What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-02-22 compared with 2022-02-23 · 423 added, 592 removed, 1349 unchanged (43% of the section changed)

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Marketing, selling, and administrative 6,440.4 6,431.6 6,121.2

Acquired in-process research and development (Note 3) 874.9 660.4 239.6

Acquired in-process research and development and development milestones (Note 3) 908.5 970.1 769.8

Asset impairment, restructuring, and other special charges

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Income taxes (Note 14) 561.6 573.8 1,036.2

Net income from continuing operations 5,581.7 6,193.7 4,637.9

Net income from discontinued operations (Note 19) — — 3,680.5

Net income $ 6,244.8 $ 5,581.7 $ 6,193.7

Earnings per share:

Earnings from continuing operations - basic $ 6.15 $ 6.82 $ 4.98

Earnings from discontinued operations - basic — — 3.95

Earnings per share - basic $ 6.15 $ 6.82 $ 8.93

Earnings from continuing operations - diluted $ 6.12 $ 6.79 $ 4.96

Earnings from discontinued operations - diluted — — 3.93

Earnings per share - diluted $ 6.12 $ 6.79 $ 8.89

Basic $ 6.93 $ 6.15 $ 6.82

Diluted $ 6.90 $ 6.12 $ 6.79

Shares used in calculation of earnings per share:

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Net income $ 6,244.8 $ 5,581.7 $ 6,193.7

Other comprehensive income (loss) from continuing operations:

Other comprehensive income (loss):

Change in foreign currency translation gains (losses) ( 248.1 ) 13.5 122.1

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Change in effective portion of cash flow hedges 432.9 151.6 ( 152.9 )

Other comprehensive income (loss) from continuing operations before income taxes 2,848.6 ( 173.7 ) ( 991.2 )

Benefit (provision) for income taxes related to other comprehensive income (loss) from continuing operations ( 695.3 ) 200.9 151.0

Other comprehensive income (loss) from continuing operations, net of tax (Note 17) 2,153.3 27.2 ( 840.2 )

Other comprehensive income from discontinued operations, net of tax (Note 17) — — 56.8

Other comprehensive income (loss), net of tax (Note 17) 2,153.3 27.2 ( 783.4 )

Other comprehensive income (loss) before income taxes 748.5 2,848.6 ( 173.7 )

Benefit (provision) for income taxes related to other comprehensive income (loss) ( 250.0 ) ( 695.3 ) 200.9

Other comprehensive income, net of tax (Note 17) 498.5 2,153.3 27.2

Comprehensive income $ 6,743.3 $ 7,735.0 $ 6,220.9

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Inventories (Note 6) 4,309.7 3,886.0

Prepaid expenses and other 2,530.6 2,871.5

Prepaid expenses and other current assets 2,954.1 2,530.6

Total current assets 18,034.5 18,452.4

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ELI LILLY AND COMPANY AND SUBSIDIARIES

(Dollars in millions, shares in thousands) Common Stock Additional

(Dollars in millions, except per-share data, and shares in thousands) Common Stock Additional

Capital Retained

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Net income 6,193.7 126.6

Other comprehensive income (loss), net of tax ( 794.4 ) 11.0

Other comprehensive income, net of tax 27.2

Cash dividends declared per share:

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Stock-based compensation 308.1

Acquisition of common stock in exchange offer 65,001 ( 8,027.5 )

Deconsolidation of Elanco ( 1,028.9 )

Other ( 2.2 ) ( 35.2 )

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Balance at December 31, 2021 954,116 596.3 6,833.4 8,958.5 ( 3,013.2 ) ( 4,343.1 ) 463 ( 52.7 ) 175.6

Net income 5,581.7 3.4

Net income (loss) 6,244.8 ( 20.9 )

Other comprehensive income, net of tax 498.5

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Adjustments to Reconcile Net Income to Cash Flows from Operating Activities:

Gain related to disposition of Elanco (Note 19) — — ( 3,680.5 )

Gain on sale of antibiotic business in China (Note 3) — — ( 309.8 )

Depreciation and amortization 1,522.5 1,547.6 1,323.9

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Stock-based compensation expense 371.1 342.8 308.1

Net investment gains ( 178.0 ) ( 1,438.5 ) ( 403.1 )

Net investment (gains) losses 420.0 ( 178.0 ) ( 1,438.5 )

Acquired in-process research and development (Note 3) 420.9 874.9 660.4

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Cash paid for acquisitions, net of cash acquired (Note 3) ( 327.2 ) ( 747.4 ) ( 849.3 )

Cash distributed to Elanco upon disposition — — ( 374.0 )

Cash received for sale of antibiotic business in China — — 354.8

Other investing activities, net ( 206.4 ) 24.3 102.8

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Net increase (decrease) in cash and cash equivalents ( 1,751.5 ) 161.4 1,319.6

Cash and cash equivalents at beginning of year (2019 includes $ 677.5 of discontinued operations)

3,657.1 2,337.5 7,998.2

Cash and cash equivalents at beginning of year 3,818.5 3,657.1 2,337.5

Cash and Cash Equivalents at End of Year $ 2,067.0 $ 3,818.5 $ 3,657.1

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

Summary of Significant Accounting Policies and Implementation of New Financial Accounting Standard

Summary of Significant Accounting Policies and Implementation of New Financial Accounting Standards

Basis of Presentation

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Certain reclassifications have been made to prior periods in the consolidated financial statements and accompanying notes to conform with the current presentation.

All per-share amounts, unless otherwise noted in the footnotes, are presented on a diluted basis.

On March 11, 2019, we completed the disposition of our remaining 80.2 percent ownership of Elanco Animal Health Incorporated (Elanco) common stock through a tax-free exchange offer.

As a result, Elanco has been presented as discontinued operations in our consolidated financial statements for all periods presented.

We operate as a single operating segment engaged in the discovery, development, manufacturing, marketing, and sales of pharmaceutical products worldwide.

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Our determination that we operate as a single segment is consistent with the financial information regularly reviewed by the chief operating decision maker for purposes of evaluating performance, allocating resources, setting incentive compensation targets, and planning and forecasting for future periods.

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

Research and development expenses include the following:

• Research and development costs, which are expensed as incurred.

• Milestone payment obligations incurred prior to regulatory approval of the product, which are accrued when the event requiring payment of the milestone occurs.

Acquired IPR&D expense includes the initial costs of externally developed IPR&D projects, acquired directly in a transaction other than a business combination, that do not have an alternative future use.

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

Research and development costs are expensed as incurred.

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

Acquired IPR&D and development milestones include the initial costs of externally developed IPR&D projects, acquired directly in a transaction other than a business combination, that do not have an alternative future use.

Additionally, milestone payment obligations related to these transactions that are incurred prior to regulatory approval of the compound are expensed when the event triggering an obligation to pay the milestone occurs.

Earnings Per Share (EPS)

All per-share amounts, unless otherwise noted in the footnotes, are presented on a diluted basis.

We calculate basic EPS based on the weighted-average number of common shares outstanding plus the effect of incremental shares from potential participating securities.

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Our other significant accounting policies are described in the remaining appropriate notes to the consolidated financial statements.

Implementation of New Financial Accounting Standard

Accounting Standards Update 2021-01, Reference Rate Reform, provides for temporary optional expedients and exceptions in applying current GAAP to contracts, hedging relationships, and other transactions affected by the transition from the use of the London Interbank Offered Rate (LIBOR) to an alternative reference rate.

The standard can be adopted immediately and is applicable to contracts entered into before January 1, 2023.

We do not expect the transition from the use of LIBOR to an alternative reference rate to have a material impact to our consolidated statements of operations or balance sheets at the initial transition.

Implementation of New Financial Accounting Standards

Accounting Standards Update (ASU) 2021-10, Government Assistance , establishes annual disclosure requirements for companies that analogize to a grant or contribution accounting model for government assistance transactions.

We adopted the standard as of January 1, 2022.

The adoption did not impact our financial statement disclosures.

ASU 2020-04, Reference Rate Reform , as further modified by ASU 2021-01 and ASU 2022-06, provides for temporary optional expedients and exceptions in applying current GAAP to contracts, hedging relationships, and other transactions affected by the transition from the use of the London Interbank Offered Rate (LIBOR) to an alternative reference rate.

The standard is currently applicable to contracts entered into before January 1, 2025.

We adopted the standard in the first quarter of 2022.

The adoption did not have a material impact on our consolidated financial statements .

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

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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 will include our share of profits from the collaboration, as well as royalties, upfront and milestone payments we receive under these types of contracts.

Revenue recognized from collaborations and other arrangements includes our share of profits from the collaborations, as well as royalties, upfront and milestone payments we receive under these types of contracts.

See Note 4 for additional information related to our collaborations and other arrangements.

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Any exceptions are either not material or we collect interest for payments made after the due date.

Provisions for rebates, discounts, and returns are established in the same period the related sales are recognized.

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;

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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 health care professionals, and hospitals.

Most of our products are sold to wholesalers that serve pharmacies, physicians and other healthcare professionals, and hospitals.

For the years ended December 31, 2022, 2021, and 2020, our three largest wholesalers each accounted for between 16 percent and 21 percent of consolidated revenue.

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Contracts with direct and indirect customers may provide for various rebates and discounts that may differ in each contract.

As a consequence, to determine the appropriate transaction price for our product sales at the time we recognize a sale to a direct customer, we must estimate any rebates or discounts that ultimately will be due to the direct customer and other customers in the distribution chain under the terms of our contracts.

As a consequence, to determine the appropriate transaction price for our product sales at the time we recognize a sale to a direct customer, we estimate any rebates or discounts that ultimately will be due to the direct customer and other customers in the distribution chain under the terms of our contracts.

Significant judgments are required in making these estimates.

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We estimate these accruals using an expected value approach.

• The largest of our sales rebate and discount amounts are rebates associated with sales covered by managed care, Medicare, Medicaid, chargeback, and patient assistance programs in the U.S.

In determining the appropriate accrual amount, we consider our historical rebate payments for these programs by product as a percentage of our historical sales as well as any significant changes in sales trends (e.g., patent expiries and product launches), an evaluation of the current contracts for these programs, the percentage of our products that are sold via these programs, and our product pricing.

Although we accrue a liability for rebates related to these programs at the time we record the sale, the rebate related to that sale is typically paid up to six months later.

Because of this time lag, in any particular period our rebate adjustments may incorporate revisions of accruals for several periods.

• The largest of our sales rebate and discount amounts include rebates associated with sales covered by managed care, Medicare, Medicaid, and chargeback programs, as well as reductions in revenue related to our patient assistance programs, in the U.S.

In determining the appropriate accrual amount, we consider our historical rebate payments for these programs, as well as patient assistance program costs, by product as a percentage of our historical sales as well as any significant changes in sales trends (e.g., patent expiries and product launches), an evaluation of the current contracts for these programs, the percentage of our products that are sold via these programs, and our product pricing.

Although we accrue a liability for revenue reductions related to these programs at the time we record the sale, the reduction related to that sale is typically paid up to six months later.

Because of this time lag, in any particular period our net product revenue may incorporate revisions of accruals for several periods.

• Most of our rebates outside the U.S.

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This estimate is based on several factors, including:

historical return rates, expiration date by product (on average, approximately 24 months after the initial sale of a product to our customer), and estimated levels of inventory in the wholesale and retail channels, as well as any other specifically-identified anticipated returns due to known factors such as the loss of patent exclusivity, product recalls and discontinuances, or a changing competitive environment.

historical return rates, expiration date by product (on average, approximately 24 months after the initial sale of a product to our customer), and estimated levels of inventory in the wholesale and retail channels, as well as any other specifically identified anticipated returns due to known factors such as the loss of patent exclusivity, product recalls and discontinuations, or a changing competitive environment.

We maintain a returns policy that allows most U.S.

customers to return product for dating issues within a specified period prior to and subsequent to the product's expiration date.

customers to return most of our products for dating issues within a specified period prior to and subsequent to the product's expiration date.

Following the loss of exclusivity for a patent-dependent product, we expect to experience an elevated level of product returns as product inventory remaining in the wholesale and retail channels expires.

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Adjustments to Revenue

We record adjustments to revenue as a result of changes in estimates, for the judgments described above, for our most significant U.S.

sales returns, rebates and discounts liability balances.

Such adjustments for products shipped in previous periods resulted in approximately 2 percent or less increase to U.S revenue during each of the years ended December 31, 2021, 2020, and 2019.

Adjustments to increase revenue, recognized as a result of changes in estimates for our most significant U.S.

sales returns, rebates, and discounts liability balances for products shipped in previous periods, were less than 1 percent of U.S.

revenue during each of the years ended December 31, 2022, 2021, and 2020.

Collaboration and Other Arrangements

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• Revenue related to products we sell pursuant to these arrangements is included in net product revenue, while other sources of revenue (e.g., royalties and profit sharing from our partner) are included in collaboration and other revenue.

• Initial fees and developmental milestones we receive in collaborative and other similar arrangements from the partnering of our compounds under development are generally deferred and amortized into income through the expected product approval date.

• Profit-sharing due from our collaboration partners, which is based upon gross margins reported to us by our partners, is recognized as collaboration and other revenue as earned.

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$ 5,688.8 $ 4,914.4 $ 3,835.9 $ 1,750.9 $ 1,557.6 $ 1,232.2

Humalog ® (1)

1,320.7 1,485.6 1,669.7 1,132.3 1,140.3 1,151.0

Jardiance (1)

1,194.5 807.3 620.8 871.5 683.5 533.0

Humalog ® (2)

1,191.9 1,320.7 1,485.6 868.7 1,132.3 1,140.3

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470.7 588.3 842.3 289.7 304.2 282.1

366.6 — — 115.9 — —

Other diabetes 268.4 255.7 258.1 367.8 401.6 344.5

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Numbers may not add due to rounding.

(1) Humalog revenue includes insulin lispro.

(1) Jardiance revenue includes Glyxambi ® , Synjardy ® , and Trijardy ® XR.

(3) Trajenta revenue includes Jentadueto ® .

(4) Olumiant revenue includes sales for baricitinib, for treatment in hospitalized COVID-19 patients, that were made pursuant to Emergency Use Authorization (EUA) or similar regulatory authorizations.

(5) COVID-19 antibodies include sales for bamlanivimab administered alone as well as sales for bamlanivimab and etesevimab administered together and were made pursuant to EUAs or similar regulatory authorizations.

(2) Humalog revenue includes insulin lispro.

(3) Olumiant revenue includes sales for baricitinib that were made pursuant to Emergency Use Authorization (EUA) or similar regulatory authorizations.

(4) COVID-19 antibodies include sales for bamlanivimab administered alone, for bamlanivimab and etesevimab administered together, and for bebtelovimab and were made pursuant to EUAs or similar regulatory authorizations.

The following table summarizes revenue by geographical area:

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

Acquisitions and Divestiture

In January 2021, February 2020 and 2019, we completed the acquisitions of Prevail Therapeutics Inc.

(Prevail), Dermira, Inc.

(Dermira) and Loxo Oncology, Inc.

(Loxo), respectively.

These transactions, as further discussed in this note below in Acquisitions of Businesses, were accounted for as business combinations under the acquisition method of accounting.

We engage in various forms of business development activities to enhance our product pipeline, including acquisitions, collaborations, investments, and licensing arrangements.

In connection with these arrangements, our partners may be entitled to future royalties and/or commercial milestones based on sales should products be approved for commercialization and/or milestones based on the successful progress of compounds through the development process.

In December 2022, January 2021, and February 2020, we completed the acquisitions of Akouos, Inc.

(Akouos), Prevail Therapeutics Inc.

(Prevail), and Dermira, Inc.

(Dermira), respectively.

These transactions, as further discussed below in Acquisitions of Businesses, were accounted for as business combinations under the acquisition method of accounting.

Under this method, the assets acquired and liabilities assumed were recorded at their respective fair values as of the acquisition date in our consolidated financial statements.

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The results of operations of these acquisitions have been included in our consolidated financial statements from the date of acquisition.

We also acquired assets in development in 2021, 2020, and 2019, which are further discussed in this note below in Asset Acquisitions.

Upon each acquisition, the cost allocated to acquired IPR&D was immediately expensed because the compound acquired had no alternative future use.

For the years ended December 31, 2021, 2020, and 2019, we recorded acquired IPR&D charges of $ 874.9 million, $ 660.4 million, and $ 239.6 million, respectively.

We also acquired assets in development in 2022, 2021, and 2020, which are further discussed below in Asset Acquisitions.

Upon each acquisition, the cost allocated to acquired IPR&D was immediately expensed if the compound has no alternative future use.

Milestone payment obligations incurred prior to regulatory approval of the compound are expensed when the event triggering an obligation to pay the milestone occurs.

We recognized acquired IPR&D and development milestone charges of $ 908.5 million, $ 970.1 million, and $ 769.8 million for the years ended December 31, 2022, 2021, and 2020, respectively.

Acquisitions of Businesses

Akouos Acquisition

Overview of Transaction

In December 2022, we acquired all shares of Akouos for a purchase price that included $ 12.50 per share in cash (or an aggregate of $ 327.2 million, net of cash acquired) plus one non-tradable contingent value right (CVR) per share.

The CVR entitles the Akouos shareholders up to an additional $ 3.00 per share in cash (or an aggregate of approximately $ 122 million) payable, subject to certain terms and conditions, upon the achievement of certain specified milestones.

Under the terms of the agreement, we acquired potential gene therapy treatments for hearing loss and other inner ear conditions.

The lead gene therapies in clinical development that we acquired included GJB2 (which encodes connexin 26) for a common form of monogenic deafness and hearing loss;

AK-OTOF for hearing loss due to mutations in the otoferlin gene;

AK-CLRN1 for Usher Type 3A, an autosomal recessive disorder characterized by progressive loss of both hearing and vision;

and AK-antiVEGF for vestibular schwannoma.

Assets Acquired and Liabilities Assumed

Our access to Akouos information was limited prior to the acquisition.

As a consequence, we are in the process of determining fair values and tax bases of a significant portion of the assets acquired and liabilities assumed, including the identification and valuation of intangible assets and tax exposures.

The final determination of these amounts will be completed as soon as possible but no later than one year from the acquisition date.

The final determination may result in asset and liability fair values and tax bases that differ from the preliminary estimates and require changes to the preliminary amounts recognized.

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

Estimated Fair Value at December 1, 2022

Acquired IPR&D (1)

Other assets and liabilities, net 28.9

Acquisition date fair value of consideration transferred 547.3

Cash acquired ( 153.2 )

Fair value of CVR liability (3)

Cash paid, net of cash acquired $ 327.2

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

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

(3) See Note 7 for a discussion on the estimation of the CVR liability.

The results of operations attributable to Akouos for the year ended December 31, 2022 were immaterial.

Pro forma information has not been included as this acquisition did not have a material impact on our consolidated statements of operations for the years ended December 31, 2022 and 2021.

Prevail Acquisition

Overview of Transaction

In January 2021, we acquired all shares of Prevail for a purchase price that included $ 22.50 per share in cash (or an aggregate of $ 747.4 million, net of cash acquired) plus one non-tradable contingent value right (CVR) per share.

The CVR entitles Prevail stockholders up to an additional $ 4.00 per share in cash (or an aggregate of approximately $ 160 million) payable, subject to certain terms and conditions, upon the first regulatory approval of a Prevail product in one of the following countries:

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Under the terms of the agreement, we acquired potentially disease-modifying AAV9-based gene therapies for patients with neurodegenerative diseases.

The acquisition establishes a new modality for drug discovery and development, extending our research efforts through the creation of a gene therapy program that is being anchored by Prevail's portfolio of assets.

The acquisition established a new modality for drug discovery and development, extending our research efforts through the creation of a gene therapy program that is being anchored by Prevail's portfolio of assets.

The lead gene therapies in clinical development that we acquired were PR001 for patients with Parkinson's disease with GBA1 mutations and neuronopathic Gaucher disease and PR006 for patients with frontotemporal dementia with GRN mutations.

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Assets Acquired and Liabilities Assumed

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

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

Estimated Fair Value at January 22, 2021

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(1) Acquired IPR&D intangibles primarily relate to PR001.

In the third quarter of 2022, we impaired the intangible asset related to PR001.

See Note 5 for additional information.

(2) The goodwill recognized from this acquisition is not deductible for tax purposes.

(3) See Note 7 for a discussion on the estimation of the CVR liability.

We are unable to provide the results of operations for the year ended December 31, 2021 attributable to Prevail as those operations were substantially integrated into our legacy business.

The results of operations attributable to Prevail for the years ended December 31, 2022 and 2021 were immaterial.

Pro forma information has not been included as this acquisition did not have a material impact on our consolidated statements of operations for the years ended December 31, 2021 and 2020.

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Under terms of the agreement, we acquired lebrikizumab, a novel, investigational, monoclonal antibody being evaluated for the treatment of moderate-to-severe atopic dermatitis.

Lebrikizumab was granted Fast Track designation from the FDA.

We also acquired Qbrexza ® (glycopyrronium) cloth, a medicated cloth approved by the FDA for the topical treatment of primary axillary hyperhidrosis (uncontrolled excessive underarm sweating).

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After the acquisition, we repaid $ 276.2 million of long-term debt assumed as part of our acquisition of Dermira.

Revenue attributable to assets acquired in the Dermira acquisition did not have a material impact on our consolidated statement of operations for the year ended December 31, 2020.

We are unable to provide the results of operations for the year ended December 31, 2020 attributable to Dermira as those operations were substantially integrated into our legacy business.

Pro forma information has not been included because this acquisition did not have a material impact on our consolidated statements of operations for the years ended December 31, 2020 and 2019.

Loxo Acquisition

Overview of Transaction

In February 2019, we acquired all shares of Loxo for a purchase price of $ 6.92 billion, net of cash acquired.

The accelerated vesting of Loxo employee equity awards was recognized as transaction expense included in asset impairment, restructuring, and other special charges during the year ended December 31, 2019 (see Note 5).

Under the terms of the agreement, we acquired a pipeline of investigational medicines, including selpercatinib (LOXO-292), an oral RET inhibitor, and LOXO-305, an oral BTK inhibitor.

In the second quarter of 2020, the FDA approved selpercatinib (Retevmo ® ) under its Accelerated Approval regulations and continued approval may be contingent upon verification and description of clinical benefit in confirmatory trials.

At the time of approval, we reclassified our $ 4.60 billion intangible asset for selpercatinib (Retevmo) from indefinite-lived intangible assets to finite-lived intangible assets and began amortizing straight line over its estimated useful life.

Assets Acquired and Liabilities Assumed

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

Estimated Fair Value at February 15, 2019

Acquired IPR&D (1)

Finite-lived intangibles (2)

Deferred income taxes ( 1,032.8 )

Other assets and liabilities - net ( 26.4 )

Total identifiable net assets 4,590.8

Total consideration transferred - net of cash acquired $ 6,917.7

(1) $ 4.60 billion of the acquired IPR&D relates to selpercatinib (LOXO-292).

(2) Contract-based intangibles for Vitrakvi and a Phase I molecule which were amortized to cost of sales on a straight-line basis over their estimated useful lives and were expected to have a weighted average useful life of approximately 12 years from the acquisition date.

In the fourth quarter of 2021 we impaired the intangible for the Phase I molecule.

See Note 5 for additional information.

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

Revenue attributable to assets acquired in the Dermira acquisition did not have a material impact on our consolidated statement of operations for the years ended December 31, 2022, 2021, and 2020.

We are unable to provide the results of operations for the years ended December 31, 2022, 2021, and 2020 attributable to Dermira as those operations were substantially integrated into our legacy business.

Pro forma information has not been included because this acquisition did not have a material impact on our consolidated statements of operations for the year ended December 31, 2020.

Asset Acquisitions

The following table and narrative summarize our asset acquisitions during 2021, 2020, and 2019.

Counterparty Compound(s),Therapy, or Asset Acquisition Month Phase of Development (1)

Acquired IPR&D Expense

Precision Biosciences, Inc.

Potential in vivo therapies for genetic disorders January 2021 Pre-clinical $ 107.8

CD3-engaging T-cell re-directing bispecific antibodies for the potential treatment of cancer January 2021 Pre-clinical 46.5

Asahi Kasei Pharma Corporation AK1780, an orally bioavailable P2X7 receptor antagonist for the potential treatment of chronic pain conditions January 2021 Phase I 20.0

Rigel Pharmaceuticals, Inc.

R552, a receptor-interacting serine/threonine-protein kinase 1 (RIPK1) inhibitor, for the potential treatment of autoimmune and inflammatory diseases March 2021 Phase I 125.0

MiNA Therapeutics Limited Pre-clinical targets that could lead to potential new medicines May 2021 Pre-clinical 25.0

Protomer Technologies Inc.

Glucose-sensing insulin program July 2021 Pre-clinical 57.3

The following table summarizes our significant asset acquisitions during 2022, 2021, and 2020.

Counterparty Compound(s),Therapy, or Asset Acquisition Month Phase of Development (1)

Acquired IPR&D Expense

Kumquat Biosciences Inc.

Pre-clinical small molecules that stimulate tumor-specific immune responses July 2021 Pre-clinical 55.0

Lycia Therapeutics, Inc.

Several potential modalities across a spectrum of therapeutic areas and diseases August 2021 Pre-clinical 35.0

ProQR Therapeutics N.V.

Pre-clinical targets that could lead to potential new medicines for genetic disorders in the liver and nervous system September 2021 Pre-clinical 26.7

QILU Regor Therapeutics Inc.

Pre-clinical targets that could lead to potential new medicines for metabolic disorders December 2021 Pre-clinical 30.0

BioMarin Pharmaceutical Inc.

Priority Review Voucher February 2022 Not applicable $ 110.0

Foghorn Therapeutics Inc.

Pre-clinical targets that could lead to potential new oncology medicines December 2021 Pre-clinical 316.6

Entos Pharmaceuticals Inc.

Pre-clinical targets that could lead to potential new nucleic acid-based therapies targeting the central and peripheral nervous system December 2021 Pre-clinical 30.0

Sitryx Therapeutics Limited Pre-clinical targets that could lead to potential new medicines for autoimmune diseases March 2020 Pre-clinical 52.3

AbCellera Biologics Inc.

Neutralizing antibodies for the treatment and prevention of COVID-19 March 2020 (2)

Pre-clinical 25.0

Shanghai Junshi Biosciences Co., Ltd.

(Junshi Biosciences) Neutralizing antibodies for the treatment and prevention of COVID-19 May 2020 Pre-clinical 20.0

Rigel Pharmaceuticals, Inc.

R552, a receptor-interacting serine/threonine-protein kinase 1 (RIPK1) inhibitor, for the potential treatment of autoimmune and inflammatory diseases March 2021 Phase I 125.0

Precision Biosciences, Inc.

Potential in vivo therapies for genetic disorders January 2021 Pre-clinical 107.8

Innovent Biologics, Inc.

(Innovent) Sintilimab injection, an anti-PD-1 monoclonal antibody immuno-oncology medicine, for geographies outside of China (2)

October 2020 Phase III 200.0

Petra Pharma Corporation (Petra) Mutant-selective PI3K α inhibitor that could lead to potential new medicine

May 2020 Pre-clinical 174.8

Evox Therapeutics Limited Pre-clinical targets for the potential treatment of neurological disorders June 2020 Pre-clinical 22.0

Innovent Biologics, Inc.

(Innovent) Sintilimab injection, an anti-PD-1 monoclonal antibody immuno-oncology medicine, for geographies outside of China October 2020 Phase III 200.0

Disarm Therapeutics, Inc.

Disease-modifying therapeutics program for patients with axonal degeneration October 2020 Pre-clinical 126.3

Fochon Pharmaceuticals, Ltd.

Pre-clinical molecule targeting hematological malignancies November 2020 Pre-clinical 40.0

Counterparty Compound(s),Therapy, or Asset Acquisition Month Phase of Development (1)

Acquired IPR&D Expense

AC Immune SA Tau aggregation inhibitor small molecules for the potential treatment of Alzheimer's disease and other neurodegenerative diseases January 2019 & September 2019 (3)

Pre-clinical 127.1

ImmuNext, Inc.

Novel immunometabolism target March 2019 Pre-clinical 40.0

Avidity Biosciences, Inc.

Potential new medicines in immunology and other select indications April 2019 Pre-clinical 25.0

Centrexion Therapeutics Corporation CNTX-0290, a novel, small molecule somatostatin receptor type 4 agonist July 2019 Phase I 47.5

(1) The phase of development presented is as of the date of the arrangement and represents the phase of development of the most advanced asset acquired, where applicable.

(2) We recognized acquired IPR&D expense of $ 25.0 million in May 2020 upon closing of the transaction.

(3) We recognized acquired IPR&D expenses of $ 96.9 million in January 2019 upon entering into a license agreement and $ 30.2 million in September 2019 upon entering into an amendment to the license agreement.

In October 2019, we completed a transaction in which we sold the rights in China for two legacy antibiotic medicines, as well as a manufacturing facility in Suzhou, China to Eddingpharm, a China-based specialty pharmaceutical company.

In connection with the sale, we received net cash proceeds of $ 354.8 million and $ 40.3 million from Eddingpharm in 2019 and 2020, respectively.

We accounted for the transaction as the sale of a business.

We recognized a gain of $ 309.8 million in other—net, (income) expense in our consolidated statement of operations during the year ended December 31, 2019.

(2) In 2022, we terminated our license for sintilimab injection for geographies outside of China and reverted rights to Innovent.

In connection with our acquisition of Petra, we were required to make milestone payments to Petra shareholders contingent upon the occurrence of certain future events linked to the success of the mutant-selective PI3K α inhibitor.

In 2022, we entered into agreements with substantially all Petra shareholders to acquire their rights to receive any future milestone payments in exchange for a one-time payment.

As a result of these agreements, we recognized a charge of $ 333.8 million as a development milestone in 2022.

Any remaining contingent milestones payments linked to the success of the mutant-selective PI3Kα are not expected to be material.

We did not recognize other significant development milestones during the years ended December 31, 2022, 2021, and 2020.

Collaborations and Other Arrangements

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In connection with the regulatory approvals of Jardiance, Trajenta, and Basaglar in the U.S., Europe, and Japan, milestone payments made for Jardiance and Trajenta were capitalized as intangible assets and are being amortized to cost of sales, and milestone payments received for Basaglar were recorded as contract liabilities and are being amortized to collaboration and other revenue.

These milestones are being amortized through their respective term under the collaboration which, depending on country or region, is determined based on the latest to occur of (a) a defined number of years following launch date, (b) the expiration of the compound patent, or (c) any supplementary protection certificates or extensions thereto.

The table below summarizes the net milestones capitalized (deferred) at December 31 for the compounds included in this collaboration:

The milestones pertaining to Jardiance and Trajenta are being amortized through their respective term under the collaboration, which, depending on country or region, is determined based on the latest to occur of (a) a defined number of years following launch date, (b) the expiration of the compound patent, or (c) the expiration of marketing authorization exclusivity.

The milestones pertaining to Basaglar are being amortized through 2029.

The table below summarizes the net milestones capitalized with respect to the Jardiance and Trajenta families of products and the net milestones deferred with respect to Basaglar as of December 31:

Net Milestones Capitalized (Deferred) (1)

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

Through December 31, 2019, in the most significant markets, we and Boehringer Ingelheim shared equally the ongoing development costs, commercialization costs, and agreed upon gross margin for any product resulting from the collaboration.

We recorded our portion of the gross margin associated with Boehringer Ingelheim's products as collaboration and other revenue.

We recorded our sales of Basaglar to third parties as net product revenue with the payments made to Boehringer Ingelheim for their portion of the gross margin recorded as cost of sales.

For all compounds under this collaboration, we recorded our portion of the development and commercialization costs as research and development expense and marketing, selling, and administrative expense, respectively.

Each company was entitled to potential performance payments depending on the sales of the molecules it contributes to the collaboration.

These performance payments may have resulted in the owner of the molecule retaining a greater share of the agreed upon gross margin of that product.

Subject to achieving these thresholds, in a given period, our reported revenue for Trajenta and Jardiance may have been reduced by any performance payments we made related to these products.

Similarly, performance payments we may have received related to Basaglar effectively reduced Boehringer Ingelheim's share of the gross margin, which reduced our cost of sales.

Effective January 1, 2020, we and Boehringer Ingelheim modernized the alliance.

For the Jardiance product family, we and Boehringer Ingelheim share equally the ongoing development and commercialization costs in the most significant markets, and we record our portion of the development and commercialization costs as research and development expense and marketing, selling, and administrative expense, respectively.

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therefore, our reported revenue for Jardiance may be reduced by any potential performance payments we make related to this product family.

Beginning January 1, 2021, the royalty received by us related to the Jardiance product family may also be increased or decreased depending on whether net sales for this product family exceed or fall below certain thresholds.

The royalty received by us related to the Jardiance product family may also be increased or decreased depending on whether net sales for this product family exceed or fall below certain thresholds.

We pay to Boehringer Ingelheim a royalty on net sales for Basaglar in the U.S.

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Trajenta 383.7 372.5 358.5

We have a worldwide license and collaboration agreement with Incyte Corporation (Incyte), which provides us the development and commercialization rights to its Janus tyrosine kinase (JAK) inhibitor compound, now known as Olumiant (baricitinib), and certain follow-on compounds, for the treatment of inflammatory and autoimmune diseases.

We have a worldwide license and collaboration agreement with Incyte Corporation (Incyte), which provides us the development and commercialization rights to baricitinib, which is branded and trademarked as Olumiant, and certain follow-on compounds, for the treatment of inflammatory and autoimmune diseases and COVID-19.

Incyte has the right to receive tiered, double digit royalty payments on worldwide net sales with rates ranging up to 20 percent.

Incyte has the right to receive an additional royalty ranging up to the low teens on worldwide net sales for the treatment of COVID-19 that exceed a specified aggregate worldwide net sales threshold.

The agreement calls for payments by us to Incyte associated with certain development, success-based regulatory, and sales-based milestones.

In 2020, the agreement was amended to include the treatment of COVID-19, with Incyte obtaining the right to receive an additional royalty ranging up to the low teens on worldwide net sales for the treatment of COVID-19 that exceed a specified aggregate worldwide net sales threshold.

In connection with the regulatory approvals of Olumiant in the U.S., Europe, and Japan, as well as achievement of a sales-based milestone, milestone payments of $ 330.0 million and $ 260.0 million were capitalized as intangible assets as of December 31, 2022 and 2021, respectively, and are being amortized to cost of sales through the term of the collaboration.

This represents the cumulative amounts that have been capitalized from the start of this collaboration through the end of each reporting period.

As of December 31, 2021, Incyte is eligible to receive up to $ 100.0 million of additional payments from us contingent upon certain success-based regulatory milestones.

Incyte is also eligible to receive up to $ 100.0 million of potential sales-based milestones.

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

As of December 31, 2022, Incyte is eligible to receive up to $ 100.0 million of additional payments from us in potential sales-based milestones.

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

The following table summarizes our net product revenue recognized with respect to Olumiant:

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COVID-19 Antibodies

In 2020, we entered into a worldwide license and collaboration agreement with AbCellera to co-develop therapeutic antibodies for the potential prevention and treatment of COVID-19, including bamlanivimab and bebtelovimab, for which we hold development and commercialization rights.

We have a worldwide license and collaboration agreement with AbCellera Biologics Inc.

(AbCellera) to co-develop therapeutic antibodies for the potential prevention and treatment of COVID-19, including bamlanivimab and bebtelovimab, for which we hold development and commercialization rights.

AbCellera has the right to receive tiered royalty payments on worldwide net sales of bamlanivimab and bebtelovimab with percentages ranging in the mid-teens to mid-twenties.

Royalty payments made to AbCellera are recorded as cost of sales.

In 2020, we entered into a license and collaboration agreement with Junshi Biosciences to co-develop therapeutic antibodies for the potential prevention and treatment of COVID-19, including etesevimab, for which we hold development and commercialization rights outside of mainland China and the Special Administrative Regions of Hong Kong and Macau, and for which Junshi Biosciences currently maintains all rights in mainland China and the Special Administrative Regions of Hong Kong and Macau.

Junshi Biosciences has the right to receive royalty payments in the mid-teens on our net sales of etesevimab.

Junshi Biosciences also had the right to receive certain development, success-based regulatory and sales-based milestones.

In connection with the regulatory authorizations of etesevimab (for administration with bamlanivimab) as well as achievement of sales-based milestones in 2021, milestone payments of $ 195.0 million were capitalized as intangible assets and are being amortized to cost of sales over the estimated useful life of etesevimab.

During the year ended December 31, 2020, we recognized $ 50.0 million of research and development expenses related to development milestones.

Pursuant to EUAs or similar regulatory authorizations, we recognized $ 2.24 billion and $ 871.2 million of net product revenue associated with our sales of our COVID-19 antibodies during the years ended December 31, 2021 and 2020, respectively.

Sintilimab Injection

We have a license and collaboration agreement with Shanghai Junshi Biosciences Co., Ltd.

(Junshi Biosciences) to co-develop therapeutic antibodies for the potential prevention and treatment of COVID-19, including etesevimab, for which we hold development and commercialization rights outside of mainland China and the Special Administrative Regions of Hong Kong and Macau.

Junshi Biosciences received royalty payments in the mid-teens on our net sales of etesevimab.

Pursuant to EUAs or similar regulatory authorizations, we recognized $ 2.02 billion, $ 2.24 billion, and $ 871.2 million of net product revenue associated with our sales of our COVID-19 antibodies during the years ended December 31, 2022, 2021, and 2020, respectively.

We have a collaboration agreement with Innovent to jointly develop and commercialize sintilimab injection in China, where it is branded and trademarked as Tyvyt.

In 2019, we and Innovent began co-commercializing Tyvyt in China.

In 2020, we obtained an exclusive license for sintilimab injection from Innovent for geographies outside of China.

Innovent, with collaboration from us, has filed the initial registration of sintilimab injection in the U.S., and we plan to pursue initial registration of sintilimab injection in other markets and all other subsequent registrations of sintilimab injection.

We have exclusive commercialization rights outside of China.

In connection with a regulatory approval for Tyvyt in China in 2021, we capitalized a milestone payment of $ 40.0 million as an intangible asset which is being amortized to cost of sales through the term of the collaboration.

As of December 31, 2021, Innovent is eligible to receive up to $ 825.0 million for geographies outside of China and up to $ 195.0 million in China in success-based regulatory and sales-based milestones.

Innovent is also eligible to receive tiered double digit royalties on net sales for geographies outside of China.

We record our sales of Tyvyt to third parties as net product revenue, with payments made to Innovent for its portion of the gross margin reported as cost of sales.

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Tyvyt $ 293.3 $ 418.1 $ 308.7

As a result of our acquisition of Dermira, we have a worldwide license agreement with F.

We have a worldwide license agreement with F.

Hoffmann-La Roche Ltd and Genentech, Inc.

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Roche has the right to receive tiered royalty payments on future worldwide net sales ranging in percentages from high single digits to high teens if the product is successfully commercialized.

As of December 31, 2021, Roche is eligible to receive up to $ 180.0 million of payments from us contingent upon the achievement of success-based regulatory milestones, and up to $ 1.03 billion in a series of sales-based milestones, contingent upon the commercial success of lebrikizumab.

As a result of our acquisition of Dermira, we have a license agreement with Almirall, S.A.

As of December 31, 2022, Roche is eligible to receive up to $ 165.0 million of additional payments from us contingent upon the achievement of success-based regulatory milestones and up to $ 1.03 billion in a series of sales-based milestones, contingent upon the commercial success of lebrikizumab.

During the year ended December 31, 2022, milestone payments to Roche were not material.

We have a license agreement with Almirall, S.A.

(Almirall), under which Almirall licensed the rights to develop and commercialize lebrikizumab for the treatment or prevention of dermatology indications, including, but not limited to, atopic dermatitis in Europe.

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As of December 31, 2022, we are eligible to receive additional payments of $ 65.0 million from Almirall contingent upon the achievement of success-based regulatory milestones and up to $ 1.25 billion in a series of sales-based milestones, contingent upon the commercial success of lebrikizumab.

There were no remaining contract liabilities as of December 31, 2022.

As of December 31, 2021 and 2020, contract liabilities were not material.

During the twelve months ended December 31, 2021 and 2020, milestones received and collaboration and other revenue recognized were not material.

As a result of our acquisition of Petra, we are required to make milestone payments to Petra shareholders contingent upon the occurrence of certain future events linked to the success of the mutant-selective PI3K α inhibitor.

Our more significant, near term milestones include a development milestone of approximately $ 205 million in 2022 contingent upon initiation of its Phase I trial and a further development milestone of approximately $ 164 million in 2023 contingent upon achieving clinical proof of concept.

During the years ended December 31, 2022, 2021, and 2020, collaboration and other revenue recognized was not material.

Asset Impairment, Restructuring, and Other Special Charges

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2022 2021 2020

Severance $ 13.0 $ 151.2 $ 77.8

Asset impairment (gain) and other special charges $ 221.6 $ 303.1 $ ( 20.0 )

Severance 23.0 13.0 151.2

Total asset impairment, restructuring, and other special charges $ 244.6 $ 316.1 $ 131.2

Severance costs recognized during the years ended December 31, 2020 and 2019 were incurred as a result of actions taken worldwide to reduce our cost structure.

During the year ended December 31, 2021, we recognized $ 128.0 million of intangible asset impairment as a result of the decision by Bayer AG to discontinue the development of a Phase I molecule related to a contract-based intangible asset from our acquisition of Loxo.

Asset impairment, restructuring, and other special charges recognized during the year ended December 31, 2022 were primarily related to an intangible asset impairment for GBA1 Gene Therapy (PR001), acquired in the Prevail acquisition, as a result of changes in key assumptions used in the valuation due to delays in estimated launch timing.

Additionally, we recognized $ 108.1 million of intangible asset impairment from the sale of the rights to Qbrexza, as well as acquisition and integration costs associated with the acquisition of Prevail.

Asset impairment and other special charges recognized during the year ended December 31, 2019 resulted primarily from $ 400.7 million of other special charges related to the acquisition of Loxo, substantially all of which is associated with the accelerated vesting of Loxo employee equity awards.

Severance costs recognized during the year ended December 31, 2020 were incurred as a result of actions taken worldwide to reduce our cost structure.

We use the last-in, first-out (LIFO) method for the majority of our inventories located in the continental U.S.

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and international governments, we invested in large-scale manufacturing of COVID-19 antibodies at risk, in order to ensure rapid access to patients around the world.

As the COVID-19 pandemic evolved during 2021, we incurred a net inventory impairment charge primarily due to the combination of changes to current and forecasted demand from U.S.

As the COVID-19 pandemic evolved during 2021, we incurred a net inventory impairment charge primarily due to the combination of changes to demand from U.S.

and international governments, including changes to our agreement with the U.S.

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Financial Instruments

Financial instruments that potentially subject us to credit risk consist principally of trade receivables and interest-bearing investments.

Wholesale distributors of life-science products account for a substantial portion of our trade receivables;

collateral is generally not required.

We seek to mitigate the risk associated with this concentration through our ongoing credit-review procedures and insurance.

A large portion of our cash is held by a few major financial institutions.

We monitor our exposures with these institutions and do not expect any of these institutions to fail to meet their obligations.

In accordance with documented corporate risk-management policies, we monitor the amount of credit exposure to any one financial institution or corporate issuer.

We are exposed to credit-related losses in the event of nonperformance by counterparties to risk-management instruments but do not expect any counterparties to fail to meet their obligations given their high credit ratings.

We consider all highly liquid investments with a maturity of three months or less from the date of purchase to be cash equivalents.

The cost of these investments approximates fair value.

Investments in Equity and Debt Securities

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

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Any change in fair value is recognized in other-net, (income) expense.

We review equity investments other than public equity investments for indications of impairment and observable price changes on a regular basis.

Our derivative activities are initiated within the guidelines of documented corporate risk-management policies and are intended to offset losses and gains on the assets, liabilities, and transactions being hedged.

Management reviews the correlation and effectiveness of our derivatives on a quarterly basis.

For derivative instruments that are designated and qualify as fair value hedges, the derivative instrument is marked to market with gains and losses recognized currently in income to offset the respective losses and gains recognized on the underlying exposure.

For derivative instruments that are designated and qualify as cash flow hedges, gains and losses are reported as a component of accumulated other comprehensive loss and reclassified into earnings in the same period the hedged transaction affects earnings.

For derivative and non-derivative instruments that are designated and qualify as net investment hedges, the foreign currency translation gains or losses due to spot rate fluctuations are reported as a component of accumulated other comprehensive loss.

Derivative contracts that are not designated as hedging instruments are recorded at fair value with the gain or loss recognized in earnings during the period of change.

We may enter into foreign currency forward or option contracts to reduce the effect of fluctuating currency exchange rates (principally the euro, British pound, and Japanese yen).

Foreign currency derivatives used for hedging are put in place using the same or like currencies and duration as the underlying exposures.

Forward and option contracts are principally used to manage exposures arising from subsidiary trade and loan payables and receivables denominated in foreign currencies.

These contracts are recorded at fair value with the gain or loss recognized in other–net, (income) expense.

We may enter into foreign currency forward and option contracts and currency swaps as fair value hedges of firm commitments.

Forward contracts generally have maturities not exceeding 12 months.

At December 31, 2021, we had outstanding foreign currency forward commitments to purchase 4.43 billion U.S.

dollars and sell 3.92 billion euro;

commitments to purchase 3.84 billion euro and sell 4.37 billion U.S.

commitments to purchase 159.2 million U.S.

dollars and sell 18.26 billion Japanese yen, and commitments to purchase 223.0 million British pounds and sell 296.0 million U.S.

dollars, which all have settlement dates within 180 days.

Foreign currency exchange risk is also managed through the use of foreign currency debt and cross-currency interest rate swaps.

Our foreign currency-denominated notes had carrying amounts of $ 7.90 billion and $ 6.02 billion as of December 31, 2021 and 2020, respectively, of which $ 5.79 billion and $ 4.50 billion have been designated as, and are effective as, economic hedges of net investments in certain of our foreign operations as of December 31, 2021 and 2020, respectively.

At December 31, 2021, we had outstanding cross currency swaps with notional amounts of $ 1.02 billion swapping U.S.

dollars to euro and $ 1.00 billion swapping Swiss francs to U.S.

dollars which have settlement dates ranging through 2028.

Our cross-currency interest rate swaps, for which a majority convert a portion of our U.S.

dollar-denominated fixed rate debt to foreign-denominated fixed rate debt, have also been designated as, and are effective as, economic hedges of net investments.

In the normal course of business, our operations are exposed to fluctuations in interest rates which can vary the costs of financing, investing, and operating.

We seek to address a portion of these risks through a controlled program of risk management that includes the use of derivative financial instruments.

The objective of controlling these risks is to limit the impact of fluctuations in interest rates on earnings.

Our primary interest-rate risk exposure results from changes in short-term U.S.

dollar interest rates.

In an effort to manage interest-rate exposures, we strive to achieve an acceptable balance between fixed- and floating-rate debt and investment positions and may enter into interest rate swaps or collars to help maintain that balance.

Interest rate swaps or collars that convert our fixed-rate debt to a floating rate are designated as fair value hedges of the underlying instruments.

Interest rate swaps or collars that convert floating-rate debt to a fixed rate are designated as cash flow hedges.

Interest expense on the debt is adjusted to include the payments made or received under the swap agreements.

Cash proceeds from or payments to counterparties resulting from the termination of interest rate swaps are classified as operating activities in our consolidated statements of cash flows.

At December 31, 2021, substantially all of our total long-term debt is at a fixed rate.

We have converted approximately 13 percent of our long-term fixed-rate notes to floating rates through the use of interest rate swaps.

We also may enter into forward-starting interest rate swaps, which we designate as cash flow hedges, as part of any anticipated future debt issuances in order to reduce the risk of cash flow volatility from future changes in interest rates.

The change in fair value of these instruments is recorded as part of other comprehensive income (loss) and, upon completion of a debt issuance and termination of the swap, is amortized to interest expense over the life of the underlying debt.

As of December 31, 2021, the total notional amounts of forward-starting interest rate contracts in designated cash flow hedging instruments were $ 1.75 billion, which have settlement dates ranging between 2023 and 2025.

The Effect of Risk Management Instruments on the Consolidated Statements of Operations

The following effects of risk-management instruments were recognized in other–net, (income) expense:

2021 2020 2019

Fair value hedges:

Effect from hedged fixed-rate debt $ ( 78.5 ) $ 86.9 $ 112.1

Effect from interest rate contracts 78.5 ( 86.9 ) ( 112.1 )

Cash flow hedges:

Effective portion of losses on interest rate contracts reclassified from accumulated other comprehensive loss 16.6 16.4 15.9

Cross-currency interest rate swaps 41.8 ( 102.4 ) ( 17.1 )

Net (gains) losses on foreign currency exchange contracts not designated as hedging instruments 204.6 ( 123.7 ) 61.9

$ 263.0 $ ( 209.7 ) $ 60.7

During the years ended December 31, 2021, 2020, and 2019, the amortization of losses related to the portion of our risk management hedging instruments, fair value hedges, and cash flow hedges that was excluded from the assessment of effectiveness was not material.

The Effect of Risk-Management Instruments on Other Comprehensive Income (Loss)

The effective portion of risk-management instruments that was recognized in other comprehensive income (loss) is as follows:

We adjust our equity investments without readily determinable fair values based upon changes in the equity instruments' values resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer.

Downward adjustments resulting from an impairment are recorded based upon impairment considerations, including the financial condition and near term prospects of the issuer, general market conditions, and industry specific factors.

Adjustments recorded for the years ended December 31, 2022, 2021, and 2020 were not material.

The net gains (losses) recognized in our consolidated statements of operations for equity securities were $( 410.7 ) million, $ 176.9 million, and $ 1.44 billion for the years ended December 31, 2022, 2021, and 2020, respectively.

The net gains (losses) recognized for the years ended December 31, 2022, 2021, and 2020 on equity securities sold during the respective periods were not material.

As of December 31, 2022, we had approximately $ 957 million of unfunded commitments to invest in venture capital funds, which we anticipate will be paid over a period of up to 10 years.

We record our available-for-sale debt securities at fair value, with changes in fair value reported as a component of accumulated other comprehensive income (loss).

We periodically assess our investment in available-for-sale securities for impairment losses and credit losses.

The amount of credit losses are determined by comparing the difference between the present value of future cash flows expected to be collected on these securities and the amortized cost.

Factors considered in assessing credit losses include the position in the capital structure, vintage and amount of collateral, delinquency rates, current credit support, and geographic concentration.

Impairment and credit losses related to available-for-sale securities were not material for the years ended December 31, 2022, 2021, and 2020.

The table below summarizes the contractual maturities of our investments in debt securities measured at fair value as of December 31, 2022:

Maturities by Period

Total Less Than

Years More Than 10 Years

Fair value of debt securities $ 646.3 $ 86.2 $ 242.0 $ 104.0 $ 214.1

A summary of the amount of unrealized gains and losses in accumulated other comprehensive loss and the fair value of available-for-sale securities in an unrealized gain or loss position follows:

Unrealized gross gains $ 0.6 $ 9.7

Unrealized gross losses 49.2 5.2

Fair value of securities in an unrealized gain position 46.8 250.7

Fair value of securities in an unrealized loss position 568.7 290.2

As of December 31, 2022, the available-for-sale securities in an unrealized loss position include primarily fixed-rate debt securities of varying maturities, which are sensitive to changes in the yield curve and other market conditions.

Approximately 99 percent of the fixed-rate debt securities in a loss position are investment-grade debt securities.

As of December 31, 2022, we do not intend to sell, and it is not more likely than not that we will be required to sell, the securities in a loss position before the market values recover or the underlying cash flows have been received, and there is no indication of a material default on interest or principal payments for our debt securities.

Activity related to our available-for-sale securities was as follows:

2022 2021 2020

Net investment hedges:

Foreign currency-denominated notes $ 435.0 $ ( 404.0 ) $ 40.1

Cross-currency interest rate swaps 213.7 ( 207.9 ) 47.4

Cash flow hedges:

Forward-starting interest rate swaps 97.6 ( 110.9 ) 31.6

Cross-currency interest rate swaps 42.3 ( 53.7 ) ( 8.3 )

During the next 12 months, we expect to reclassify $ 16.5 million of pretax net losses on cash flow hedges from accumulated other comprehensive loss to other–net, (income) expense.

During the years ended December 31, 2021, 2020, and 2019, the amounts excluded from the assessment of hedge effectiveness recognized in other comprehensive income (loss) were not material.

Fair Value of Financial Instruments

The following tables summarize certain fair value information at December 31 for assets and liabilities measured at fair value on a recurring basis, as well as the carrying amount and amortized cost of certain other investments:

Proceeds from sales $ 132.9 $ 174.7 $ 264.8

Realized gross gains on sales 0.4 2.8 4.5

Realized gross losses on sales 9.7 1.7 8.2

Realized gains and losses on sales of available-for-sale investments are computed based upon specific identification of the initial cost adjusted for any other-than-temporary declines in fair value that were recorded in earnings.

Fair Value of Investments

The following table summarizes certain fair value information at December 31, 2022 and 2021 for investment assets measured at fair value on a recurring basis, as well as the carrying amount and amortized cost of certain other investments:

Fair Value Measurements Using

Description Carrying

Amount Cost (1)

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Cash equivalents (2)

$ 657.4 $ 657.4 $ 650.4 $ 7.0 $ — $ 657.4

Short-term investments:

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Corporate debt securities 53.4 53.5 — 53.4 — 53.4

Mortgage-backed securities 0.2 0.2 — 0.2 — 0.2

Asset-backed securities 2.0 2.0 — 2.0 — 2.0

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Cash equivalents (2)

$ 2,379.5 $ 2,379.5 $ 2,361.0 $ 18.5 $ — $ 2,379.5

Short-term investments:

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Corporate debt securities 43.7 43.7 — 43.7 — 43.7

Mortgage-backed securities 0.2 0.2 — 0.2 — 0.2

Asset-backed securities 6.2 6.2 — 6.2 — 6.2

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(1) For available-for-sale debt securities, amounts disclosed represent the securities' amortized cost.

(2) We consider all highly liquid investments with a maturity of three months or less from the date of purchase to be cash equivalents.

The cost of these investments approximates fair value.

(3) Fair value disclosures are not applicable for equity method investments and investments accounted for under the measurement alternative for equity investments.

We determine our Level 1 and Level 2 fair value measurements based on a market approach using quoted market values, significant other observable inputs for identical or comparable assets or liabilities, or discounted cash flow analyses.

Level 3 fair value measurements for other investment securities are determined using unobservable inputs, including the investments' cost adjusted for impairments and price changes from orderly transactions.

Fair values are not readily available for certain equity investments measured under the measurement alternative.

Fair Value of Debt

The following table summarizes certain fair value information at December 31, 2022 and 2021 for our short-term and long-term debt:

Fair Value Measurements Using

Description Carrying

Amount Quoted Prices in Active Markets for Identical Assets

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(Level 3) Fair

Short-term commercial paper borrowings

December 31, 2022 $ ( 1,498.0 ) $ — $ ( 1,492.0 ) $ — $ ( 1,492.0 )

December 31, 2021 — — — — —

Long-term debt, including current portion

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December 31, 2021 ( 16,884.7 ) — ( 18,157.7 ) — ( 18,157.7 )

Risk Management and Related Financial Instruments

Financial instruments that potentially subject us to credit risk consist principally of trade receivables and interest-bearing investments.

Wholesale distributors of life science products account for a substantial portion of our trade receivables;

collateral is generally not required.

We seek to mitigate the risk associated with this concentration through our ongoing credit-review procedures and insurance.

A large portion of our cash is held by a few major financial institutions.

We monitor our exposures with these institutions and do not expect any of these institutions to fail to meet their obligations.

In accordance with documented corporate risk-management policies, we monitor the amount of credit exposure to any one financial institution or corporate issuer.

We have entered into accounts receivable factoring agreements with financial institutions to sell certain of our non-U.S.

accounts receivable.

These transactions are accounted for as sales and result in a reduction in accounts receivable because the agreements transfer effective control over and risk related to the receivables to the buyers.

Our factoring agreements do not allow for recourse in the event of uncollectibility, and we do not retain any interest in the underlying accounts receivable once sold.

We derecognized $ 422.1 million and $ 550.5 million of accounts receivable as of December 31, 2022 and 2021, respectively, under these factoring arrangements.

The costs of factoring such accounts receivable on our consolidated results of operations for the years ended December 31, 2022, 2021, and 2020 were not material.

Management reviews the correlation and effectiveness of our derivatives on a quarterly basis.

For derivative instruments that are designated and qualify as fair value hedges, the derivative instrument is marked to market, with gains and losses recognized currently in income to offset the respective losses and gains recognized on the underlying exposure.

For derivative instruments that are designated and qualify as cash flow hedges, gains and losses are reported as a component of accumulated other comprehensive income (loss) (see Note 17) and reclassified into earnings in the same period the hedged transaction affects earnings.

Derivative contracts that are not designated as hedging instruments are recorded at fair value with the gain or loss recognized in earnings during the period of change.

We may enter into foreign currency forward or option contracts to reduce the effect of fluctuating currency exchange rates (principally the euro, British pound, Chinese yuan, Japanese yen, and Swiss franc).

Foreign currency derivatives used for hedging are put in place using the same or like currencies and duration as the underlying exposures.

Forward and option contracts are principally used to manage exposures arising from subsidiary trade and loan payables and receivables denominated in foreign currencies.

These contracts are recorded at fair value with the gain or loss recognized in other–net, (income) expense.

We may enter into foreign currency forward and option contracts and currency swaps as fair value hedges of firm commitments.

Forward contracts generally have maturities not exceeding 12 months.

At December 31, 2022, we had outstanding foreign currency forward commitments as follows, all of which have settlement dates within 180 days:

December 31, 2022

Purchase Sell

Currency Amount

(in millions) Currency Amount

(in millions)

dollars 2,516.2 Euro 2,369.2

Euro 3,371.1 U.S.

dollars 3,575.3

dollars 199.8 Chinese yuan 1,396.2

Japanese yen 14,139.9 U.S.

dollars 105.3

dollars 90.9 Japanese yen 12,212.2

British pounds 207.1 U.S.

dollars 254.7

Swiss franc 101.4 U.S.

dollars 109.3

Foreign currency exchange risk is also managed through the use of foreign currency debt, cross-currency interest rate swaps, and foreign currency forward contracts.

Our foreign currency-denominated notes had carrying amounts of $ 6.83 billion and $ 7.90 billion as of December 31, 2022 and 2021, respectively, of which $ 5.45 billion and $ 5.79 billion have been designated as, and are effective as, economic hedges of net investments in certain of our foreign operations as of December 31, 2022 and 2021, respectively.

At December 31, 2022, we had outstanding cross currency swaps with notional amounts of $ 1.02 billion swapping U.S.

dollars to euro and $ 1.00 billion swapping Swiss francs to U.S.

dollars which have settlement dates ranging through 2028.

Our cross-currency interest rate swaps, for which a majority convert a portion of our U.S.

dollar-denominated fixed-rate debt to foreign-denominated fixed rate debt, have also been designated as, and are effective as, economic hedges of net investments.

At December 31, 2022, we had outstanding foreign currency forward contracts to sell 325.0 million euro and to sell 1.82 billion Chinese yuan, with settlement dates ranging through 2023, which have been designated as, and are effective as, economic hedges of net investments.

In the normal course of business, our operations are exposed to fluctuations in interest rates which can vary the costs of financing, investing, and operating.

We seek to address a portion of these risks through a controlled program of risk management that includes the use of derivative financial instruments.

The objective of controlling these risks is to limit the impact of fluctuations in interest rates on earnings.

Our primary interest-rate risk exposure results from changes in short-term U.S.

dollar interest rates.

Interest rate swaps or collars that convert our fixed-rate debt to a floating rate are designated as fair value hedges of the underlying instruments.

Interest rate swaps or collars that convert floating-rate debt to a fixed rate are designated as cash flow hedges.

Interest expense on the debt is adjusted to include the payments made or received under the swap agreements.

Cash proceeds from or payments to counterparties resulting from the termination of interest rate swaps are classified as operating activities in our consolidated statements of cash flows.

At December 31, 2022, substantially all of our total long-term debt is at a fixed rate.

We have converted approximately 10 percent of our long-term fixed-rate notes to floating rates through the use of interest rate swaps.

The change in fair value of these instruments is recorded as part of other comprehensive income (loss) (see Note 17) and, upon completion of a debt issuance and termination of the swap, is amortized to interest expense over the life of the underlying debt.

As of December 31, 2022, the total notional amounts of forward-starting interest rate contracts in designated cash flow hedging instruments were $ 1.85 billion, which have settlement dates ranging between 2023 and 2025.

The Effect of Risk Management Instruments on the Consolidated Statements of Operations

The following effects of risk-management instruments were recognized in other–net, (income) expense:

2022 2021 2020

Fair value hedges:

Effect from hedged fixed-rate debt $ ( 209.8 ) $ ( 78.5 ) $ 86.9

Effect from interest rate contracts 209.8 78.5 ( 86.9 )

Cash flow hedges:

Effective portion of losses on interest rate contracts reclassified from accumulated other comprehensive loss 16.5 16.6 16.4

Cross-currency interest rate swaps 8.6 41.8 ( 102.4 )

Net (gains) losses on foreign currency exchange contracts not designated as hedging instruments 191.3 204.6 ( 123.7 )

$ 216.4 $ 263.0 $ ( 209.7 )

During the years ended December 31, 2022, 2021, and 2020, the amortization of losses related to the portion of our risk management hedging instruments, fair value hedges, and cash flow hedges that was excluded from the assessment of effectiveness was not material.

The Effect of Risk-Management Instruments on Other Comprehensive Income (Loss)

The effective portion of risk-management instruments that was recognized in other comprehensive income (loss) is as follows:

2022 2021 2020

Net investment hedges:

Foreign currency-denominated notes $ 324.9 $ 435.0 $ ( 404.0 )

Cross-currency interest rate swaps 52.0 213.7 ( 207.9 )

Foreign currency forward contracts ( 15.4 ) — —

Cash flow hedges:

Forward-starting interest rate swaps 391.5 97.6 ( 110.9 )

Cross-currency interest rate swaps 29.8 42.3 ( 53.7 )

During the next 12 months, we expect to reclassify $ 16.8 million of pretax net losses on cash flow hedges from accumulated other comprehensive income (loss) to other–net, (income) expense.

During the years ended December 31, 2022, 2021, and 2020, the amounts excluded from the assessment of hedge effectiveness recognized in other comprehensive income (loss) were not material.

Fair Value of Risk-Management Instruments

The following table summarizes certain fair value information at December 31, 2022 and 2021 for risk-management assets and liabilities measured at fair value on a recurring basis:

Fair Value Measurements Using

Description Carrying

Amount Quoted Prices in Active Markets for Identical Assets

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Interest rate contracts designated as fair value hedges:

Other receivables $ 4.8 $ — $ 4.8 $ — $ 4.8

Other noncurrent assets 78.3 — 78.3 — 78.3

Other noncurrent liabilities $ ( 134.3 ) — $ ( 134.3 ) — $ ( 134.3 )

( 7.6 ) — ( 7.6 ) — ( 7.6 )

Interest rate contracts designated as cash flow hedges:

Other receivables 162.9 — 162.9 — 162.9

Other noncurrent assets 246.0 — 246.0 — 246.0

Other noncurrent liabilities

( 31.7 ) — ( 31.7 ) — ( 31.7 )

Cross-currency interest rate contracts designated as net investment hedges:

Other noncurrent assets 31.3 — 31.3 — 31.3

Other current liabilities

( 1.2 ) — ( 1.2 ) — ( 1.2 )

Other receivables 67.6 — 67.6 — 67.6

Cross-currency interest rate contracts designated as cash flow hedges:

Other noncurrent assets 53.1 — 53.1 — 53.1

Other noncurrent liabilities

( 1.3 ) — ( 1.3 ) — ( 1.3 )

Foreign exchange contracts designated as hedging instruments:

Other current liabilities ( 38.3 ) — ( 38.3 ) — ( 38.3 )

Foreign exchange contracts not designated as hedging instruments:

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Contingent consideration liabilities:

Other current liabilities ( 39.5 ) — — ( 39.5 ) ( 39.5 )

Other noncurrent liabilities ( 70.6 ) — — ( 70.6 ) ( 70.6 )

Fair Value Measurements Using

Amount Quoted Prices in Active Markets for Identical Assets

(Level 1) Significant

(Level 2) Significant

(Level 3) Fair

December 31, 2021

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Interest rate contracts designated as fair value hedges:

Other receivables $ 4.8 $ — $ 4.8 $ — $ 4.8

Other noncurrent assets 78.3 — 78.3 — 78.3

Other noncurrent liabilities ( 7.6 ) — ( 7.6 ) — ( 7.6 )

Interest rate contracts designated as cash flow hedges:

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Cross-currency interest rate contracts designated as net investment hedges:

Other noncurrent assets 31.3 — 31.3 — 31.3

Other current liabilities ( 1.2 ) — ( 1.2 ) — ( 1.2 )

( 92.6 ) — ( 92.6 ) — ( 92.6 )

Other noncurrent liabilities

( 97.2 ) — ( 97.2 ) — ( 97.2 )

Cross-currency interest rate contracts designated as cash flow hedges:

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Other current liabilities ( 35.3 ) — ( 35.3 ) — ( 35.3 )

Contingent consideration liabilities:

Other noncurrent liabilities ( 70.5 ) — — ( 70.5 ) ( 70.5 )

Risk-management instruments above are disclosed on a gross basis.

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Although various rights of setoff and master netting arrangements or similar agreements may exist with the individual counterparties to the risk-management instruments above, individually, these financial rights are not material.

Fair values are not readily available for certain equity investments measured under the measurement alternative.

As of December 31, 2021, we had approximately $ 828 million of unfunded commitments to invest in venture capital funds, which we anticipate will be invested over a period of up to 10 years.

Contingent consideration liability relates to our liability arising in connection with the CVR issued as a result of the Prevail acquisition.

The fair value of the CVR liability was estimated using a discounted cash flow analysis and Level 3 inputs, including projections representative of a market participant's view of the expected cash payment associated with the first potential regulatory approval of a Prevail compound in the applicable countries based on probabilities of technical success, timing of the potential approval events for the compounds, and an estimated discount rate.

See Note 3 for additional information related to the CVR arrangement.

The table below summarizes the contractual maturities of our investments in debt securities measured at fair value as of December 31, 2021:

Maturities by Period

Total Less Than

1 Year 1-5 Years 6-10 Years More Than 10 Years

Fair value of debt securities $ 581.0 $ 75.9 $ 216.5 $ 126.4 $ 162.2

The net gains recognized in our consolidated statements of operations for equity securities were $ 176.9 million, $ 1.44 billion, and $ 401.2 million for the years ended December 31, 2021, 2020, and 2019, respectively.

The net gains/losses recognized for the years ended December 31, 2021, 2020, and 2019 on equity securities sold during the respective periods were not material.

Adjustments recorded for the years ended December 31, 2021, 2020, and 2019 were not material.

A summary of the amount of unrealized gains and losses in accumulated other comprehensive loss and the fair value of available-for-sale securities in an unrealized gain or loss position follows:

Unrealized gross gains $ 9.7 $ 20.9

Unrealized gross losses 5.2 0.5

Fair value of securities in an unrealized gain position 250.7 348.9

Fair value of securities in an unrealized loss position 290.2 11.4

We periodically assess our investment in available-for-sale securities for impairment losses and credit losses.

The amount of credit losses are determined by comparing the difference between the present value of future cash flows expected to be collected on these securities and the amortized cost.

Factors considered in assessing credit losses include the position in the capital structure, vintage and amount of collateral, delinquency rates, current credit support, and geographic concentration.

Impairment and credit losses related to available-for-sale securities were not material for the years ended December 31, 2021, 2020, and 2019.

As of December 31, 2021, the available-for-sale securities in an unrealized loss position include primarily fixed-rate debt securities of varying maturities, which are sensitive to changes in the yield curve and other market conditions.

Approximately 97 percent of the fixed-rate debt securities in a loss position are investment-grade debt securities.

As of December 31, 2021, we do not intend to sell, and it is not more likely than not that we will be required to sell, the securities in a loss position before the market values recover or the underlying cash flows have been received, and there is no indication of default on interest or principal payments for any of our debt securities.

Activity related to our available-for-sale securities was as follows:

2021 2020 2019

Proceeds from sales $ 174.7 $ 264.8 $ 431.6

Realized gross gains on sales 2.8 4.5 4.9

Realized gross losses on sales 1.7 8.2 3.0

Accounts Receivable Factoring Arrangements

We have entered into accounts receivable factoring agreements with financial institutions to sell certain of our non-U.S.

accounts receivable.

Our factoring agreements do not allow for recourse in the event of uncollectibility, and we do not retain any interest in the underlying accounts receivable once sold.

We derecognized $ 550.5 million and $ 754.9 million of accounts receivable as of December 31, 2021 and 2020, respectively, under these factoring arrangements.

The costs of factoring such accounts receivable on our consolidated results of operations for the years ended December 31, 2021, 2020, and 2019 were not material.

Contingent consideration liabilities relate to our liabilities arising in connection with the CVRs issued as a result of both the Akouos and Prevail acquisitions.

The fair values of the CVR liabilities were estimated using a discounted cash flow analysis and Level 3 inputs, including projections representative of a market participant's view of the expected cash payments associated with the agreed upon regulatory milestones based on probabilities of technical success, timing of the potential milestone events for the compounds, and estimated discount rates.

See Note 3 for additional information related to the CVR arrangements for both Akouos and Prevail.

Goodwill and Other Intangibles

2 unchanged sentences

If we conclude it is more likely than not that the fair value is less than the carrying amount, a quantitative test that compares the fair value to its carrying value is performed to determine the amount of any impairment.

The changes in goodwill during 2021 and 2020 were primarily related to our acquisitions of Prevail and Dermira, respectively.

The change in goodwill during 2022 was primarily related to our acquisition of Akouos.

See Note 3 for additional information.

2 unchanged sentences

The components of intangible assets other than goodwill at December 31 were as follows:

Description Carrying

Gross Accumulated

15 unchanged sentences

otherwise, they are expensed immediately.

See Note 3 for acquired IPR&D projects that had no alternative future use.

See Note 3 for significant acquired IPR&D projects that had no alternative future use.

Several methods may be used to determine the estimated fair value of other intangibles acquired in a business combination.

4 unchanged sentences

The acquired IPR&D assets are treated as indefinite-lived intangible assets until completion or abandonment of the projects, at which time the assets are tested for impairment and amortized over the remaining useful life or written off, as appropriate.

The change in marketed products in 2021 primarily related to the sale of rights to Qbrexza in 2021 as well as the impairment of a Phase I molecule related to a contract-based intangible.

The decrease in acquired IPR&D intangibles in 2022 is due to the impairment of an intangible asset for GBA1 Gene Therapy (PR001).

See Note 5 for additional information.

These decreases were more than offset by the recognition of several milestones related to the COVID-19 therapies that occurred in 2021.

The increase in the acquired IPR&D in 2021 is due to the acquisition of Prevail.

See Note 3 for additional information regarding intangible assets acquired in a recent business combination and Note 4 for additional information regarding capitalized milestone payments.

This decrease was partially offset by acquired IPR&D assets recognized from the acquisition of Akouos.

See Note 3 for additional information.

I ndefinite-lived intangible assets are reviewed for impairment at least annually, or more frequently if impairment indicators are present, by first assessing qualitative factors to determine whether it is more likely than not that the fair value of the asset is less than its carrying amount.

62 unchanged sentences

Debt at December 31 consisted of the following:

Short-term commercial paper borrowings $ 1,498.0 $ —

Long-term notes 14,815.3 16,741.2

5 unchanged sentences

Long-term debt $ 14,737.5 $ 15,346.4

The weighted-average effective borrowing rate on short-term commercial paper borrowings at December 31, 2022 was 4.20 percent.

The following table summarizes long-term notes at December 31:

2.35 % notes due 2022

$ 750.0 $ 750.0

3.00 % notes due 2022

8 unchanged sentences

3.375 % notes due 2029

930.6 1,150.0

0.42 % Japanese yen denominated notes due 2029

12 unchanged sentences

3.95 % notes due 2049

958.2 1,500.0

1.70 % euro denominated notes due 2049

5 unchanged sentences

4.15 % notes due 2059

591.3 1,000.0

2.50 % notes due 2060

3 unchanged sentences

The weighted-average effective borrowing rate for each issuance of the long term-notes approximates the stated interest rate.

At December 31, 2021, we had a total of $ 5.26 billion of unused committed bank credit facilities, which consisted primarily of a $ 3.00 billion credit facility that expires in December 2026 and a $ 2.00 billion 364 -day facility that expires in November 2022, both of which are available to support our commercial paper program.

At December 31, 2022, we had a total of $ 7.33 billion of unused committed bank credit facilities, which consisted primarily of a $ 3.00 billion credit facility that expires in December 2026 and a $ 4.00 billion 364 -day facility that expires in September 2023, both of which are available to support our commercial paper program.

We have not drawn against the $ 3.00 billion and $ 4.00 billion facilities as of December 31, 2022.

14 unchanged sentences

We used the net cash proceeds from the offering of $ 1.07 billion for general corporate purposes, including the repayment of outstanding commercial paper.

In February 2019, we issued $ 1.15 billion of 3.375 percent fixed-rate notes due in March 2029, $ 850.0 million of 3.875 percent fixed-rate notes due in March 2039, $ 1.50 billion of 3.95 percent fixed-rate notes due in March 2049, and $ 1.00 billion of 4.15 percent fixed-rate notes due in March 2059, with interest to be paid semi-annually.

We used the net cash proceeds of $ 4.45 billion from the offering to repay commercial paper that was issued in connection with the acquisition of Loxo and for general corporate purposes.

In November 2019, we issued euro-denominated notes consisting of € 600.0 million of 0.625 percent fixed-notes due November 2031 and € 1.00 billion of 1.70 percent fixed-rate notes due in November 2049 with interest to be paid annually.

We paid $ 2.27 billion, comprised of $ 1.75 billion of net cash proceeds from the offering and proceeds from commercial paper, to purchase and redeem certain higher interest rate U.S.

dollar denominated notes with an aggregate principal amount of $ 2.00 billion and a net carrying value of $ 2.01 billion, resulting in a debt extinguishment loss of $ 252.5 million.

This loss was included in other-net, (income) expense in our consolidated statement of operations during the year ended December 31, 2019.

In November 2019, we issued Japanese Yen-denominated notes consisting of ¥ 22.92 billion of 0.42 percent fixed-rate notes due in November 2029, ¥ 9.28 billion of 0.56 percent fixed-rate notes due in November 2034, and ¥ 7.64 billion of 0.97 percent fixed-rate notes due in November 2049, with interest to be paid semi-annually.

We used the net cash proceeds from the offering of $ 356.6 million for general corporate purposes, including the repayment of outstanding commercial paper.

The aggregate amounts of maturities on long-term debt for the next five years are as follows:

35 unchanged sentences

The weighted-average fair values of the SVA units granted during the years ended December 31, 2022, 2021, and 2020 were $ 203.88 , $ 230.19 , and $ 139.14 , respectively, determined using the following assumptions:

(Percents) 2021 2020 2019

2022 2021 2020

Expected dividend yield 1.60 % 2.50 % 2.50 %

5 unchanged sentences

Relative Value Award Program

Beginning in 2020, we granted RVAs to officers and management that are payable in shares of our common stock.

RVAs are granted to officers and management and are payable in shares of our common stock.

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.

6 unchanged sentences

The weighted-average fair value of the RVA units granted during the years ended December 31, 2022, 2021 and 2020 were $ 230.00 , $ 286.71 , and $ 179.90 , respectively, determined using the following assumptions:

(Percents) 2021 2020

2022 2021 2020

Expected dividend yield 1.60 % 2.50 % 2.50 %

1 unchanged sentence

Volatility 32.86 30.95 19.89

Approximately 0.1 million shares are expected to be issued in 2023.

As of December 31, 2022, the total remaining unrecognized compensation cost related to nonvested RVAs was $ 17.5 million, which will be amortized over the weighted-average remaining requisite service period of 22 months.

3 unchanged sentences

The corresponding expense is amortized over the vesting period, typically three years .

The fair values of RSU awards granted during the years ended December 31, 2021, 2020, and 2019 were $ 196.30 , $ 135.42 , and $ 108.43 , respectively.

The weighted-average fair values of RSU awards granted during the years ended December 31, 2022, 2021, and 2020 were $ 239.88 , $ 196.30 , and $ 135.42 , respectively.

The number of shares ultimately issued for the RSU program remains constant with the exception of forfeitures.

3 unchanged sentences

Shareholders' Equity

In 2021, 2020, and 2019, we repurchased $ 1.25 billion, $ 500.0 million, and $ 4.40 billion, respectively, of shares associated with our share repurchase programs.

In 2021, we repurchased $ 1.00 billion of shares, which completed our $ 8.00 billion share repurchase program authorized in June 2018.

Additionally, our board authorized a $ 5.00 billion share repurchase program in May 2021.

In 2021, we repurchased $ 250.0 million of shares under the $ 5.00 billion share repurchase program.

As of December 31, 2021, we had $ 4.75 billion remaining under the $ 5.00 billion share repurchase program.

In 2022, 2021, and 2020, we repurchased $ 1.50 billion, $ 1.25 billion, and $ 500.0 million, respectively, of shares associated with our share repurchase programs.

As of December 31, 2022, we had $ 3.25 billion remaining under our $ 5.00 billion share repurchase program that our board authorized in May 2021.

We have 5.0 million authorized shares of preferred stock.

18 unchanged sentences

State ( 114.6 ) 0.6 ( 20.5 )

Total deferred tax (benefit) expense ( 802.3 ) ( 134.5 ) 62.4

Total deferred tax benefit ( 2,185.2 ) ( 802.3 ) ( 134.5 )

Income taxes $ 561.6 $ 573.8 $ 1,036.2

(1) The 2021, 2020, and 2019 current tax expense includes $ 64.7 million, $ 144.4 million, and $ 153.1 million of tax benefit, respectively, from utilization of net operating loss and tax credit carryforwards.

(1) The 2022, 2021, and 2020 current tax expense includes $ 189.5 million, $ 64.7 million, and $ 144.4 million of tax benefit, respectively, from utilization of net operating loss and other tax carryforwards.

Significant components of our deferred tax assets and liabilities as of December 31 were as follows:

2 unchanged sentences

Compensation and benefits 427.9 634.7

Tax credit carryforwards and carrybacks 463.7 523.5

Tax credit carryforwards 477.6 463.7

Tax loss and other tax carryforwards and carrybacks 626.0 645.4

26 unchanged sentences

$ 319.1 million will expire by 2027;

$ 818.2 million will expire between 2027 and 2041;

$ 1.44 billion will expire between 2028 and 2042;

and $ 762.0 million of the carryforwards will never expire.

2 unchanged sentences

Deferred tax assets related to state net operating losses and other carryforwards of $ 246.2 million are fully reserved as of December 31, 2022.

At December 31, 2022 and 2021, prepaid expenses and other current assets included prepaid taxes of $ 2.37 billion and $ 1.98 billion, respectively.

Domestic and Puerto Rican companies contributed approximately 33 percent, 28 percent, and 39 percent for the years ended December 31, 2022, 2021, and 2020, respectively, to consolidated income before income taxes.

We have a subsidiary operating in Puerto Rico under a tax incentive grant effective through the end of 2031.

We have a subsidiary operating in Puerto Rico under a tax incentive grant effective through the end of 2031, which was amended in 2022 to apply the alternate tax regime established by recently enacted Puerto Rico legislation starting in 2023.

Substantially all of the unremitted earnings of our foreign subsidiaries are considered not to be indefinitely reinvested for continued use in our foreign operations.

At December 31, 2021 and December 31, 2020, we accrued an immaterial amount of foreign withholding taxes and state income taxes that would be owed upon future distributions of unremitted earnings of our foreign subsidiaries that are not indefinitely reinvested.

At December 31, 2022 and 2021, we accrued an immaterial amount of foreign withholding taxes and state income taxes that would be owed upon future distributions of unremitted earnings of our foreign subsidiaries that are not indefinitely reinvested.

For the amount considered to be indefinitely reinvested, it is not practicable to determine the amount of the related deferred income tax liability due to the complexities in the tax laws and assumptions we would have to make.

8 unchanged sentences

Having made this election, our future cash payments relating to the Toll Tax as of December 31, 2022 are as follows:

Total Less than 1 Year 1-3 Years 3-5 Years

Total Less than 1 Year 1-3 Years

2017 Tax Act Toll Tax $ 1,895.8 $ 475.7 $ 1,420.1

We have additional noncurrent income tax payables of $ 2.02 billion unrelated to the Toll Tax;

As of December 31, 2022, we have additional noncurrent income tax payables of $ 2.28 billion unrelated to the Toll Tax;

we cannot reasonably estimate the timing of future cash outflows associated with these liabilities.

9 unchanged sentences

Foreign-derived intangible income deduction ( 287.5 ) ( 86.7 ) ( 71.5 )

Valuation allowance release ( 116.4 ) ( 19.0 ) ( 10.0 )

Other ( 9.3 ) ( 65.1 ) ( 5.5 )

12 unchanged sentences

Ending balance at December 31 $ 2,987.0 $ 2,798.3 $ 2,551.9

The total amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate was $ 1.70 billion and $ 1.67 billion at December 31, 2021 and 2020, respectively.

The total amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate was $ 1.70 billion at both December 31, 2022 and 2021.

federal, foreign, and various state and local income tax returns.

3 unchanged sentences

examination of tax years 2016-2018 began in 2019 and remains ongoing.

therefore, the resolution of this audit period will likely extend beyond the next 12 months.

For tax years 2013-2015, all matters were effectively settled in 2019.

As a result, our gross uncertain tax positions were reduced by approximately $ 200 million, we made a cash payment of approximately $ 125 million, and our consolidated results were benefited by an immaterial reduction in tax expense.

We recognize both accrued interest and penalties related to unrecognized tax benefits in income tax expense.

We recognized income tax (benefit) expense related to interest and penalties as follows:

2021 2020 2019

Income tax (benefit) expense $ 20.5 $ 34.0 $ ( 26.4 )

At December 31, 2021 and 2020, our accruals for the payment of interest and penalties totaled $ 220.1 million and $ 196.7 million, respectively.

While it is reasonably possible that the Internal Revenue Service examination of these tax years could conclude within the next 12 months, final resolution of certain matters is dependent upon several factors, including the potential for formal administrative proceedings.

As a result, an estimate of the range of reasonably possible changes in unrecognized tax benefits cannot be made.

Interest and penalties related to unrecognized tax benefits are recognized in income tax expense and were not material for the years ended December 31, 2022, 2021, and 2020.

Our accrued interest and penalties related to unrecognized tax benefits were $ 271.5 million and $ 220.1 million at December 31, 2022 and 2021, respectively.

Retirement Benefits

10 unchanged sentences

Benefits paid ( 608.9 ) ( 630.1 ) ( 86.8 ) ( 79.3 )

Curtailment loss — 2.2 — —

Foreign currency exchange rate changes and other adjustments ( 325.0 ) ( 173.1 ) ( 6.7 ) ( 6.2 )

18 unchanged sentences

The unrecognized net actuarial (gain) loss and unrecognized prior service (benefit) cost have not yet been recognized in net periodic pension costs and were included in accumulated other comprehensive loss at December 31, 2022 and 2021.

The $ 750.4 million decrease in benefit obligation in 2021 was driven primarily by an increase in the discount rate.

The $ 2.13 billion increase in the benefit obligation in 2020 was driven by a decrease in the discount rate.

The $ 4.75 billion and $ 750.4 million declines in benefit obligation in 2022 and 2021, respectively, were both driven primarily by increases in the discount rates.

The following represents our weighted-average assumptions as of December 31:

18 unchanged sentences

Retiree health benefit plans 89.0 91.6 92.4 92.8 93.4 468.3

89.4 89.5 93.1 93.9 94.5 477.7

Amounts relating to defined benefit pension plans with projected benefit obligations in excess of plan assets were as follows at December 31:

20 unchanged sentences

Recognized actuarial (gain) loss 342.4 487.7 396.3 0.9 3.2 ( 3.0 )

Curtailment loss — — 2.2 — — —

Net periodic (benefit) cost $ 147.0 $ 249.6 $ 250.6 $ ( 121.6 ) $ ( 120.9 ) $ ( 136.1 )

6 unchanged sentences

Plan amendments during period — — ( 2.2 ) — — —

Curtailment gain — — 19.0 — — —

Amortization of prior service (benefit) cost included in net income 2.4 4.2 4.5 ( 54.8 ) ( 59.6 ) ( 59.5 )

153 unchanged sentences

Patent Litigation

Alimta Patent Litigation

Patent Litigation

Alimta (pemetrexed) was protected by a vitamin regimen patent until November 2021, and since then has been protected by pediatric exclusivity through May 2022.

In December 2019, we settled a lawsuit we filed against Eagle Pharmaceuticals, Inc.

(Eagle) in response to its application to market a product using an alternative form of pemetrexed.

Per the settlement agreement, Eagle has a limited initial entry into the market with its product starting February 2022 (up to an approximate three-week supply) and subsequent unlimited entry starting April 2022.

European Patent Litigation

In Europe, Alimta was protected by the vitamin regimen patent through June 2021.

Despite the recent patent expiration, a number of legal proceedings that were initiated prior to expiration are ongoing .

Alimta European Patent Litigation

In Europe, Alimta (pemetrexed) was protected by a patent through June 2021.

A number of legal proceedings that were initiated prior to patent expiration are ongoing .

Emgality Patent Litigation

In September 2018, we were named as a defendant in litigation filed by Teva Pharmaceuticals International GMBH and Teva Pharmaceuticals USA, Inc.

We are a named defendant in litigation filed by Teva Pharmaceuticals International GMBH and Teva Pharmaceuticals USA , Inc.

(collectively, Teva) in the U.S.

District Court for the District of Massa chusetts seeking a ruling that various claims in nine different Teva patents would be infringed by our launch and continued sales of Emgality for the prevention of migraine in adults.

Trial is currently scheduled to begin in October 2022.

District Court for the District of Massachusetts seeking a ruling that various claims in three different Teva patents would be infringed by our launch and continued sales of Emgality for the prevention of migraine in adults.

Following a trial, in November 2022, a jury returned a verdict in favor of Teva.

The parties have filed post-trial motions on which the court will rule and then enter final judgment in the case.

We intend to appeal the jury verdict if necessary.

Pursuant to agreement by the parties, the award, if any, will not become due until completion of the appeal process.

This matter is ongoing.

In June 2021, we were named as a defendant in a second litigation filed by Teva in the U.S.

District Court for the District of Massachusetts seeking a ruling that two of Teva's patents, which are directed toward use of the active ingredient in Emgality to treat migraine, would be infringed by our continued sales of Emgality.

We challenged these two patents by filing requests for Inter Partes Review with the Patent Trial and Appeal Board (PTAB) and in October 2022, the PTAB granted our requests.The corresponding district court litigation is stayed while this PTAB proceeding is ongoing.

Jardiance Patent Litigation

In November 2018, Boehringer Ingelheim (BI), our partner in marketing and development of Jardiance, initiated U.S.

In November 2018, Boehringer Ingelheim, our partner in marketing and development of Jardiance, initiated U.S.

patent litigation in the U.S.

District Court of Delaware alleging infringement arising from submissions of Abbreviated New Drug Applications (ANDA) by a number of generic companies seeking approval to market generic versions of Jardiance, Glyxambi, and Synjardy in accordance with the procedures set out in the Drug Price Competition and Patent Term Restoration Act of 1984 (the Hatch-Waxman Act).

District Court for the District of Delaware alleging infringement arising from submissions of Abbreviated New Drug Applications (ANDA) by a number of generic companies seeking approval to market generic versions of Jardiance, Glyxambi, and Synjardy in accordance with the procedures set out in the Drug Price Competition and Patent Term Restoration Act of 1984 (the Hatch-Waxman Act).

Particularly with respect to Jardiance, the generic companies' ANDAs seek approval to market generic versions of Jardiance prior to the expiration of the relevant patents, and allege that certain patents, including in some allegations the compound patent, are invalid or would not be infringed.

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Taltz Patent Litigation

In April 2021, we petitioned the High Court of Ireland to declare invalid the patent that Novartis Pharma AG (Novartis) purchased from Genentech, Inc.

Novartis responded by filing a claim against us alleging patent infringement related to our commercialization of Taltz and seeking damages for past infringement and an injunction against future infringement.

This matter is ongoing.

In April 2021 and November 2021, Novartis petitioned the Court of Rome Intellectual Property Division and the Swiss Federal Patent Court, respectively, in preliminary injunction (PI) and main infringement proceedings against us related to our commercialization of Taltz.

In June 2021, the Court of Rome Intellectual Property Division dismissed Novartis' PI action.

Novartis appealed the ruling and in October 2021, the panel hearing Novartis' appeal appointed a technical expert to assess the merits of the case.

Both matters are ongoing.

Hearings on the Italian and Swiss PI requests are scheduled for May 2022.

In June 2021, Novartis petitioned the Commercial Court of Vienna in PI proceedings and in November 2021, the Austrian court denied Novartis' request.

Novartis did not appeal the ruling, and this matter is now closed.

Beginning in May 2020, Lilly and Novartis Pharma AG (Novartis) had been litigating the validity and alleged infringement by Taltz of certain patents Novartis acquired from Genentech, Inc.

As of October 2022, we had pending cases in Ireland, Italy, Switzerland, and the Netherlands where Novartis sought injunctions to stop Taltz commercialization.

In October 2022, we entered into a cashless (no-payment) settlement and mutual release agreement with Novartis, which resolved such disputes.

Without any admission of liability or wrongdoing, we and Novartis have agreed to mutual releases for past claims and mutual covenants not to sue the other in relation to Taltz and the patents Novartis purchased from Genentech.

This matter is closed.

Zyprexa Canada Patent Litigation

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(collectively, Apotex) brought claims against us in the Ontario Superior Court of Justice at Toronto for damages related to our enforcement of the Zyprexa compound patent under Canadian regulations governing patented drugs.

Apotex seeks compensation based on novel legal theories under the Statute of Monopolies, Trade-Mark Act, and common law.

In March 2021, the Ontario Superior Court granted our motion for summary judgement, thereby dismissing Apotex's case.

Apotex appealed that ruling to the Court of Appeal for Ontario in April 2021 and a hearing occurred February 2022.

We await a decision.

Apotex seeks compensation based on novel legal theories under the Statute of Monopolies, Trademark Act, and common law.

In March 2021, the Ontario Superior Court granted our motion for summary judgment, thereby dismissing Apotex's case.

Apotex appealed that ruling to the Court of Appeal for Ontario in April 2021.

In August 2022, the Court dismissed the appeal and in October 2022, Apotex appealed the decision.

This matter is ongoing.

Product Liability Litigation

Actos® Product Liability

We are named along with Takeda Chemical Industries, Ltd.

and Takeda affiliates (collectively, Takeda) as a defendant in four purported product liability class actions in Canada related to Actos, which we commercialized with Takeda in Canada until 2009, including one in Ontario filed December 2011 ( Casseres et al.

Takeda Pharmaceutical North America, Inc., et al.

), one in Quebec filed July 2012 ( Whyte et al.

Eli Lilly et al.

), one in Saskatchewan filed November 2017 ( Weiler v.

Takeda Canada Inc.

), and one in Alberta filed January 2013 ( Epp v.

Takeda Canada Inc.

In general, plaintiffs in these actions alleged that Actos caused or contributed to their bladder cancer.

An agreement to settle these actions became effective in May 2021.

The relevant courts approved the settlement and the deadline for class members to seek settlement funds has now expired.

The lawsuits have been dismissed or discontinued.

Byetta® Product Liability

We are named as a defendant in approximately 570 Byetta product liability lawsuits in the U.S.

which were first initiated in March 2009 and involve approximately 805 plaintiffs.

Approximately 55 of these lawsuits, covering about 285 plaintiffs, are filed in California state court and coordinated in a Los Angeles Superior Court.

Approximately 515 of the lawsuits, covering about 515 plaintiffs, are filed in federal court, the majority of which are coordinated in a multi-district litigation (MDL) in the U.S.

We have been named as a defendant in over 500 Byetta product liability lawsuits in the U.S.

that were first initiated in March 2009 and involved over 800 plaintiffs.

These lawsuits have been filed in various state and federal jurisdictions, including California state court (coordinated in Los Angeles County Superior Court), and various federal courts, the majority of which are coordinated in a multi-district litigation (MDL) in the U.S.

District Court for the Southern District of California.

Two lawsuits, representing approximately two plaintiffs, have also been filed in various state courts.

Approximately 565 of the lawsuits, involving approximately 800 plaintiffs, contain allegations that Byetta caused or contributed to the plaintiffs' cancer (primarily pancreatic cancer or thyroid cancer);

while six plaintiffs allege Byetta caused or contributed to pancreatitis.

In addition, one case alleges that Byetta caused or contributed to ampullary cancer.

The federal and state trial courts granted summary judgment in favor of us and our co-defendants on the claims alleging pancreatic cancer.

The plaintiffs appealed those rulings.

In November 2017, the U.S.

Court of Appeals for the Ninth Circuit reversed the U.S.

District Court for the Southern District of California's grant of summary judgment in the MDL based on that court's discovery rulings and remanded the cases back to the U.S.

District Court for further proceedings.

In March 2021, the U.S.

District Court granted summary judgment for the defendants.

In April 2021, the plaintiffs filed a notice of appeal to the U.S.

Court of Appeals for the Ninth Circuit, but we have now been dismissed from that appeal.

Certain plaintiffs have agreed to dismiss their lawsuits in exchange for a waiver of costs, and individual plaintiffs have begun dismissing their claims based upon this agreement.

Approximately 311 of the MDL lawsuits have been dismissed as of February 2022.

In the state court actions, in November 2018, the California Court of Appeal reversed the Los Angeles County Superior Court of California's grant of summary judgment based on that court's discovery rulings and remanded for further proceedings.

In April 2021, the Los Angeles County Superior Court of California granted summary judgment for the defendants and the parties await entry of the order of judgment.

Approximately 17 of the state court lawsuits have been dismissed as of February 2022.

We are aware of approximately 20 additional potential claimants who have not yet filed suit.

These additional possible claims allege damages for pancreatic cancer or thyroid cancer.

Cialis Product Liability

We are named as a defendant in approximately 350 Cialis product liability lawsuits in the U.S.

which were first initiated in August 2015.

These cases, many of which were originally filed in various federal courts, contain allegations that Cialis caused or contributed to the plaintiffs' cancer (melanoma).

In December 2016, the Judicial Panel on Multidistrict Litigation (JPML) granted the plaintiffs' petition to have filed cases and an unspecified number of future cases coordinated into a federal MDL in the U.S.

District Court for the Northern District of California, alongside an existing coordinated proceeding involving Viagra ® .

The JPML ordered the transfer of the existing cases to the now-renamed MDL In re:

Viagra (Sildenafil Citrate) and Cialis (Tadalafil) Products Liability Litigation .

In April 2020, the MDL court granted summary judgment to the defendants on all of the claims brought against them by the plaintiffs.

In May 2020, plaintiffs filed an appeal in the U.S.

Court of Appeals for the Ninth Circuit.

The parties have reached agreement to resolve the majority of claims pending in the appeal and expect those claims to soon be dismissed.

Jardiance Product Liability

First initiated in January 2019, we and Boehringer Ingelheim Pharmaceuticals, Inc., a subsidiary of BI, have been named as a defendant in 5 currently pending product liability lawsuits in Stamford Superior Court in Connecticut, alleging that Jardiance caused or contributed to plaintiffs' Fournier's gangrene.

Our agreement with BI calls for BI to defend and indemnify us against any damages, costs, expenses, and certain other losses with respect to product liability claims in accordance with the terms of the agreement.

All pending cases have been paused to allow for settlement negotiations and dismissals.

The majority of these suits contained allegations that Byetta caused or contributed to the plaintiffs' cancer (primarily pancreatic cancer or thyroid cancer).

All of the MDL and state court lawsuits have been dismissed as of January 2023 and we consider these matters closed.

Environmental Proceedings

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Department of Health and Human Services (HHS), the Secretary of HHS, the Health Resources and Services Administration (HRSA), and the Administrator of HRSA.

The lawsuit challenges the HHS's December 30, 2020 advisory opinion stating that drug manufacturers are required to deliver discounts under the 340B program to all contract pharmacies.

We seek a declaratory judgment that the defendants violated the Administrative Procedures Act and the U.S.

The lawsuit challenges HHS's December 30, 2020 advisory opinion stating that drug manufacturers are required to deliver discounts under the 340B program to all contract pharmacies and HHS's Administrative Dispute Resolution regulations.

We seek a declaratory judgment that the defendants violated the Administrative Procedure Act and the U.S.

Constitution, a preliminary injunction enjoining implementation of the administrative dispute resolution process created by defendants and, with it, their application of the advisory opinion, and other related relief.

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In May 2021, HRSA notified us that it determined that our policy was contrary to the 340B statute.

In response, in May 2021, we filed a motion for preliminary injunction and temporary restraining order requesting that the U.S.

In response, in May 2021, we amended our complaint to bring claims related to HRSA's determination and filed a motion for preliminary injunction and temporary restraining order requesting that the U.S.

District Court for the Southern District of Indiana enjoin defendants from taking any action against us relating to the 340B drug pricing program until after the court issues a final judgment on the aforementioned litigation.

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In October 2021, the court denied the defendants' motion to dismiss, and granted in part and denied in part the parties' cross motions for summary judgment.

We have filed a notice of appeal.

Both parties filed notices of appeal related to the court's summary judgment order.

In October 2022, the U.S.

Court of Appeals for the Seventh Circuit held oral argument.

This matter is ongoing.

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alleging antitrust and unjust enrichment claims related to the defendants' 340B distribution programs.

We, with Sanofi and Novo Nordisk, filed a motion to dismiss the lawsuit.

We, with Sanofi and Novo Nordisk, filed a motion to dismiss the lawsuit, which was granted in September 2022.

In October 2022, the plaintiffs filed a motion for leave to amend their complaint.

This matter is ongoing.

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Branchburg Manufacturing Facility

In May 2021, we received a subpoena from the United States Department of Justice requesting the production of certain documents relating to our manufacturing site in Branchburg, New Jersey.

In May 2021, we received a subpoena from the U.S.

Department of Justice requesting the production of certain documents relating to our manufacturing site in Branchburg, New Jersey.

We are cooperating with the subpoena.

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Labor Attorney Litigation

First initiated in 2008, our subsidiary in Brazil, Eli Lilly do Brasil Limitada (Lilly Brasil), is named in a Public Civil Action brought by the Labor Attorney for the 15th Region in the Labor Court of Paulinia, State of Sao Paulo, Brazil, (the Labor Court) alleging possible harm to employees and former employees caused by alleged exposure to soil and groundwater contaminants at a former Lilly Brasil manufacturing facility in Cosmopolis, Brazil, operated by the company between 1977 and 2003.

In May 2014, the Labor Court judge ruled against Lilly Brasil, ordering it to undertake several actions, including some with unspecified financial impact, consisting primarily of paying lifetime health coverage for the employees and contractors who worked at the Cosmopolis facility for more than six months during the affected years and their children who were born during and after this period.

We appealed this decision.

In July 2018, the appeals court (TRT) generally affirmed the Labor Court's ruling, which included a liquidated award of 300 million Brazilian real.

This 300 million Brazilian real liquidated award, when adjusted for inflation and the addition of pre and post judgment interest using the current Central Bank of Brazil's special system of clearance and custody rate, is approximately 950 million Brazilian real (approximately $ 170 million as of December 31, 2021).

The TRT also restricted the broad health coverage awarded by the Labor Court to health problems that claimants could prove in a separate evidentiary proceeding arose from exposure to the alleged contamination.

In August 2019, Lilly Brasil filed an appeal to the superior labor court (TST) and in June 2021, the TRT published its decision on the admissibility of Lilly Brasil's appeal, allowing the majority of the elements of the appeal to proceed;

First initiated in 2008, our subsidiary in Brazil, Eli Lilly do Brasil Limitada (Lilly Brasil), is named in a Public Civil Action brought by the Labor Public Attorney (LPA) for the 15th Region in the Labor Court of Paulinia, State of Sao Paulo, Brazil, (the Labor Court) alleging possible harm to employees and former employees caused by alleged exposure to soil and groundwater contaminants at a former Lilly Brasil manufacturing facility in Cosmopolis, Brazil, operated by the company between 1977 and 2003.

In May 2014, the Labor Court judge ruled against Lilly Brasil, ordering it to undertake several remedial and compensatory actions including health coverage for a class of individuals and certain of their children.

In July 2018, the appeals court (TRT) generally affirmed our appeal of the Labor Court's ruling, which included a liquidated award of 300 million Brazilian reais, which, when adjusted for inflation and the addition of pre and post judgment interest using the current Central Bank of Brazil's special system of clearance and custody rate, is approximately one billion Brazilian reais (approximately $ 184 million as of December 31, 2022).

elements not proceeding are subject to an interlocutory appeal to the TST that was filed in June 2021.

In September 2019, the TRT stayed a number of elements of its trial court decision pending the determination of Lilly Brasil's appeal to the TST.

In June 2019, the Labor Public Attorney (LPA) filed an application in the Labor Court for enforcement of the healthcare coverage granted by the TRT in its July 2018 ruling, requested restrictions on Lilly Brasil’s assets in Brazil, and required Lilly Brasil and Antibióticos do Brasil Ltda.

(ABL) to submit a list of potential beneficiaries of the Public Civil Action for the LPA to identify and contact those individuals.

In July 2019, the Labor Court issued a ruling requiring a freeze of Lilly Brasil’s immovable property or, alternatively, a security deposit or lien of 500 million Brazilian real.

Lilly Brasil filed a writ of mandamus challenging this ruling.

In June 2021, the court reduced the security deposit or lien to 100 million Brazilian real and limited the scope of the initial order.

ABL and LPA appealed to the TST, which appeal is currently still under review.

In addition, in September 2020, the LPA initiated a second preliminary enforcement of the portion of the July 2018 TRT decision in the Labor Court that prohibits the exposure of workers to the contaminated areas.

The Labor Court is currently assessing the status of Lilly Brasil’s compliance with such portion of the July 2018 TRT decision.

In June 2019 and September 2020, the LPA filed applications in the Labor Court for enforcement of certain remedies granted by the TRT in its July 2018 decision, requested restrictions on Lilly Brasil’s assets in Brazil, and required Lilly Brasil and Antibióticos do Brasil Ltda.

(ABL) to submit a list of potential beneficiaries of the Public Civil Action.

In July 2019, the Labor Court issued a ruling requiring a freeze of Lilly Brasil’s immovable property or, alternatively, a security deposit or lien of 500 million Brazilian reais, which ruling was subsequently limited in scope and the security was reduced to 100 million Brazilian reais.

ABL and LPA appealed the June 2021 Labor Court ruling to the TST, which appeal is under review.

The Labor Court is currently assessing the status of Lilly Brasil’s and ABL’s compliance with such portion of the July 2018 TRT decision and an inspection in the industrial plant is expected.

These matters are ongoing.

Individual Former Employee Litigation

Lilly Brasil is also named in approximately 25 pending lawsuits filed in the Labor Court by individual former employees making similar claims.

These lawsuits are each at various stages in the litigation process, with judgments being handed down in more than half of the lawsuits by the trial courts, of which, approximately half of those judgements are on appeal in the labor courts.

China NDRC Antitrust Matter

The competition authority in China has investigated our distributor pricing practices in China in connection with a broader inquiry into pharmaceutical industry pricing.

We cooperated with this investigation.

In July 2021 Lilly divested Cialis in China.

We consider this matter closed.

Lilly Brasil is also named in various pending lawsuits filed in the Labor Court by individual former employees making related claims.

These individual lawsuits are at various stages in the litigation process.

Puerto Rico Tax Matter

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The AP remanded the case to the CFI for trial on the merits.

In October 2021, the Municipality filed a motion to execute a purported judgment, and the CFI scheduled a hearing in March 2022 to consider the Municipality's motion.

We have opposed the Municipality's motion.

The trial began in May 2022;

however, the Municipality filed a new motion requesting the CFI to award damages.

The request was denied by the CFI in our favor and the Municipality filed for revision at the AP, which we opposed, staying the case.

In February 2023, the AP denied the Municipality's motion for revision.

This matter is ongoing.

Eastern District of Pennsylvania Pricing (Average Manufacturer Price) Inquiry

Average Manufacturer Price Litigation

In November 2014, we, along with another pharmaceutical manufacturer, were named as co-defendants in United States et al.

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The complaint alleges that the defendants should have treated certain credits from distributors as retroactive price increases and included such increases in calculating average manufacturer prices.

In October 2021 the parties filed cross motions for summary judgment.

Trial is scheduled for April 2022.

Following a trial in August 2022, the jury returned a verdict in favor of the plaintiff.

The case is proceeding with post-trial motions after which the court will enter final judgment in the case.

This matter is ongoing.

Health Choice Alliance

We are named as a defendant in a lawsuit filed in June 2017 in the U.S.

District Court for the Eastern District of Texas seeking damages under the federal anti-kickback statute and state and federal false claims acts for certain patient support programs related to our products Humalog, Humulin, and Forteo.

In September 2019, the U.S.

District Court granted the U.S.

Department of Justice's motion to dismiss the relator's second amended complaint.

In January 2020, the relator appealed the District Court's dismissal to the U.S.

Court of Appeals for the Fifth Circuit.

In July 2021, the U.S.

Court of Appeals for the Fifth Circuit affirmed the dismissal of the lawsuit, and the relator did not petition the U.S.

Supreme Court for certiorari.

We are also named as a defendant in two similar lawsuits filed in Texas and New Jersey state courts in October 2019 seeking damages under the Texas Medicaid Fraud Prevention Act and New Jersey Medicaid False Claims Act, respectively.

In November 2020, the Texas state court action was stayed pending a final determination with respect to the aforementioned federal lawsuit.

In April 2021, the New Jersey state court action was dismissed with prejudice and in June 2021, the relator appealed the state court's decision to the Appellate Division of the New Jersey Superior Court.

In January 2022, the relator filed its appellate brief.

Pricing Litigation, Investigations, and Inquiries

In December 2017, we, along with Sanofi and Novo Nordisk were named as defendants in a consolidated purported class action lawsuit, In re.

Insulin Pricing Litigation , in the U.S.

District Court for the District of New Jersey relating to insulin pricing seeking damages under various state consumer protection laws and the Federal Racketeer Influenced and Corrupt Organization Act (federal RICO Act).

Separately, in February 2018, we, along with Sanofi and Novo Nordisk, were named as defendants in MSP Recovery Claims, Series, LLC et al.

We are named as a defendant in two lawsuits filed in Texas and New Jersey state courts in October 2019 seeking damages under the Texas Medicaid Fraud Prevention Act and New Jersey Medicaid False Claims Act, respectively, for certain patient support programs related to our products Humalog, Humulin, and Forteo.

The Texas state court action has been stayed.

The New Jersey state court action was dismissed with prejudice pending an ongoing appeal before the Appellate Division of the New Jersey Superior Court.

This matter is ongoing.

Pricing Litigation

We, along with Sanofi, Novo Nordisk, and in some matters certain pharmacy benefit managers, have been named in lawsuits related to insulin pricing that assert various theories, including consumer protection, fraud, false advertising, unjust enrichment, civil conspiracy, federal and state RICO statutes, deceptive trade practices, and unfair competition claims.

These lawsuits include In re.

Insulin Pricing Litigation, a putative consumer class action (U.S.

District Court for the District of New Jersey, 2017);

MSP Recovery Claims, Series, LLC et al.

Sanofi Aventis U.S.

, in the same court, seeking damages under various state consumer protection laws, common law fraud, unjust enrichment, and the federal RICO Act.

In both In re.

Insulin Pricing Litigation and the MSP Recovery Claims litigation, the court dismissed claims under the federal RICO Act and certain state laws.

In April 2021, the plaintiffs in In re.

Insulin Pricing Litigation amended their complaint to allege additional state law claims for civil conspiracy and violations of state RICO statutes.

The court has allowed the Arizona RICO statute and certain state civil conspiracy law claims to proceed.

Also, we, along with Sanofi, Novo Nordisk, CVS, Express Scripts, and Optum, have been sued in a purported class action, FWK Holdings, LLC v.

Novo Nordisk Inc., et al., filed in the same court in November 2020, for alleged violations of the federal RICO Act as well as the New Jersey RICO Act and antitrust law.

That same group of defendants, along with Medco Health and United Health Group, also have been sued in other purported class actions in the same court, Rochester Drug Co-Operative Inc.

Eli Lilly & Co.

and Value Drug Co.

Eli Lilly & Co.

both initiated in March 2020, for alleged violations of the federal RICO Act.

In September 2020, the U.S.

District Court for the District of New Jersey granted plaintiffs' motion to consolidate FWK Holdings, LLC v.

District Court for the District of New Jersey, 2018);

FWK Holdings, LLC v.

Novo Nordisk Inc., et al.

, Rochester Drug Co-Operative Inc.

Eli Lilly & Co.

, and Value Drug Co.

Eli Lilly & Co.

In July 2021, the U.S.

District Court for the District of New Jersey dismissed the three antitrust claims alleged by plaintiffs in the consolidated litigation and denied dismissal of the RICO claims.

In October 2018, the Minnesota Attorney General's Office initiated litigation against us, Sanofi, and Novo Nordisk, State of Minnesota v.

Sanofi-Aventis U.S.

LLC et al., in the U.S.

District Court for the District of New Jersey, alleging unjust enrichment, violations of various Minnesota state consumer protection laws, and the federal RICO Act.

In March 2021, the U.S.

District Court for the District of New Jersey dismissed with prejudice the Minnesota Attorney General's federal RICO claims and false advertising claims under state law;

the consumer fraud and other related state law claims remain ongoing.

Additionally, in May 2019, the Kentucky Attorney General's Office filed a complaint against us, Sanofi, and Novo Nordisk, Commonwealth of Kentucky v.

Novo Nordisk, Inc.

, in Kentucky state court, alleging violations of the Kentucky consumer protection law, false advertising, and unjust enrichment.

In November 2019, Harris County in Texas initiated litigation against us, Sanofi, Novo Nordisk, Express Scripts, CVS, Optum, and Aetna, County of Harris Texas v.

Eli Lilly & Co., et al.

, in federal court in the Southern District of Texas alleging violations of the federal RICO Act, the state deceptive trade practices-consumer protection act, and common law claims such as fraud, unjust enrichment, and civil conspiracy.

Harris County also alleged violations of federal and state antitrust law, but voluntarily dismissed them.

This lawsuit relates to our insulin products as well as Trulicity.

In June 2021, the City of Miami, Florida initiated litigation against us, Sanofi, Novo Nordisk, ESI, CVS/Caremark/Aetna, and Optum, asserting state law antitrust, common law fraud, money had and received, unjust enrichment, and civil conspiracy claims.

After removing the case to federal court, we, along with the other defendants, filed a motion to dismiss the lawsuit.

In January 2022, the court granted the motion in part but has allowed the antitrust and conspiracy claims to proceed against us, Sanofi and Novo Nordisk.

We, along with Sanofi and Novo Nordisk, have moved the court to reconsider its denial of our motion to dismiss the antitrust and conspiracy claims.

In June 2021, the Mississippi Attorney General's Office (Mississippi AG) initiated litigation against us, Sanofi, Novo Nordisk, Evernorth/ESI, CVS/Caremark, and United/Optum in the Hinds County, Mississippi Chancery Court, alleging state law consumer protection, unjust enrichment, and civil conspiracy claims.

After the case was removed to federal court, we, along with the other defendants, filed a motion to dismiss the lawsuit.

In response, the Mississippi AG filed a motion to amend its complaint, which the court granted.

This matter is ongoing.

, a putative class action brought by direct purchasers of insulin (U.S.

District Court for the District of New Jersey, 2020), and suits brought by the State of Minnesota (U.S.

District Court for the District of New Jersey, 2018), State of Kentucky (Franklin County Circuit Court, 2019), State of Mississippi (U.S.

District Court for the Southern District of Mississippi, 2021), State of Arkansas (U.S.

District Court for the Eastern District of Arkansas, 2022), County of Albany, New York (U.S.

District Court for the Northern District of New York, 2022), State of Montana (U.S.

District Court for the District of Montana, 2022), State of Kansas (U.S.

District Court for the District of Kansas, 2022), State of Illinois (U.S.

District Court for the Northern District of Illinois, 2022), State of California (Los Angeles County Superior Court, 2023), Jackson County, Missouri in a putative class action on behalf of Missouri counties and municipalities (Jackson County Circuit Court, 2023), and the Government of Puerto Rico (Court of First Instance Superior Court, San Juan, 2023).

These lawsuits are at various stages in the litigation process.

Investigations, Subpoenas, and Inquiries

We received subpoenas from the New York and Vermont Attorney General Offices and civil investigative demands from the Washington, New Mexico, and Colorado Attorney General Offices relating to the pricing and sale of our insulin products.

The Offices of the Attorney General in Mississippi, Washington D.C., California, Florida, Hawaii, and Nevada have requested information relating to the pricing and sale of our insulin products.

We also received interrogatories and a subpoena from the California Attorney General's Office regarding our competition in the long-acting insulin market, which was subsequently withdrawn in June 2021.

In January 2022, the Michigan Attorney General filed against us in state court a petition seeking authorization to investigate Lilly for potential violations of the Michigan Consumer Protection Act (MCPA), and a complaint seeking a declaratory judgment that the MCPA applies to the conduct it seeks to investigate and allows it to conduct the investigation.

The state court granted the State's petition to investigate, authorizing the State to issue civil investigative subpoenas.

The State's complaint for declaratory judgment remains pending.

In connection with the pricing and sale of our insulin and other products, we have been subject to various investigations and received subpoenas, civil investigative demand requests, information requests, interrogatories, and other inquiries from various governmental entities.

These include subpoenas from the New York and Vermont Attorney General Offices, civil investigative demands from the Washington, New Mexico, Colorado, Louisiana, Texas and Ohio Attorney General Offices, the U.S.

Department of Justice and the U.S.

Federal Trade Commission, as well as information requests from the Mississippi, Washington D.C., California, Florida, Hawaii, and Nevada Attorney General Offices.

In January 2022, the Michigan Attorney General filed a petition in Michigan state court seeking authorization to investigate Lilly for potential violations of the Michigan Consumer Protection Act (MCPA), and a complaint seeking a declaratory judgment that the Attorney General has authority to investigate Lilly's sale of insulin under the MCPA.

The court authorized the proposed investigation and the issuance of civil investigative subpoenas.

In April 2022, the parties entered into a stipulation providing that the State of Michigan will not issue any civil investigative subpoena to us under the MCPA until the declaratory judgment action is resolved.

In July 2022, the court dismissed the case in its entirety.

The Michigan Attorney General filed a notice of appeal to the Michigan Court of Appeals, which remains pending.

We received a request in January 2019 from the House of Representatives' Committee on Oversight and Reform seeking commercial information and business records related to the pricing of insulin products, among other issues.

We also received requests from the Senate Finance Committee and the Senate Committee on Health, Education, Labor, and Pensions, and separate requests from the House Committee on Energy and Commerce majority and minority members.

Those requests sought pricing and other commercial information regarding Lilly's insulin products.

We also received similar requests from the Senate Finance Committee and the Senate Committee on Health, Education, Labor, and Pensions, and separate requests from the House Committee on Energy and Commerce majority and minority members.

In January 2021, the Senate Finance Committee released a report summarizing the findings of its investigation.

In December 2021 the House of Representatives' Committee on Oversight and Reform majority and minority staffs released separate reports with findings from their investigations into drug pricing, including of insulin products.

We are cooperating with all of these aforementioned investigations, subpoenas, and inquiries.

We are cooperating with all of the aforementioned investigations, subpoenas, and inquiries.

Research Corporation Technologies, Inc.

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RCT is seeking damages for breach of contract, unjust enrichment, and conversion related to processes used to manufacture certain products, including Humalog and Humulin.

Both parties moved for summary judgment and hearing on the motions took place in August 2021.

In October 2021, the court issued a summary judgment decision finding in favor of RCT on certain issues, including with respect to a disputed royalty.

Both parties filed motions for reconsideration, which are underway.

Potential damages payable under the litigation, if finally awarded after an appeal, could be material but are not currently reasonably estimable.

Both parties filed motions for reconsideration, which were denied.

We filed supplemental summary judgment motions.

In November 2022, the court stayed proceedings so the parties can pursue mediation.

A trial date has not been set.

Potential damages payable under the litigation, if finally awarded after an appeal, could be material but are not currently reasonably estimable.

This matter is ongoing.

Other Comprehensive Income (Loss)

The following table summarizes the activity related to each component of other comprehensive income (loss):

Continuing Operations

(Amounts presented net of taxes) Foreign Currency Translation Gains (Losses) Unrealized Net Gains (Losses) on Securities Defined Benefit Pension and Retiree Health Benefit Plans Effective Portion of Cash Flow Hedges Discontinued Operations Accumulated Other Comprehensive Loss

Beginning balance at January 1, 2020 $ ( 1,678.0 ) $ 4.9 $ ( 4,638.6 ) $ ( 211.9 ) $ ( 6,523.6 )

$ ( 1,569.7 ) $ ( 22.1 ) $ ( 3,852.7 ) $ ( 238.9 ) $ ( 56.8 ) $ ( 5,740.2 )

Other comprehensive income (loss) before reclassifications 250.5 6.8 ( 379.7 ) ( 133.8 ) ( 256.2 )

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Ending balance at December 31, 2022 $ ( 1,874.2 ) $ ( 37.1 ) $ ( 2,062.3 ) $ 129.0 $ ( 3,844.6 )

(1) Accumulated other comprehensive loss as of January 1, 2019 consists of $ 5.73 billion of accumulated other comprehensive loss attributable to controlling interest and $ 11.0 million of accumulated other comprehensive loss attributable to noncontrolling interest.

The tax effects on the net activity related to each component of other comprehensive income (loss) for the years ended December 31, were as follows:

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Other, net of tax 21.0 13.9 16.1 Other—net, (income) expense

Reclassifications from continuing operations (net of tax) 357.9 283.4 130.2

Reclassifications from discontinued operations (net of tax) — — 84.0 Net income from discontinued operations

Total reclassifications for the period, net of tax $ 250.8 $ 357.9 $ 283.4

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Interest income ( 62.8 ) ( 25.4 ) ( 33.0 )

Net investment gains on equity securities (Note 7) ( 176.9 ) ( 1,442.2 ) ( 401.2 )

Net investment (gains) losses on equity securities (Note 7) 410.7 ( 176.9 ) ( 1,442.2 )

Debt extinguishment loss (Note 11) — 405.2 —

Gain on sale of antibiotic business in China (Note 3) — — ( 309.8 )

Retirement benefit plans ( 372.9 ) ( 289.7 ) ( 251.8 )

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Other–net, (income) expense $ 320.9 $ 201.6 $ ( 1,171.9 )

Discontinued Operations

On March 11, 2019, we completed the disposition of our remaining 80.2 percent ownership of Elanco common stock through a tax-free exchange offer.

The earnings attributable to the divested, noncontrolling interest for the period from the initial public offering until disposition were not material.

As a result of the disposition, in the first quarter of 2019, we recognized a gain related to the disposition of approximately $ 3.7 billion, and we presented Elanco, including the gain related to the disposition, as discontinued operations in our consolidated financial statements for all periods presented.

Revenue and net income from discontinued operations in 2019 was $ 580.0 million and $ 3.68 billion, respectively.

There were no discontinued operations in 2020 and 2021.

The gain related to the disposition of Elanco in the consolidated statement of cash flows includes the operating results of Elanco through the disposition date, which were not material.

Net cash flows of our discontinued operations for operating and investing activities were not material for the year ended December 31, 2019.

We entered into a transitional services agreement (TSA) with Elanco to facilitate the orderly transfer of various services to Elanco.

The TSA related primarily to administrative services, which were generally provided over 24 months from the date of disposition, and is now complete.

This agreement was not material and did not confer upon us the ability to influence the operating and/or financial policies of Elanco subsequent to the disposition date.

Management's Reports

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Ernst & Young reports directly to the audit committee of the board of directors.

Our audit committee includes six nonemployee members of the board of directors, all of whom are independent from our company.

Our audit committee includes five nonemployee members of the board of directors, all of whom are independent from our company.

The committee charter, which is available on our website, outlines the members' roles and responsibilities.

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Their responsibility is to evaluate whether internal control over financial reporting was designed and operating effectively.

Ricks Anat Ashkenazi

Chair, President, and Chief Executive Officer Senior Vice President and Chief Financial Officer

David Ricks Anat Ashkenazi

Chair, President, and Chief Executive Officer Executive Vice President and Chief Financial Officer

February 22, 2023

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How We Addressed the Matter in Our Audit We tested the Company's controls addressing the risks of material misstatement relating to valuation of alternative investments.

This included testing management's review controls over alternative investment valuation, which included a comparison of returns to benchmarks and in-person or telephonic meetings with investment firms to discuss valuation policies and procedures, as well as portfolio performance.

Our audit procedures included, among others, comparing fund returns to selected relevant benchmarks and understanding variations, obtaining the latest audited financial statements and comparing to the Company's estimated fair values and reconciling any differences.

This included testing management's review controls over alternative investment valuation, which included a comparison of returns to benchmarks and monitoring of investment firms' valuation policies and procedures, as well as portfolio performance.

We also inquired of management about changes to the investment portfolio and/or related investment strategies and considerations.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data