) | |
| Other financing, net | (335) | (491) | (772) | |
| Net cash from (used for) financing | 3,496 | 1,230 | (2,213) | |
| FX effect on cash | 169 | (297) | 372 | |
| Net increase in cash | 752 | 449 | 4,000 | |
| Income taxes paid, net (Note 14) | 5,559 | 6,562 | 10,814 | |
| Interest paid on borrowings (Note 11) | 404 | 578 | 633 | |
| Expenditures for long-lived assets incl. software (Note 17) | 3,830 | 5,561 | 8,672 |
| Per share · $ per diluted share | FY2023 | FY2024 | FY2025 | Where in the filing |
|---|---|---|---|---|
| Revenue | 37.78 | 49.82 | 72.48 | computed |
| Net income | 5.80 | 11.71 | 22.95 | computed |
| Free cash flow | 0.88 | 4.16 | 9.98 | computed |
| Shareholders' equity | 12.03 | 15.79 | 29.51 | computed |
Computed on the weighted average diluted share count the filing reports (899.3 million in FY2025, 904.1 in FY2024, 903.3 in FY2023), checked against the diluted earnings per share printed in the filing (US$22.95, US$11.71, US$5.80). That count excludes the roughly 50 million shares held in the employee benefit trust, which the supplied share count of 943,357,420 includes. Free cash flow is operating cash flow less purchases of property and equipment; it does not deduct the cash paid for acquired in-process research, which is shown separately under investing.
| Ratios · percent | FY2023 | FY2024 | FY2025 | Where in the filing |
|---|---|---|---|---|
| Returns and margins | ||||
| Revenue growth | – | 32.0% | 44.7% | computed |
| Gross margin | 79.2% | 81.3% | 83.0% | from the statements |
| Operating margin | 18.9% | 28.6% | 40.4% | from the statements |
| Net margin | 15.4% | 23.5% | 31.7% | from the statements |
| ROIC (our construction) | – | 27.7% | 39.7% | our construction |
| Effective tax rate | 20.1% | 16.5% | 19.8% | from the statements |
| Cash | ||||
| Operating cash flow / revenue | 12.4% | 19.6% | 25.8% | computed |
| Capital expenditure / revenue | 10.1% | 11.2% | 12.0% | computed |
| Free cash flow / revenue | 2.3% | 8.3% | 13.8% | computed |
| Stock-based compensation / revenue | 1.8% | 1.4% | 1.0% | computed |
| Dividends and buybacks / free cash flow | 608.5% | 191.0% | 105.8% | computed |
| Balance sheet | ||||
| Total debt / equity | 232.2% | 235.7% | 160.2% | computed |
| Net cash / equity | -206.3% | -212.8% | -132.8% | computed |
Every ratio is computed from the figures in the statements on the left; none is a target or a benchmark.
The three statements as the Form 10-K presents them. The income statement has **no operating-income line**: it goes from revenue to “total costs, expenses, and other” and then to income before taxes, so every operating margin in this report is our construction and is declared where it appears. The company calls revenue less cost of sales “gross margin”. Acquired in-process research is charged to the income statement and added back in operating cash flow, with the cash paid shown under investing. Amounts in US$ million.
Operating measures
| Measure | FY2025 | FY2024 | Change / detail | Where in the filing |
|---|---|---|---|---|
| Revenue growth: volume | about +50% | not comparable | consolidated, not by product | MD&A revenue bridge |
| Revenue growth: price | −6% (U.S. −10%) | not comparable | attributed primarily to Mounjaro and Zepbound | MD&A revenue bridge |
| U.S. rebate and discount reductions | $62.1bn | not comparable | against U.S. revenue of $43.5bn: about $1.43 of list value back per dollar kept | Note 2 |
| Sales rebates and discounts accrued | $17,382M | $11,539M | +50.6% | BS; Note 2 |
| Tirzepatide revenue (Mounjaro + Zepbound) | $36,507M | $16,466M | +121.7%; 56.0% of revenue | Note 2 |
| Mounjaro revenue outside the U.S. | $9.3bn | $2.6bn | 3.6 times larger; Europe grew 67.0% | MD&A |
| Share of revenue from products above $3bn | 82% | 75% | six products | Note 2 |
| Research and development / revenue | 20.5% | 24.4% | rising in dollars, falling as a share | IS |
| Acquired in-process research | $2,910M | $3,280M | charged to income, added back in operating cash, paid under investing | IS; CF |
| Prepaid expenses (mostly Irish tax) | $14,315M | $8,341M | tax paid on intercompany profit before third-party sale | BS |
| Inventories | $13,744M | $7,589M | +81.1%; inventory and plant together 58.9% of a year's revenue | BS |
| Construction in progress | $13.0bn | not comparable | about a third of gross plant; no start-up dates given | Note 7 |
| Capital expenditure / depreciation and amortisation | 3.93× | 2.86× | 44.8% of cumulative net income over three years | CF |
| Employees | about 50,000 | about 47,000 | about 12,000 in research | Item 1 |
Documents behind these figures: Form 10-K for the fiscal year ended December 31, 2025 — FY2023-FY2025 · Form 10-K for the fiscal year ended December 31, 2024 — comparison of stated expectations and the December 2023 balance sheet · 2026 Proxy Statement — ownership, compensation, governance
Key risks
The main weaknesses and risks identified in the latest annual report, in the order the report presents them.
- The realised U.S. price fell 10%
The company attributes the fall primarily to Mounjaro and Zepbound — the same products that carried the volume. The November 2025 government agreements commit to further discounts, with Medicare access discounted from July 2026, and the filing says the concessions may not be offset.
- One molecule is 56% of revenue
Tirzepatide explains US$20.0 billion of the US$20.1 billion revenue increase, and the six products above US$3 billion are 82% of revenue against 75% a year earlier. U.S. data protection on tirzepatide ends in 2027, and Trulicity loses U.S. compound and biologics protection the same year.
- Free cash flow is less than half of earnings
Net income of US$20,640 million became US$16,813 million of operating cash and US$8,972 million of free cash flow. Receivables took US$7.0 billion, inventories US$4.7 billion and prepaid expenses US$6.6 billion — US$18.3 billion absorbed in one year.
- Three years of distributions were borrowed
Over 2023–2025 free cash flow was US$13.5 billion while dividends and buybacks took US$21.5 billion, 159% of it, with acquired research and acquisitions a further US$13.0 billion. Net new debt was US$25.6 billion. In 2025 alone distributions were 105.8% of free cash flow.
- The incentive measure excludes the price of the pipeline
Incentive earnings per share exclude acquired in-process research of US$10.70 per share over three years — US$2,910 million in 2025 alone, charged to the income statement and added back in operating cash flow, with the cash shown under investing.
Open questions the filing does not answer
- How many units of Mounjaro and Zepbound were shipped, and at what net price each? Without them the first decisive question stays a direction, not a measure.
- What do LillyDirect and the Medicare channel produce in revenue and at what pricing? The filing calls LillyDirect a growing portion of the business and gives it no figure.
- What was the 2025 litigation charge, and what allowance sits against receivables? Two reconciling figures for the cash question are missing.
- How does capital expenditure split between maintenance and expansion, and how much interest was capitalised? The third question rests on depreciation used as a stated proxy.
- When do the plants under construction start up, and at what capacity? Without dates, nothing says when the US$13.0 billion begins to earn.
At US$1,074.68 the market capitalises Lilly at US$1,013.8 billion, with an enterprise value of US$1,049.0 billion: 46.8 times diluted earnings, 49.1 times on the supplied share count, 107.7 times free cash flow per share, 36.4 times book value and 37.1 times EBITDA. A buyer of the whole company before its financing would receive constructed operating income equal to 2.51% of enterprise value — the one multiple not distorted by tax timing. **The price pays for income that does not yet exist.**
Growth in 2025 was volume bought partly with price, and that trade was profitable because costs grew far more slowly than revenue. The reading holds as long as the volume line of the bridge stays well above the price line; it fails if the Medicare and Medicaid channels, which the company says may not offset their concessions, push price down faster than volume grows. Medicare access is discounted from July 2026 under the November 2025 government agreements.
The gap between profit and cash is explained and temporary in nature — prepaid Irish taxes, work in process, receivables from three wholesalers — but it can only close through sales. And the capital added earned an incremental return of 60.3%, above the 39.7% average, which is the opposite of a company living on a past franchise; yet the period’s distributions exceeded free cash flow by a wide margin and debt paid for the rest. The reading holds if free cash flow covers dividends and buybacks once capital expenditure stops rising; it fails if debt keeps growing to sustain them.
Strengths
- Every operating cost line grew more slowly than revenue
The constructed operating margin went from 18.9% to 28.6% to 40.4%. Gross margin rose from 79.2% to 83.0%, research from US$9,313 million to US$13,337 million but down to 20.5% of revenue from 27.3%, and selling and administrative to 17.0% from 21.7%.
- The capital added earns more than the capital in place
An incremental return of 60.3% against an average of 39.7%, and 49.3% the year before. The improvement came from margin, not from using capital harder: after-tax operating margin rose from 23.9% to 32.4% while revenue per unit of average capital moved only from 1.16 to 1.22.
- Volume growth carried by both regions
Growth split into about +50% volume against −6% price. Europe grew 67.0% and Mounjaro outside the U.S. went from US$2.6 billion to US$9.3 billion, 3.6 times larger.
- Debt that is long-dated and cheap
Only 29.4% of borrowings mature by 2030, interest takes 3.4% of constructed operating income at an average cost of 2.35% on the reported interest line, and US$10.1 billion of committed facilities are unused.
- No dilution
The diluted share count fell 0.5%, with 4.8 million shares retired against 1.7 million issued to employees. Revenue per share grew 45.5%, slightly faster than revenue.
Last year’s watch-list, checked against this filing
| What we flagged | What happened | Result |
|---|---|---|
| Tirzepatide capacity expansion | Capital expenditure rose to US$7,841 million, 3.93 times depreciation, with US$13.0 billion still in construction and no start-up dates disclosed. | IN PROGRESS - no dates given |
| November 2025 agreements with the U.S. government | Stated in this filing; Medicare access is discounted from July 2026 and the company says the concessions may not be offset by increased volume. | TO BE CHECKED NEXT YEAR |
| Dividend increase | The dividend paid per share rose 15.4% to US$6.00, with an indicated 2026 rate of US$6.92, a further 15.3%. | DONE - carried out |
| Acquired in-process research charged over three years | US$10.0 billion charged and US$10.3 billion paid in cash; none of it added revenue in the period. | NOT VERIFIABLE - no revenue attributed |
| U.S. data protection on tirzepatide and Trulicity exclusivity | Both end in 2027; compound patents on tirzepatide run to 2036 in the U.S. and 2037 in major European countries. | TO BE CHECKED NEXT YEAR |
What to watch in the next filing
- The price component of the revenue bridge, −6% consolidated and −10% in the U.S. today. It answers whether volume keeps outrunning price.
- U.S. rebate reductions and the accrual, US$62.1 billion and US$17.4 billion today. They show whether the share of list value given back keeps rising.
- Inventories and prepaid taxes, US$13.7 billion and US$12.9 billion today. They answer whether the gap between profit and cash begins to close.
- Construction in progress, US$13.0 billion today. Its transfer into service, and the depreciation that follows, show when that capital begins to earn.
- Total debt against dividends plus buybacks less free cash flow — US$42.5 billion of debt, with distributions at 105.8% of 2025 free cash flow. They show whether distributions are still borrowed.
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