What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-02-21 compared with 2023-02-22 · 350 added, 359 removed, 1413 unchanged (33% of the section changed)

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ELI LILLY AND COMPANY AND SUBSIDIARIES

(Dollars in millions and shares in thousands, except per-share data) Year Ended December 31 2022 2021 2020

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

Year Ended December 31 2023 2022 2021

Revenue (Note 2) $ 34,124.1 $ 28,541.4 $ 28,318.4

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Marketing, selling, and administrative 7,403.1 6,440.4 6,431.6

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

Acquired in-process research and development (Note 3) 3,799.8 908.5 970.1

Asset impairment, restructuring, and other special charges

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Change in foreign currency translation gains (losses) ( 25.8 ) ( 248.1 ) 13.5

Change in net unrealized gains (losses) on securities ( 53.2 ) ( 15.9 ) 14.2

Change in defined benefit pension and retiree health benefit plans (Note 15) 616.9 2,699.4 ( 157.1 )

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

Change in net unrealized gains (losses) on available-for-sale securities 14.1 ( 53.2 ) ( 15.9 )

Change in retirement benefit plans (Note 15)

( 776.5 ) 616.9 2,699.4

Change in net unrealized gains (losses) on cash flow hedges 109.5 432.9 151.6

Other comprehensive income (loss) before income taxes ( 678.7 ) 748.5 2,848.6

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

Benefit (expense) for income taxes related to other comprehensive income (loss) 196.3 ( 250.0 ) ( 695.3 )

Other comprehensive income (loss), net of tax (Note 17)

( 482.4 ) 498.5 2,153.3

Comprehensive income $ 4,758.0 $ 6,743.3 $ 7,735.0

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Inventories (Note 6) 5,772.8 4,309.7

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

Prepaid expenses 5,540.8 2,946.8

Other current assets 149.5 7.3

Total current assets 25,727.0 18,034.5

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Dividends payable 1,169.2 1,017.2

Income taxes payable (Note 14) 475.1 126.9

Other current liabilities 3,281.3 2,845.4

Total current liabilities 27,293.2 17,138.2

Other Liabilities

Noncurrent Liabilities

Long-term debt (Note 11) 18,320.8 14,737.5

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Long-term income taxes payable (Note 14) 3,849.2 3,709.6

Deferred tax liabilities (Note 14) 87.3 1,733.7

Other noncurrent liabilities 2,240.6 1,824.0

Total other liabilities 21,576.2 24,598.5

Total noncurrent liabilities 25,849.4 21,576.2

Commitments and Contingencies (Note 16)

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Balance at January 1, 2021

957,077 $ 598.2 $ 6,778.5 $ 7,830.2 $ ( 3,013.2 ) $ ( 6,496.4 ) 487 $ ( 55.7 ) $ 183.6

Net income 5,581.7 3.4

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Balance at December 31, 2021

Net income 5,581.7 3.4

954,116 596.3 6,833.4 8,958.5 ( 3,013.2 ) ( 4,343.1 ) 463 ( 52.7 ) 175.6

Net income (loss) 6,244.8 ( 20.9 )

Other comprehensive income, net of tax 498.5

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Balance at December 31, 2022

Net income (loss) 6,244.8 ( 20.9 )

Other comprehensive income, net of tax 498.5

950,632 594.1 6,921.4 10,042.6 ( 3,013.2 ) ( 3,844.6 ) 450 ( 50.5 ) 125.6

Net income 5,240.4 11.0

Other comprehensive loss, net of tax ( 482.4 )

Cash dividends declared per share:

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Balance at December 31, 2023

949,781 $ 593.6 $ 7,250.4 $ 10,312.3 $ ( 3,013.2 ) $ ( 4,327.0 ) 402 $ ( 44.2 ) $ 91.8

See notes to consolidated financial statements.

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Net investment (gains) losses 23.5 420.0 ( 178.0 )

Gains on sale of product rights ( 1,878.9 ) ( 156.5 ) ( 216.0 )

Acquired in-process research and development (Note 3) 3,799.8 908.5 970.1

Other non-cash operating activities, net 304.8 511.4 333.9

Other operating activities, net 295.5 461.3 727.4

Other changes in operating assets and liabilities, net of acquisitions and divestitures:

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Other assets—(increase) decrease ( 3,453.4 ) ( 793.5 ) 1,515.4

Income taxes payable—increase (decrease) 346.6 ( 359.7 ) 322.0

Accounts payable and other liabilities—increase (decrease) 4,274.4 1,692.0 ( 1,013.8 )

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Purchases of short-term investments ( 98.2 ) ( 107.4 ) ( 83.5 )

Proceeds from sales of noncurrent investments 342.2 800.0 757.1

Proceeds from sales of and distributions from noncurrent investments 508.1 342.2 800.0

Purchases of noncurrent investments ( 730.8 ) ( 600.2 ) ( 929.9 )

Proceeds from sale of product rights 1,604.3 95.8 216.0

Purchases of in-process research and development ( 3,944.5 ) ( 1,131.0 ) ( 668.6 )

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Other financing activities, net ( 335.0 ) ( 308.9 ) ( 295.9 )

Net Cash Used for Financing Activities ( 5,406.7 ) ( 4,131.3 ) ( 3,137.1 )

Net Cash Provided by (Used for) Financing Activities

3,495.6 ( 5,406.7 ) ( 4,131.3 )

Effect of exchange rate changes on cash and cash equivalents 168.6 ( 167.6 ) ( 205.7 )

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ELI LILLY AND COMPANY AND SUBSIDIARIES

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

(Tables present dollars in millions)

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

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We issued our financial statements by filing with the Securities and Exchange Commission (SEC) and have evaluated subsequent events up to the time of the filing of this Annual Report on Form 10-K.

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

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) and Development Milestones

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

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.

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

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

Earnings Per Share (EPS)

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Costs associated with advertising are expensed as incurred and are included in marketing, selling, and administrative expenses.

Advertising expenses, comprised primarily of television, radio, print media, and internet advertising, totaled approximately $ 1.0 billion, $ 1.2 billion, and $ 1.1 billion in 2022, 2021, and 2020, respectively, which was less than 5 percent of revenue each year.

Advertising expenses, comprised primarily of online marketing and television advertising, totaled $ 1.12 billion, $ 966.8 million, and $ 1.24 billion in 2023, 2022, and 2021, respectively, which was less than 5 percent of revenue each year.

Other Significant Accounting Policies

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

Reclassifications

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

Development milestone payments related to externally developed IPR&D projects, acquired directly in a transaction other than a business combination, were previously included in cash flows from operating activities in the consolidated statements of cash flows and are now included in purchases of IPR&D in cash flows from investing activities.

The reclassification resulted in an increase to net cash provided by operating activities and net cash used in investing activities of $ 501.3 million and $ 105.2 million in 2022 and 2021, respectively.

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 .

Accounting Standards Update (ASU) 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures , establishes incremental disaggregation of income tax disclosures pertaining to the effective tax rate reconciliation and income taxes paid.

This standard is effective for fiscal years beginning after December 15, 2024, and requires prospective application with the option to apply it retrospectively.

Early adoption is permitted.

We intend to adopt this standard in our Annual Report on Form 10-K for the year ended December 31, 2025.

We are currently evaluating the potential impact of adopting this standard on our disclosures.

ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, requires disclosures about significant segment expenses and additional interim disclosure requirements.

This standard also requires a single reportable segment to provide all disclosures required by ASC 280.

This standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted, and the amendments should be applied retrospectively for all prior periods presented in the consolidated financial statements.

We intend to adopt this standard in our Annual Report on Form 10-K for the year ended December 31, 2024.

We are currently evaluating the potential impact of adopting this standard on our disclosures.

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

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

Collaboration and other revenue disclosed above includes the revenue from the Jardiance ® and Trajenta ® families of products resulting from our collaboration with Boehringer Ingelheim, as well as from the sales of rights for the olanzapine portfolio, including Zyprexa ® , and for Baqsimi ® , all of which are discussed in Note 4.

Substantially all of the remainder of collaboration and other revenue is related to contracts accounted for as contracts with customers.

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We attempt to maintain U.S.

wholesaler inventory levels at an average of approximately one month or less on a consistent basis across our product portfolio.

wholesaler inventory levels at an average of approximately one month or less.

Causes of unusual wholesaler buying patterns include actual or anticipated product-supply issues, weather patterns, anticipated changes in the transportation network, redundant holiday stocking, and changes in wholesaler business operations.

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Adjustments to Revenue

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

Adjustments to 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.

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We recognize several types of revenue from our collaborations and other arrangements, which we discuss in general terms immediately below and more specifically in Note 4 for each of our material collaborations and other arrangements.

Our collaborations and other arrangements are not contracts with customers but are evaluated to determine whether any aspects of the arrangements are contracts with customers.

• 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.

Our collaborations and other arrangements are evaluated to determine if the arrangements in their entirety, or contain aspects that, are contracts with customers.

• Revenue related to products we sell pursuant to these arrangements is included in net product revenue at the earlier of when control of the asset transfers to the other party or when the product has no alternative use to us and we have right to payment.

• 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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This royalty revenue is included in collaboration and other revenue.

• For arrangements involving multiple goods or services (e.g., research and development, marketing and selling, manufacturing, and distribution), each required good or service is evaluated to determine whether it is distinct.

If a good or service does not qualify as distinct, it is combined with the other non-distinct goods or services within the arrangement and these combined goods or services are treated as a single performance obligation for accounting purposes.

The arrangement's transaction price is then allocated to each performance obligation based on the relative standalone selling price of each performance obligation.

For arrangements that involve variable consideration where we have sold intellectual property, we recognize revenue based on estimates of the amount of consideration we believe we will be entitled to receive from the other party, subject to a constraint.

• The net gain or loss related to the sale of rights of a product is included in collaboration and other revenue when control of the asset transfers to the other party.

• For arrangements that involve variable consideration where we have sold intellectual property, we recognize revenue based on estimates of the amount of consideration we believe we will be entitled to receive from the other party, but only to the extent a significant reversal in the amount of revenue recognized is not probable of occurring when the uncertainties associated with the variable consideration are subsequently resolved.

These estimates are adjusted to reflect the actual amounts to be collected when those facts and circumstances become known.

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Because of the risk that products in development will not receive regulatory approval, we generally do not recognize any contingent payments that would be due to us upon or after regulatory approval.

The arrangement's transaction price is then allocated to each performance obligation based on the relative standalone selling price of each performance obligation.

Contract Liabilities

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Contract liabilities $ 193.6 $ 219.2

The contract liabilities balances disclosed above as of December 31, 2022 and 2021 were primarily related to the remaining license period of symbolic intellectual property and obligations to perform research and development activities or supply product for a defined period of time.

The contract liabilities balances disclosed above as of December 31, 2023 and 2022 were primarily related to the remaining license period of symbolic intellectual property and obligations to supply product for a defined period of time.

During the years ended December 31, 2023, 2022, and 2021, revenue recognized from contract liabilities as of the beginning of the respective year was not material.

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Disaggregation of Revenue

The following table summarizes revenue by product:

The following table summarizes revenue, including net product revenue and collaboration and other revenue, by product:

2023 2022 2021 2023 2022 2021

Revenue—to unaffiliated customers:

Diabetes and obesity:

$ 5,433.3 $ 5,688.8 $ 4,914.4 $ 1,699.2 $ 1,750.9 $ 1,557.6

4,834.2 366.6 — 328.9 115.9 —

Jardiance (1)

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610.1 730.2 832.9 242.0 289.2 389.6

Basaglar ® (3)

443.1 470.7 588.3 285.2 289.7 304.2

645.7 110.4 96.4 31.9 28.9 16.8

Other diabetes 268.4 255.7 258.1 367.8 401.6 344.5

Total diabetes 9,911.1 8,719.3 7,909.1 4,553.7 4,468.8 3,925.3

175.8 — — — — —

Other diabetes and obesity 175.0 158.0 159.3 355.2 338.9 384.8

Total diabetes and obesity 14,780.8 9,911.1 8,719.3 4,886.8 4,553.7 4,468.8

2,509.0 1,653.2 834.9 1,354.3 830.3 515.0

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— — — 393.4 293.3 418.1

72.9 543.7 1,233.9 144.6 384.0 827.5

Other oncology 283.9 169.7 120.1 329.0 254.1 210.7

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482.2 462.8 434.5 196.0 188.1 142.7

33.7 38.7 42.1 249.6 542.8 725.6

Other neuroscience 134.4 119.2 140.7 371.1 439.2 750.3

Total neuroscience 696.0 612.4 614.8 2,182.5 933.8 1,283.7

COVID-19 antibodies (4)

335.5 367.3 441.6 197.7 245.8 360.3

26.1 35.2 10.6 355.3 552.1 707.9

COVID-19 antibodies (6)

— 2,008.9 1,978.0 — 14.7 261.4

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(2) Humalog revenue includes insulin lispro.

(3) Basaglar revenue includes Rezvoglar ® .

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

(5) Zyprexa revenue includes sale of the rights for the olanzapine portfolio.

(6) 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.

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2023 2022 2021

Revenue—to unaffiliated customers (1) :

Revenue (1) :

$ 21,791.0 $ 18,190.0 $ 16,811.0

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Numbers may not add due to rounding.

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

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

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

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

In connection with these arrangements, our partners may be entitled to future royalties and/or commercial milestones based on sales 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.

In December 2023, December 2022, and January 2021, we completed the acquisitions of POINT Biopharma Global Inc.

(POINT), Akouos, Inc.

(Akouos), and Prevail Therapeutics Inc.

(Prevail), respectively.

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

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We also acquired assets in development in 2023, 2022, and 2021, 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.

Upon each acquisition, the cost allocated to acquired IPR&D was immediately expensed as acquired IPR&D 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.

We recognized acquired IPR&D charges of $ 3.80 billion, $ 908.5 million, and $ 970.1 million for the years ended December 31, 2023, 2022, and 2021, respectively.

Acquisitions of Businesses

POINT Acquisition

Overview of Transaction

In December 2023, we acquired all shares of POINT for a purchase price of $ 12.50 per share in cash (or an aggregate of $ 1.04 billion, net of cash acquired).

Under the terms of the agreement, we acquired capabilities to advance our radiopharmaceutical discovery, development, and manufacturing efforts, as well as clinical and pre-clinical radioligand therapies in development for the treatment of cancer.

Assets Acquired and Liabilities Assumed

Our access to POINT 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 27, 2023

Acquired IPR&D 196.0

Other assets and liabilities, net ( 19.3 )

Acquisition date fair value of consideration transferred 1,338.5

Cash acquired ( 302.7 )

Cash paid, net of cash acquired $ 1,035.8

(1) The goodwill recognized from this acquisition is attributable primarily to the radiopharmaceutical discovery, development, and manufacturing capabilities and the assembled workforce for POINT, which is not deductible for tax purposes.

The results of operations attributable to POINT for the year ended December 31, 2023 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, 2023 and 2022.

Akouos Acquisition

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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.

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Assets Acquired and Liabilities Assumed

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

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:

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

Estimated Fair Value at December 1, 2022

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(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.

The results of operations attributable to Akouos for the year ended December 31, 2023 and 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.

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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.

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

Both PR001 and PR006 were granted Fast Track designation from the U.S.

Food and Drug Administration (FDA).

Food and Drug Administration.

Assets Acquired and Liabilities Assumed

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Cash paid, net of cash acquired $ 747.4

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

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

(1) Acquired IPR&D intangibles primarily relate to PR001 (GBA1 Gene Therapy).

In 2022, we impaired the intangible asset related to GBA1 Gene Therapy.

See Note 5 for additional information.

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The results of operations attributable to Prevail for the years ended December 31, 2023, 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.

Dermira Acquisition

Overview of Transaction

In February 2020, we acquired all shares of Dermira for a purchase price of approximately $ 849.3 million, net of cash acquired.

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

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).

During the year ended December 31, 2021, we sold the rights to Qbrexza.

See Note 5 for additional information.

Assets Acquired and Liabilities Assumed

The fair values recognized related to the assets acquired and liabilities assumed in this acquisition included goodwill of $ 86.8 million, other intangibles of $ 1.20 billion primarily related to lebrikizumab, deferred income tax liabilities of $ 49.5 million, and long-term debt of $ 375.5 million.

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 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.

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

Asset Acquisitions

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Acquired IPR&D Expense

Mablink Biosciences SAS MBK-103, a folate receptor alpha antibody drug conjugate for the treatment of ovarian cancer

December 2023 Pre-clinical $ 256.6

Beam Therapeutics Inc.

Opt-in right for programs targeting PCSK9, ANGPTL3 and an undisclosed liver-mediated, cardiovascular target October 2023 Phase I 216.3

DICE Therapeutics, Inc.

DC-806, an oral IL-17 inhibitor for the treatment of chronic diseases in immunology August 2023 Phase II 1,915.5

Versanis Bio, Inc.

Bimagrumab, a monoclonal antibody for the treatment of people living with obesity and obesity-related complications August 2023 Phase II 604.1

Emergence Therapeutics AG ETx-22, a Nectin-4 antibody-drug conjugate for the treatment of urothelial cancer August 2023 Pre-clinical 406.5

BioMarin Pharmaceutical Inc.

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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

Disarm Therapeutics, Inc.

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

(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) 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 connection with our acquisition of Petra Pharma Corporation (Petra) in 2020, 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.

As a result of these agreements, we recognized a charge of $ 333.8 million as acquired IPR&D in 2022.

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

We recognized no other significant acquired IPR&D charges during the years ended December 31, 2023, 2022, and 2021.

Collaborations and Other Arrangements

We often enter into collaborative and other similar arrangements to develop and commercialize drug candidates.

Collaborative activities may include research and development, marketing and selling (including promotional activities and physician detailing), manufacturing, and distribution.

These arrangements often require milestone as well as royalty or profit-share payments, contingent upon the occurrence of certain future events linked to the success of the asset in development, as well as expense reimbursements from or payments to the collaboration partner.

See Note 2 for amounts of collaboration and other revenue recognized from these types of arrangements.

We often enter into collaborative and other arrangements to develop and commercialize drug candidates or to sell the rights of a product.

See Note 2 for a discussion of our recognition of revenue from our collaborations and other arrangements.

Collaborative activities may include research and development, marketing and selling, manufacturing, and distribution for which we may receive from or pay to the collaboration partner expense reimbursements.

Operating expenses for costs incurred pursuant to these arrangements are reported in their respective expense line item, net of any payments due to or reimbursements due from our collaboration partners, with such reimbursements being recognized at the time the party becomes obligated to pay.

Each collaboration is unique in nature, and our more significant arrangements are discussed below.

Each arrangement is unique in nature, and our more significant arrangements are discussed below.

Boehringer Ingelheim Diabetes Collaboration

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Currently included in the collaboration are Boehringer Ingelheim's oral diabetes products:

Jardiance, Glyxambi, Synjardy, Trijardy XR, Trajenta, and Jentadueto ® as well as our basal insulin, Basaglar.

Jardiance, Glyxambi, Synjardy, Trijardy XR, Trajenta, and Jentadueto ® as well as our basal insulins, Basaglar and Rezvoglar.

Glyxambi, Synjardy, and Trijardy XR are included in the Jardiance product family.

Jentadueto is included in the Trajenta product family.

Rezvoglar is included in the Basaglar product family.

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.

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)

Jardiance $ 116.2 $ 136.1

Trajenta 63.5 88.5

Basaglar ( 130.6 ) ( 149.3 )

(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.

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.

Net milestones capitalized with respect to Jardiance and Trajenta and net milestones deferred with respect to Basaglar are not material.

For the Jardiance product family, we and Boehringer Ingelheim generally 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.

We receive a royalty on net sales of Boehringer Ingelheim's products in the most significant markets and recognize the royalty as collaboration and other revenue.

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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.

We record our sales of Basaglar to third parties as net product revenue with the royalty payments made to Boehringer Ingelheim recorded as cost of sales.

The following table summarizes our collaboration and other revenue recognized with respect to the Jardiance and Trajenta families of products and net product revenue recognized with respect to Basaglar:

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

We record our sales of the Basaglar product family to third parties as net product revenue with the royalty payments made to Boehringer Ingelheim recorded as cost of sales.

The following table summarizes our revenue recognized:

2023 2022 2021

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

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.

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 were capitalized as intangible assets and are being amortized to cost of sales through the term of the collaboration.

Net milestones capitalized are not material.

As of December 31, 2023, 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:

The following table summarizes our net product revenue recognized:

2023 2022 2021

Olumiant $ 922.6 $ 830.5 $ 1,115.1

COVID-19 Antibodies

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.

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.

We have a collaboration agreement with Innovent Biologics, Inc.

(Innovent) to jointly develop and commercialize sintilimab injection in China, where it is branded and trademarked as Tyvyt.

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.

We report as collaboration and other revenue our portion of the gross margin for Tyvyt sales made by Innovent to third parties.

The following table summarizes our revenue recognized in China with respect to Tyvyt:

The following table summarizes our revenue recognized:

2023 2022 2021

Tyvyt $ 393.4 $ 293.3 $ 418.1

We have a worldwide license agreement with F.

We have a license agreement with F.

Hoffmann-La Roche Ltd and Genentech, Inc.

(collectively, Roche), which provides us the worldwide development and commercialization rights to lebrikizumab.

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, 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.

(collectively, Roche), which provides us the worldwide development and commercialization rights to lebrikizumab, which is branded and trademarked as Ebglyss.

Roche receives tiered royalty payments on worldwide net sales ranging in percentages from high single digits to high teens, which we recognize as cost of sales.

As of December 31, 2023, Roche is eligible to receive additional payments from us, including up to $ 115.0 million contingent upon the achievement of additional success-based regulatory milestones and up to $ 1.03 billion in potential sales-based milestones.

During the years ended December 31, 2023 and 2022, milestone payments to Roche were not material.

There were no milestone payments to Roche during the year ended December 31, 2021.

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.

We have the right to receive tiered royalty payments on future net sales in Europe ranging in percentages from low double digits to low twenties if the product is successfully commercialized.

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

We receive tiered royalty payments on net sales in Europe ranging in percentages from low double digits to low twenties, which we recognize as collaboration and other revenue.

During the years ended December 31, 2023, 2022, and 2021, collaboration and other revenue recognized under this license agreement was not material.

As of December 31, 2023, we are eligible to receive additional payments up to $ 1.25 billion in a series of sales-based milestones.

We have a license agreement with Chugai Pharmaceutical Co., Ltd (Chugai), which provides us with the worldwide development and commercialization rights to orforglipron.

Chugai has the right to receive tiered royalty payments on future worldwide net sales from mid single digits to low teens if the product is successfully commercialized.

As of December 31, 2023, Chugai is eligible to receive up to $ 140.0 million contingent upon the achievement of success-based regulatory milestones and up to $ 250.0 million in a series of sales-based milestones, contingent upon the commercial success of orforglipron.

During the years ended December 31, 2023, 2022, and 2021, milestone payments to Chugai were not material.

COVID-19 Antibodies

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

AbCellera received royalty payments, recorded as cost of sales, in the mid-teens to mid-twenties on worldwide net sales of bamlanivimab and bebtelovimab.

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

We had no sales of our COVID-19 antibodies during the year ended December 31, 2023.

Olanzapine Portfolio (including Zyprexa)

In July 2023, we sold the rights for the olanzapine portfolio, including Zyprexa, to Cheplapharm Arzneimittel GmbH (Cheplapharm), a European company.

Under the terms of the agreement, we received $ 1.05 billion in cash and will receive an additional $ 305.0 million in cash upon the one year anniversary of closing.

We included both in the transaction price as of December 31, 2023.

We are eligible to receive milestone payments of up to $ 50.0 million, of which $ 25.0 million has not been included in the transaction price as of December 31, 2023.

We entered into a supply agreement with Cheplapharm that obligates Cheplapharm to purchase Zyprexa product we are manufacturing at an amount which represents a standalone selling price.

As the product we are manufacturing under this supply agreement has no alternative use to us and we have right to payment, we recognize net product revenue over time as we manufacture the product.

During the year ended December 31, 2023, we recognized $ 1.45 billion in revenue primarily related to the net gain on the sale of rights for the olanzapine portfolio.

In June 2023, we sold the rights for Baqsimi to Amphastar Pharmaceuticals, Inc.

Under the terms of the agreement, we received $ 500.0 million in cash and will receive an additional $ 125.0 million in cash upon the one year anniversary of closing.

We included both in the transaction price as of December 31, 2023.

We are eligible to receive payments of up to $ 450.0 million in a series of sales-based milestones, that have not been included in the transaction price as of December 31, 2023.

We entered into a supply agreement with Amphastar that obligates Amphastar to purchase Baqsimi product we are manufacturing at an amount which represents a standalone selling price.

As the product we are manufacturing under this supply agreement has no alternative use to us and we have right to payment, we recognize net product revenue over time as we manufacture the product.

During the year ended December 31, 2023, we recognized $ 579.0 million in revenue primarily related to the net gain on the sale of rights for Baqsimi.

Asset Impairment, Restructuring, and Other Special Charges

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2023 2022 2021

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

Asset impairment and other special charges $ 22.2 $ 221.6 $ 303.1

Severance 45.5 23.0 13.0

Total asset impairment, restructuring, and other special charges $ 67.7 $ 244.6 $ 316.1

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.

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, acquired in the Prevail acquisition, as a result of changes in key assumptions used in the valuation due to delays in estimated launch timing.

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 Oncology, Inc.

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.

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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Inventories valued under the LIFO method comprised $ 1.77 billion and $ 1.23 billion of total inventories at December 31, 2023 and 2022, respectively.

We recognized a net inventory impairment charge related to our COVID-19 antibodies of $ 339.7 million during the year ended December 31, 2021 in cost of sales in our consolidated statements of operations.

As part of our response to the COVID-19 pandemic, and at the request of the U.S.

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 demand from U.S.

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

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Adjustments recorded for the years ended December 31, 2023, 2022, and 2021 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 in our consolidated statements of operations for equity securities were $( 20.2 ) million, $( 410.7 ) million, and $ 176.9 million for the years ended December 31, 2023, 2022, and 2021, respectively.

The net gains (losses) recognized for the years ended December 31, 2023, 2022, and 2021 on equity securities sold during the respective periods were not material.

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Corporate debt securities 52.0 52.1 — 52.0 — 52.0

Asset-backed securities 2.0 2.0 — 2.0 — 2.0

Other securities 25.0 25.0 — 13.6 11.4 25.0

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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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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.

The majority of our cash is held by a few major financial institutions that have been identified as Global Systemically Important Banks (G-SIBs) by the Financial Stability Board.

G-SIBs are subject to rigorous regulatory testing and oversight and must meet certain capital requirements.

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 investment grade credit ratings.

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

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

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

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We derecognized $ 431.9 million and $ 422.1 million of accounts receivable as of December 31, 2023 and 2022, 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.

The costs of factoring such accounts receivable were not material for the years ended December 31, 2023, 2022, and 2021.

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.

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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).

We may enter into foreign currency forward or option contracts to reduce the effect of fluctuating currency exchange rates (primarily the euro, Chinese yuan, 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.

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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.

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dollars 4,250.9

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 237.7 U.S.

dollars 299.2

Swiss franc 101.4 U.S.

dollars 109.3

dollars 165.3 Chinese yuan 1,172.7

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 $ 7.14 billion and $ 6.83 billion as of December 31, 2023 and 2022, respectively, of which $ 5.67 billion and $ 5.45 billion have been designated as, and are effective as, economic hedges of net investments in certain of our foreign operations as of December 31, 2023 and 2022, respectively.

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

At December 31, 2023, we had outstanding cross currency swaps with notional amounts of $ 728.6 million swapping U.S.

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

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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.

At December 31, 2023, we had outstanding foreign currency forward contracts to sell 3.20 billion euro and to sell 1.80 billion Chinese yuan, with settlement dates ranging through 2024, 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.

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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.

At December 31, 2023, all of our total long-term debt is at a fixed rate.

We have converted approximately 12 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) (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.

We also may enter into forward-starting interest rate swaps and treasury locks, 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) (see Note 17) and, upon completion of a debt issuance and termination of the instrument, is amortized to interest expense over the life of the underlying debt.

As of December 31, 2023, the total notional amounts of forward-starting interest rate and treasury lock contracts in designated cash flow hedging instruments were $ 1.10 billion, which have settlement dates ranging through 2025.

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

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Cross-currency interest rate swaps ( 108.6 ) 8.6 41.8

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

Net losses on foreign currency exchange contracts not designated as hedging instruments 26.4 191.3 204.6

$ ( 68.7 ) $ 216.4 $ 263.0

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Cross-currency interest rate swaps 15.2 29.8 42.3

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 next 12 months, we expect to reclassify $ 13.0 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, 2023, 2022, and 2021, the amounts excluded from the assessment of hedge effectiveness recognized in other comprehensive income (loss) were not material.

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Interest rate contracts designated as fair value hedges:

Other current liabilities $ ( 2.4 ) $ — $ ( 2.4 ) $ — $ ( 2.4 )

Other noncurrent liabilities ( 100.3 ) — ( 100.3 ) — ( 100.3 )

Interest rate contracts designated as cash flow hedges:

Other receivables 162.9 — 162.9 — 162.9

Other noncurrent assets 291.2 — 291.2 — 291.2

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

Other receivables 67.6 — 67.6 — 67.6

Other current liabilities ( 28.4 ) — ( 28.4 ) — ( 28.4 )

Other noncurrent liabilities ( 3.5 ) — ( 3.5 ) — ( 3.5 )

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

Other receivables 113.8 — 113.8 — 113.8

Other noncurrent assets 63.1 — 63.1 — 63.1

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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 )

Interest rate contracts designated as cash flow hedges:

Other receivables 162.9 — 162.9 — 162.9

Other noncurrent assets

Other noncurrent liabilities ( 31.7 ) — ( 31.7 ) — ( 31.7 )

246.0 — 246.0 — 246.0

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 exchanges 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 )

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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.

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

Contingent consideration liabilities relate to our liabilities arising in connection with the CVRs issued as a result of acquisitions of businesses.

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

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

The change in goodwill during 2023 was primarily related to our acquisition of POINT.

See Note 3 for additional information.

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Marketed products $ 8,216.8 $ ( 2,277.0 ) $ 5,939.8 $ 7,957.5 $ ( 2,622.7 ) $ 5,334.8

Other 35.4 ( 32.8 ) 2.6 69.4 ( 60.5 ) 8.9

Total finite-lived intangible assets 7,957.5 ( 2,622.7 ) 5,334.8 8,056.6 ( 2,289.7 ) 5,766.9

Indefinite-lived intangible assets:

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Other intangibles $ 9,183.6 $ ( 2,277.0 ) $ 6,906.6 $ 9,829.3 $ ( 2,622.7 ) $ 7,206.6

Marketed products consist of the amortized cost of the rights to assets acquired in business combinations and approved for marketing in a significant global jurisdiction (U.S., Europe, and Japan) and capitalized milestone payments.

Marketed products consist primarily of the amortized cost of the rights to assets acquired in business combinations and approved for marketing in a significant global jurisdiction (U.S., Europe, and Japan) and capitalized milestone payments.

For transactions other than a business combination, we capitalize milestone payments incurred at or after the product has obtained regulatory approval for marketing.

Other finite-lived intangible assets consist primarily of the amortized cost of licensed platform technologies that have alternative future uses in research and development, manufacturing technologies, and customer relationships from business combinations.

Acquired IPR&D consists of the fair values of acquired IPR&D projects acquired in business combination, adjusted for subsequent impairments, if any.

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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 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.

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

The increase in marketed products and the decrease in acquired IPR&D in 2023 primarily relates to the reclassification of our $ 1.03 billion intangible asset for lebrikizumab (Ebglyss) from indefinite-lived to finite-lived as it was approved in Europe in the fourth quarter of 2023.

This decrease in acquired IPR&D in 2023 was partially offset by acquired IPR&D assets recognized from the acquisition of POINT.

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.

Indefinite-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.

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 of the intangible asset to its carrying value is performed to determine the amount of any impairment.

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Long-lived assets $ 14,500.0 $ 11,234.1

(1) Long-lived assets consist of property and equipment, net, operating lease assets, and certain other noncurrent assets.

(1) Long-lived assets consist of property and equipment, net, operating lease assets, and unamortized computer software costs.

We determine if an arrangement is a lease at inception.

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Right-of-use assets obtained in exchange for new operating lease liabilities 590.0 155.4 163.5

The right-of-use assets obtained in exchange for new operating lease liabilities in 2023 primarily related to the addition of our research and development facility in Boston, Massachusetts.

The annual minimum lease payments of our operating lease liabilities as of December 31, 2023 were as follows:

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Long-term debt $ 18,320.8 $ 14,737.5

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

The weighted-average effective borrowing rates on short-term commercial paper borrowings were 5.39 percent and 4.20 percent at December 31, 2023 and 2022, respectively.

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

2.35 % notes due 2022

3.00 % notes due 2022

1.00 % euro denominated notes due 2022

0.15 % Swiss franc denominated notes due 2024

$ 714.6 $ 649.5

7.125 % notes due 2025

2.75 % notes due 2025

5.0 % notes due 2026

1.625 % euro denominated notes due 2026

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0.625 % euro denominated notes due 2031

4.7 % notes due 2033

0.50 % euro denominated notes due 2033

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4.15 % notes due 2059

2.50 % notes due 2060

1.375 % euro denominated notes due 2061

4.95 % notes due 2063

Unamortized note discounts ( 121.2 ) ( 96.1 )

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Compensating balances and commitment fees are not material, and there are no conditions that are probable of occurring under which the lines may be withdrawn.

In September 2021, we issued euro-denominated notes consisting of € 600.0 million of 0.50 percent fixed-rate notes due in September 2033, with interest to be paid annually.

The net proceeds from the offering have been, and will continue to be, used to fund, in whole or in part, eligible projects designed to advance one or more of our environmental, social, and governance objectives.

In September 2021, we issued euro-denominated notes consisting of € 500.0 million of 1.125 percent fixed-rate notes due in September 2051 and € 700.0 million of 1.375 percent fixed-rate notes due in September 2061, with interest to be paid annually, and British pound-denominated notes consisting of £ 250.0 million of 1.625 percent fixed-rate notes due in September 2043, with interest to be paid annually.

In February 2024, we issued $ 1.00 billion of 4.500 percent fixed-rate notes due in 2027, $ 1.00 billion of 4.500 percent fixed-rate notes due in 2029, $ 1.50 billion of 4.700 percent fixed-rate notes due in 2034, $ 1.50 billion of 5.000 percent fixed-rate notes due in 2054, and $ 1.50 billion of 5.100 percent fixed-rate notes due in 2064, all with interest to be paid semi-annually.

We used, or will be using, the net cash proceeds from the offering of $ 6.45 billion for general business purposes, including the repayment of outstanding commercial paper, repayment of current maturities of long-term debt, and repayment of the $ 750.0 million of 5.000 percent fixed-rate notes due in 2026, which are callable at par beginning February 27, 2024.

In February 2023, we issued $ 750.0 million of 5.000 percent fixed-rate notes due in 2026, which are callable at par after one year, $ 1.00 billion of 4.700 percent fixed-rate notes due in 2033, $ 1.25 billion of 4.875 percent fixed-rate notes due in 2053, and $ 1.00 billion of 4.950 percent fixed-rate notes due in 2063, all with interest to be paid semi-annually.

We used the net cash proceeds from the offering of $ 3.96 billion for general business purposes, including the repayment of outstanding commercial paper.

In September 2021, we issued euro-denominated notes totaling € 1.80 billion and British pound-denominated notes totaling £ 250.0 million.

We paid $ 1.91 billion of the net cash proceeds from the offering to purchase and redeem certain higher interest rate U.S.

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This loss was included in other-net, (income) expense in our consolidated statement of operations for the year ended December 31, 2021.

The $ 1.50 billion principal amount of higher interest rate U.S.

dollar-denominated notes that were redeemed primarily included $ 541.8 million of 3.95 percent notes due 2049, $ 408.7 million of 4.15 percent notes due 2059, and $ 219.4 million of 3.375 percent notes due 2029.

We used the remaining net proceeds from the offering to prefund certain 2022 debt maturities and for general corporate purposes.

In May 2020, we issued $ 1.00 billion of 2.25 percent fixed-rate notes due in May 2050, with interest to be paid semi-annually.

We used the net cash proceeds from the offering of $ 988.6 million for general corporate purposes, including the repayment of outstanding commercial paper.

In August 2020, we issued $ 850.0 million of 2.50 percent fixed-rate notes due in September 2060 and an additional $ 250.0 million of our 2.25 percent fixed-rate notes due in May 2050, with interest to be paid semi-annually.

We used the net cash proceeds from the offering of $ 1.07 billion 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:

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The number of shares ultimately issued for the PA program is dependent upon the EPS achieved during the vesting period.

Pursuant to this program, approximately 0.7 million shares, 0.7 million shares, and 1.1 million shares were issued during the years ended December 31, 2022, 2021, and 2020, respectively.

Pursuant to this program, approximately 0.5 million, 0.7 million, and 0.7 million shares were issued during the years ended December 31, 2023, 2022, and 2021, respectively.

Approximately 0.4 million shares are expected to be issued in 2024.

As of December 31, 2022, the total remaining unrecognized compensation cost related to nonvested PAs was $ 38.4 million, which will be amortized over the weighted-average remaining requisite service period of 12 months.

As of December 31, 2023, the total estimated remaining unrecognized compensation cost related to nonvested PAs was $ 111.6 million, which will be amortized over the weighted-average remaining requisite service period of 12 months.

Shareholder Value Award Program

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Volatility 29.87 32.99 31.42

Pursuant to this program, approximately 0.5 million shares, 1.0 million shares, and 0.8 million shares were issued during the years ended December 31, 2022, 2021, and 2020, respectively.

Pursuant to this program, approximately 0.3 million, 0.5 million, and 1.0 million shares were issued during the years ended December 31, 2023, 2022, and 2021, respectively.

Approximately 0.2 million shares are expected to be issued in 2024.

As of December 31, 2022, the total remaining unrecognized compensation cost related to nonvested SVAs was $ 43.3 million, which will be amortized over the weighted-average remaining requisite service period of 21 months.

As of December 31, 2023, the total estimated remaining unrecognized compensation cost related to nonvested SVAs was $ 51.1 million, which will be amortized over the weighted-average remaining requisite service period of 21 months.

Relative Value Award Program

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Volatility 31.25 32.86 30.95

Pursuant to this program, approximately 0.1 million shares were issued during the year ended December 31, 2023.

Approximately 0.1 million shares are expected to be issued in 2024.

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.

As of December 31, 2023, the total estimated remaining unrecognized compensation cost related to nonvested RVAs was $ 21.1 million, which will be amortized over the weighted-average remaining requisite service period of 22 months.

Restricted Stock Units

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Approximately 0.4 million shares are expected to be issued in 2024.

As of December 31, 2022, the total remaining unrecognized compensation cost related to nonvested RSUs was $ 221.6 million, which will be amortized over the weighted-average remaining requisite service period of 25 months.

As of December 31, 2023, the total estimated remaining unrecognized compensation cost related to nonvested RSUs was $ 275.3 million, which will be amortized over the weighted-average remaining requisite service period of 22 months.

Shareholders' Equity

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.

In 2023, 2022, and 2021, we repurchased $ 750.0 million, $ 1.50 billion, and $ 1.25 billion, respectively, of shares associated with our share repurchase programs.

As of December 31, 2023, we had $ 2.50 billion remaining under our $ 5.00 billion share repurchase program that our board authorized in May 2021.

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Deferred tax assets:

Capitalized research and development $ 2,997.5 $ 1,615.4

Purchases of intangible assets 1,981.9 2,071.3

Compensation and benefits 427.9 634.7

Tax credit carryforwards 477.6 463.7

Tax loss and other tax carryforwards and carrybacks 626.0 645.4

Sales rebates and discounts 1,632.5 1,312.9

Correlative tax adjustments 1,031.3 752.5

Tax credit carryforwards 577.0 477.6

Tax loss and other tax carryforwards

Compensation and benefits 521.4 427.9

Foreign tax redeterminations 323.7 267.8

Operating lease liabilities 253.3 147.5

Capitalized research and development 1,615.4 275.1

Other 463.4 361.0

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Deferred tax liabilities:

Earnings of foreign subsidiaries ( 1,226.0 ) ( 1,583.3 )

Intangibles ( 1,338.2 ) ( 1,387.9 )

Earnings of foreign subsidiaries ( 796.6 ) ( 1,226.0 )

Inventories ( 619.5 ) ( 639.5 )

Prepaid employee benefits ( 546.5 ) ( 560.6 )

Property and equipment ( 495.2 ) ( 433.5 )

Financial instruments ( 215.0 ) ( 303.0 )

Prepaid employee benefits ( 460.6 ) ( 546.5 )

Operating lease assets ( 237.1 ) ( 130.7 )

Financial instruments ( 75.1 ) ( 215.0 )

Total deferred tax liabilities ( 4,022.3 ) ( 4,579.1 )

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federal, international, and state net operating losses and tax credits shown above have been reduced for differences between financial reporting and tax return filings.

At December 31, 2022, based on filed tax returns we have tax credit carryforwards and carrybacks of $ 873.6 million available to reduce future income taxes;

$ 148.8 million, if unused, will expire by 2026, and $ 27.1 million, if unused, will expire between 2028 and 2042.

At December 31, 2023, based on filed tax returns we have tax credit carryforwards and carrybacks of $ 1.00 billion available to reduce future income taxes;

$ 148.8 million, if unused, will expire in 2026, and $ 60.8 million, if unused, will expire between 2029 and 2043.

The remaining portion of the tax credit carryforwards is related to federal tax credits of $ 55.3 million, international tax credits of $ 109.9 million, and state tax credits of $ 629.3 million, all of which are fully reserved.

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$ 284.6 million will expire by 2028;

$ 1.44 billion will expire between 2028 and 2042;

and $ 762.0 million of the carryforwards will never expire.

Net operating losses and other carryforwards for international and U.S.

$ 35.0 million will expire between 2029 and 2043;

and $ 1.03 billion of the carryforwards will never expire.

Net operating losses and other carryforwards for U.S.

federal income tax purposes are partially reserved.

Deferred tax assets related to state net operating losses and other carryforwards of $ 261.9 million are fully reserved as of December 31, 2023.

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

At December 31, 2023 and 2022, prepaid expenses included prepaid taxes of $ 4.26 billion and $ 2.37 billion, respectively.

Domestic and Puerto Rican companies contributed approximately 14 percent, 33 percent, and 28 percent for the years ended December 31, 2023, 2022, and 2021, 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, which was amended in 2022 to apply the alternate tax regime established by recently enacted Puerto Rico legislation starting in 2023.

We have a subsidiary operating in Puerto Rico under a tax incentive grant effective through the end of 2046.

The tax incentive grant was amended in 2022 to apply the alternate tax regime established by 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.

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Having made this election, our future cash payments relating to the Toll Tax as of December 31, 2023 are as follows:

Total Less than 1 Year 1-3 Years

Total 2024 2025

2017 Tax Act Toll Tax $ 1,427.0 $ 634.2 $ 792.8

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Add (deduct):

International operations, including Puerto Rico (1)

Non-deductible acquired IPR&D (1)

677.2 68.3 10.5

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Foreign-derived intangible income deduction ( 236.7 ) ( 287.5 ) ( 86.7 )

International operations, including Puerto Rico (2)

( 187.1 ) ( 299.5 ) ( 447.5 )

Stock-based compensation (3)

( 79.9 ) ( 48.9 ) ( 55.7 )

Valuation allowance release ( 4.2 ) ( 116.4 ) ( 19.0 )

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Income taxes $ 1,314.2 $ 561.6 $ 573.8

(1) Includes the impact of Puerto Rico Excise Tax, GILTI tax, and other U.S.

(1) Non-deductible acquired IPR&D was primarily related to the acquisitions of DICE, Versanis, and Emergence in 2023.

See Note 3 for additional information related to acquisitions.

(2) Includes the impact of GILTI tax, Puerto Rico Excise Tax (for 2022 and 2021), and other U.S.

taxation of foreign income.

(3) Includes excess tax benefits from stock-based compensation and non-deductible stock-based compensation.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

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Ending balance at December 31 $ 3,395.0 $ 2,987.0 $ 2,798.3

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.

The total amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate was $ 1.77 billion and $ 1.70 billion at December 31, 2023 and 2022, respectively.

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

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

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.

The Internal Revenue Service commenced its examination of tax years 2019-2021 during the third quarter of 2023.

The resolution of both audit periods will likely extend beyond the next 12 months.

Interest and penalties related to unrecognized tax benefits are recognized in income tax expense and were not material for the years ended December 31, 2023, 2022, and 2021.

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Retirement Benefits

We use a measurement date of December 31 to develop the change in benefit obligation, change in plan assets, funded status, and amounts recognized in the consolidated balance sheets at December 31 for our defined benefit pension and retiree health benefit plans, which were as follows:

We use a measurement date of December 31 to determine the change in benefit obligation, change in plan assets, funded status, and amounts recognized in the consolidated balance sheets at December 31 for our defined benefit pension and retiree health benefit plans, which were as follows:

Defined Benefit

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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, 2023 and 2022.

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:

The $ 1.09 billion increase in benefit obligation in 2023 is primarily driven by decreases in the discount rates.

The $ 4.75 billion decline in benefit obligation in 2022 is primarily driven by increases in the discount rates.

The following represents our weighted-average assumptions:

Defined Benefit

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Benefit Plans

(Percents) 2022 2021 2020 2022 2021 2020

Discount rate for benefit obligation 5.1 % 2.8 % 2.4 % 5.2 % 3.0 % 2.6 %

Discount rate for net benefit costs 2.8 2.4 3.0 3.0 2.6 3.3

Rate of compensation increase for benefit obligation 4.3 3.5 3.3

Rate of compensation increase for net benefit costs 3.5 3.3 3.3

Expected return on plan assets for net benefit costs 8.1 6.8 7.3 7.3 5.0 6.0

2023 2022 2021 2023 2022 2021

Weighted-average assumptions used to determine net periodic benefit costs:

Discount rate

5.1 % 2.8 % 2.4 % 5.2 % 3.0 % 2.6 %

Rate of compensation increase

Expected return on plan assets

8.1 8.1 6.8 7.3 7.3 5.0

Weighted-average assumptions used to determine benefit obligation as of December 31:

Discount rate

4.8 % 5.1 % 2.8 % 5.0 % 5.2 % 3.0 %

Rate of compensation increase

We annually evaluate the expected return on plan assets in our defined benefit pension and retiree health benefit plans.

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Given the design of our retiree health benefit plans, healthcare-cost trend rates do not have a material impact on our financial condition or results of operations.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows:

Expected benefit payments, which reflect expected future service, are as follows:

2024 2025 2026 2027 2028 2029-2033

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The total accumulated benefit obligation for our defined benefit pension plans was $ 12.74 billion and $ 12.01 billion at December 31, 2023 and 2022, respectively.

Net pension and retiree health benefit expense included the following components:

Net periodic (benefit) cost included the following components:

Defined Benefit

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Actuarial gain (loss) arising during period $ ( 763.9 ) $ 823.6 $ 2,072.4 $ ( 49.8 ) $ ( 552.2 ) $ 142.5

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

Amortization of prior service (benefit) cost included in net income 2.4 2.4 4.2 ( 52.9 ) ( 54.8 ) ( 59.6 )

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The activity in the Level 3 investments during the year ended December 31, 2022 was not material.

In 2023, we expect to contribute approximately $ 30 million to our defined benefit pension plans to satisfy minimum funding requirements for the year.

In 2024, we expect to contribute approximatel y $ 40 million t o our defined benefit pension plans to satisfy minimum funding requirements for the year.

We do not currently expect to make material discretionary contributions in 2024.

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These claims or proceedings can involve various types of parties, including governments, competitors, customers, suppliers, service providers, licensees, employees, or shareholders, among others.

These matters may involve patent infringement, antitrust, securities, pricing, sales and marketing practices, environmental, commercial, contractual rights, licensing obligations, health and safety matters, consumer fraud, employment matters, product liability and insurance coverage, among others.

These matters may involve patent infringement, antitrust, securities, pricing, access, sales and marketing practices, environmental, commercial, contractual rights, licensing obligations, health and safety matters, consumer fraud, employment matters, product liability, insurance coverage, and regulatory compliance, among others.

The resolution of these matters often develops over a long period of time and expectations can change as a result of new findings, rulings, appeals or settlement arrangements.

Legal proceedings that are significant or that we believe could become significant or material are described below.

We believe the legal proceedings in which we are named as defendants are without merit and we are defending against them vigorously.

We are defending against the legal proceedings in which we are named as defendants vigorously.

It is not possible to determine the final outcome of these matters, and we cannot reasonably estimate the maximum potential exposure or the range of possible loss in excess of amounts accrued for any of these matters;

however, we believe that the resolution of all such matters will not have a material adverse effect on our consolidated financial position or liquidity, but could possibly be material to our consolidated results of operations in any one accounting period.

Litigation accruals, environmental liabilities, and the related estimated insurance recoverables are reflected on a gross basis as liabilities and assets, respectively, on our consolidated balance sheets.

Litigation accruals and environmental liabilities and the related estimated insurance recoverables are reflected on a gross basis as liabilities and assets, respectively, on our consolidated balance sheets.

With respect to the product liability claims currently asserted against us, we have accrued for our estimated exposures to the extent they are both probable and reasonably estimable based on the information available to us.

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Patent Litigation

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

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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.

In September 2023, the court granted our motion to overrule the jury verdict and found all asserted claims of the three patents invalid.

Teva has appealed the decision.

This matter is ongoing.

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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, our partner in marketing and development of Jardiance, initiated U.S.

patent litigation in the U.S.

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.

We are not a party to this litigation.

This litigation has been stayed.

Taltz Patent Litigation

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.

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.

In September 2023, the PTAB issued decisions finding all claims of both patents invalid.

Teva has agreed not to appeal the decisions and has dismissed the corresponding district court litigation.

This matter is closed.

Zyprexa Canada Patent Litigation

Beginning in the mid-2000s, several generic companies in Canada challenged the validity of our Zyprexa compound patent.

In 2012, the Canadian Federal Court of Appeals denied our appeal of a lower court's decision that certain patent claims were invalid for lack of utility.

In 2013, Apotex Inc.

and Apotex Pharmachem Inc.

(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, 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

Byetta® Product Liability

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.

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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Other Matters

Actos ® Litigation

We are named along with Takeda Chemical Industries, Ltd.

and Takeda affiliates (collectively, Takeda) in a third party payor class action in the U.S.

District Court for the Central District of California.

Plaintiffs claim that they and similarly situated class members are entitled to recover money paid for or to reimburse Actos prescriptions because of alleged concealment of bladder cancer risk.

Our agreement with Takeda calls for Takeda to defend and indemnify us against our losses and expenses with respect to U.S.

litigation arising out of the manufacture, use, or sale of Actos and other related expenses in accordance with the terms of the agreement.

In August 2023, the Ninth Circuit granted our and Takeda's petition for permission to appeal the class certification order, and briefing was submitted in January 2024.

This matter is ongoing.

Mounjaro and Trulicity Product Liability Litigation

We, along with Novo Nordisk A/S (Novo) and other related Novo entities, are named in numerous lawsuits by plaintiffs alleging injuries following purported use of incretin products.

Certain complaints name us and allege injuries that plaintiffs claim are associated with the use of Mounjaro and/or Trulicity.

These lawsuits were filed beginning in August 2023 and are pending in various federal courts.

In February 2024, the Judicial Panel on Multi-District Litigation established Multi-District Litigation for coordinated and consolidated pretrial proceedings in the Eastern District of Pennsylvania.

This matter is ongoing.

340B Litigation and Investigations

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In March 2021, the court entered an order preliminarily enjoining the government's enforcement of the administrative dispute resolution process against us.

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

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.

In May 2021, the court denied our motion for a temporary restraining order but deferred resolution of our motion for preliminary injunction.

In May 2021, HRSA sent us an enforcement letter notifying us that it determined that our policy was contrary to the 340B statute.

In response, in May 2021, we amended our complaint to bring claims related to HRSA's determination.

In June 2021, the defendants withdrew the HHS December 30, 2020 advisory opinion.

In July 2021, the court held oral argument on the parties' cross motions for summary judgment, the defendants' motion to dismiss, and our motion for preliminary injunction related to HRSA's May 2021 enforcement letter.

In July 2021, the court held oral argument on the parties' cross motions for summary judgment and the defendants' motion to dismiss.

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.

3 unchanged sentences

This matter is ongoing.

In January 2021, we, along with other pharmaceutical manufacturers, were named as a defendant in a petition currently pending before the HHS Administrative Dispute Resolution Panel.

Petitioner seeks declaratory and other injunctive relief related to the 340B program.

As described above, the U.S.

We, along with other pharmaceutical manufacturers, have been named as a defendant in petitions filed in 2021 and 2023 and currently pending before the HHS Administrative Dispute Resolution Panel.

Petitioners seek declaratory, injunctive, and/or monetary relief related to the 340B program.

District Court for the Southern District of Indiana has entered a preliminary injunction enjoining the government's enforcement of this administrative dispute resolution process against us.

In July 2021, we, along with Sanofi-Aventis U.S., LLC (Sanofi), Novo Nordisk Inc.

(Novo Nordisk), and AstraZeneca Pharmaceuticals LP, were named as a defendant in a purported class action lawsuit filed in the U.S.

(Novo Nordisk), and AstraZeneca Pharmaceuticals LP (AstraZeneca), were named as a defendant in a purported class action lawsuit filed in the U.S.

District Court for the Western District of New York by Mosaic Health, Inc.

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, which was granted in September 2022.

We, with Sanofi, Novo Nordisk, and AstraZeneca, 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.

In January 2024, the court denied the motion for leave to amend and dismissed the case.

We received a civil investigative subpoena in February 2021 from the Office of the Attorney General for the State of Vermont relating to the sale of pharmaceutical products to Vermont covered entities under the 340B program.

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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 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).

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, which were allowed to proceed in June 2021;

First initiated in 2008, Eli Lilly do Brasil Limitada (Lilly Brasil) is named in a Public Civil Action brought by the Labor Public Attorney (LPA) alleging harm to employees and former employees caused by alleged exposure to soil and groundwater contaminants at a former manufacturing facility in Cosmopolis, operated by the company between 1977 and 2003.

In May 2014, the trial Court 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 generally affirmed the trial Court's ruling, which included a liquidated award of 300 million Brazilian reais, which, when adjusted for inflation, is approximately 1.26 billion Brazilian reais (approximately $ 260 million as of December 31, 2023).

In August 2019, Lilly Brasil appealed to the superior labor court (TST) and in June 2021, the majority of the elements of Lilly Brasil's appeal were admitted;

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 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.

Mediation hearings are ongoing.

In July 2019, at the LPA's request, the trial Court ordered a freeze of Lilly Brasil’s immovable property in the amount of 500 million Brazilian reais, which was reduced on Lilly Brasil's appeal and, when adjusted for inflation, is approximately 131 million Brazilian reais (approximately $ 27 million as of December 31, 2023).

The parties appealed to the TST, which appeal is under review.

The trial Court is currently assessing the status of Lilly Brasil’s compliance with the obligations as to the land and an inspection in the industrial plant occurred in October 2023.

These matters are ongoing.

Individual Former Employee Litigation

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

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

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

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The trial began in May 2022;

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

however, the Municipality filed a new motion requesting the CFI to execute an alleged judgment.

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.

The AP denied the Municipality's motion for revision.

This matter is ongoing and trial has been scheduled for August 2024.

Average Manufacturer Price Litigation

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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.

Lilly appealed to the Seventh Circuit and the appeal is pending.

This matter is ongoing.

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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.

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

FWK Holdings, LLC v.

Novo Nordisk Inc., et al.

, 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.

We, along with Sanofi, Novo Nordisk, and, in some matters, certain pharmacy benefit managers, have been named in numerous lawsuits, including putative class actions, by states and state attorneys general, counties, municipalities, third-party payers, consumers, and other parties related to insulin pricing and rebates paid by manufacturers to pharmacy benefit managers.

These lawsuits assert various theories, including consumer protection and deceptive trade practice, fraud, false advertising, unjust enrichment, civil conspiracy, federal and state RICO statutes, antitrust, and unfair competition claims.

These lawsuits have been brought in various state and federal courts since 2017 and are at various stages in the litigation process.

Starting in August 2023 after a ruling by the Judicial Panel for Multi-District Litigation, several of these cases were transferred to or filed in the District of New Jersey for coordinated or consolidated pre-trial proceedings.

In May 2023, we reached a settlement in the In re Insulin Pricing Litigation consumer class action.

A motion for preliminary approval of our settlement is pending.

In January 2024, the Multi-District Litigation court denied the consumer class plaintiffs’ motion for class certification and ordered the parties to submit briefs addressing the impact of that denial on the motion for preliminary approval of the settlement.

In February 2024, we entered into a non-monetary settlement with the Minnesota Attorney General's Office that resolved all matters related to Minnesota's insulin pricing lawsuit.

Investigations, Subpoenas, and Inquiries

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.

We have been subject to various investigations and received subpoenas, civil investigative demand requests, information requests, interrogatories, and other inquiries from various governmental entities related to pricing issues, including the pricing and sale of insulins and other products and calculations of AMP and best price.

These include subpoenas from the Vermont Attorney General Office, 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.

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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 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.

In June 2023, the Michigan Court of Appeals affirmed the judgment in our favor.

In August 2023, the Michigan Attorney General filed an application for leave to appeal to the Michigan Supreme Court, which is being set for argument.

We are cooperating with all of the aforementioned investigations, subpoenas, and inquiries.

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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.

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 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.

In October 2021, the court issued a summary judgment decision in favor of RCT on certain issues, including with respect to a disputed royalty.

Trial is scheduled for August 2024.

Potential damages payable under the litigation, if finally awarded after an appeal, could be material but are not currently reasonably estimable.

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The following table summarizes the activity related to each component of other comprehensive income (loss):

(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 Accumulated Other Comprehensive Loss

(Amounts presented net of taxes) Foreign Currency Translation Gains (Losses) Net Unrealized Gains (Losses) on Available-For-Sale Securities Retirement Benefit Plans Net Unrealized Gains (Losses) on Cash Flow Hedges Accumulated Other Comprehensive Loss

Beginning balance at January 1, 2021

$ ( 1,427.5 ) $ 14.8 $ ( 4,751.0 ) $ ( 332.7 ) $ ( 6,496.4 )

Other comprehensive income (loss) before reclassifications ( 122.7 ) ( 11.9 ) 1,823.4 106.6 1,795.4

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Balance at December 31, 2021

( 1,550.2 ) 3.7 ( 2,583.6 ) ( 213.0 ) ( 4,343.1 )

Other comprehensive income (loss) before reclassifications ( 324.4 ) ( 52.2 ) 291.5 332.8 247.7

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Balance at December 31, 2022

( 1,874.2 ) ( 37.1 ) ( 2,062.3 ) 129.0 ( 3,844.6 )

Other comprehensive income (loss) before reclassifications 78.9 10.1 ( 686.9 ) 79.7 ( 518.2 )

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Ending balance at December 31, 2023

$ ( 1,819.0 ) $ ( 26.2 ) $ ( 2,697.3 ) $ 215.5 $ ( 4,327.0 )

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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Foreign currency translation gains/losses $ 81.0 $ ( 75.9 ) $ ( 136.2 )

Unrealized net gains/losses on securities 12.4 4.7 ( 4.3 )

Defined benefit pension and retiree health benefit plans ( 95.6 ) ( 532.0 ) 44.8

Effective portion of cash flow hedges ( 90.9 ) ( 31.8 ) 32.1

Benefit/(provision) for income taxes allocated to other comprehensive income (loss) items $ ( 250.0 ) $ ( 695.3 ) $ 200.9

Net unrealized gains/losses on available-for-sale securities ( 3.2 ) 12.4 4.7

Retirement benefit plans 141.5 ( 95.6 ) ( 532.0 )

Net unrealized gains/losses on cash flow hedges ( 23.0 ) ( 90.9 ) ( 31.8 )

Benefit (expense) for income taxes related to other comprehensive income (loss) $ 196.3 $ ( 250.0 ) $ ( 695.3 )

Except for the tax effects of foreign currency translation gains and losses related to our foreign currency-denominated notes, cross-currency interest rate swaps, and other foreign currency exchange contracts designated as net investment hedges (see Note 7), income taxes were not provided for foreign currency translation.

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Reclassifications out of accumulated other comprehensive loss were as follows:

Details about Accumulated Other

Comprehensive Loss Components Year Ended December 31, Affected Line Item in the Consolidated Statements of Operations

Year Ended December 31, Affected Line Item in the Consolidated Statements of Operations

2023 2022 2021

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Ernst & Young reports directly to the audit committee of the board of directors.

Our audit committee includes five nonemployee members of the board of directors, all of whom are independent from our company.

Our audit committee includes four 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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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Eli Lilly and Company

To the Shareholders and Board of Directors of Eli Lilly and Company

Opinion on the Financial Statements

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Auditing the Medicaid, Managed Care, and Medicare sales rebate and discount liabilities is challenging because of the subjectivity of certain assumptions required to estimate the rebate liabilities.

In calculating the appropriate accrual amount, the Company considers historical Medicaid, Managed Care, and Medicare rebate payments by product as a percentage of their historical sales as well as any significant changes in sales trends, the lag in payment timing, an evaluation of the current Medicaid and Medicare laws and interpretations, the percentage of products that are sold via Medicaid, Managed Care, and Medicare, and product pricing.

For Medicaid, there is significant complexity associated with calculating the legislated Medicaid rebates.

Management utilizes employees with legislative experience and knowledge in developing assumptions used to calculate Medicaid rebates.

Similarly, for Managed Care and Medicare, given variability in prescription drug costs, continued historical year over year increases in enrollees and variability in prescription data, historical rebate information may not be predictive for management to estimate the rebate accrual and thus, management supplements its historical data analysis with qualitative adjustments based upon current utilization.

In calculating the appropriate accrual amount, the Company considers historical Medicaid, Managed Care, and Medicare rebate payments by product as a percentage of their historical sales as well as any significant changes in sales trends, the lag in payment timing, changes in rebate contracts, an evaluation of the current Medicaid and Medicare laws and interpretations, the percentage of products that are sold via Medicaid, Managed Care, and Medicare, and product pricing.

Given variability in prescription drug costs, continued historical year over year increases in enrollees and variability in prescription data, historical rebate information may not be predictive for management to estimate the rebate accrual and thus, management supplements its historical data analysis with qualitative adjustments based upon current expectations, particularly for select products which contribute the largest portion of the Company's revenue.

How We Addressed the Matter in Our Audit We tested the Company's controls addressing the identified risks of material misstatement related to the valuation of the sales rebate and discount liabilities.

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For Medicaid, we involved our professionals with an understanding of the statutory reimbursement requirements to assess the consistency of the Company's calculation methodologies with the applicable government regulations and policy.

For Medicare we evaluated the reasonableness of assumptions made by management in estimating the Medicare coverage gap liability.

Retirement Benefits - Valuation of Alternative Investments

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Approximately 48 percent of the total pension and retiree health assets are in hedge funds and private equity-like investment funds ("alternative investments").

These alternative investments are valued using significant unobservable inputs or are valued at net asset value (NAV) reported by the counterparty, adjusted as necessary.

Auditing the fair value of these alternative investments is challenging because of the higher estimation uncertainty of the inputs to the fair value calculations, including the underlying net asset values ("NAVs"), discounted cash flow valuations, comparable market valuations, and adjustments for currency, credit, liquidity and other risks.

These alternative investments are valued primarily at net asset value (NAV) reported by the counterparty, adjusted as necessary.

Auditing the fair value of these alternative investments is challenging because of the higher estimation uncertainty of the inputs to the fair value calculations, particularly the underlying determination of net asset values ("NAVs").

Additionally, certain information regarding the fair value of these alternative investments is based on unaudited information available to management at the time of valuation.

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 monitoring of investment firms' 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.

This included testing management's controls over alternative investment valuation, which included a comparison of returns to benchmarks and monitoring investment firms' 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, and obtaining the latest audited financial statements and comparing to the Company's estimated fair values.

We also inquired of management about changes to the investment portfolio and/or related investment strategies and considerations.

We assessed the historical accuracy of management's estimates by comparing actual activity to previous estimates.

We evaluated for contrary evidence by confirming the fair value of the investments and ownership interest directly with the trustees and a sample of managers at year end.

We evaluated for contrary evidence by confirming the fair value of the investments and ownership interest directly with the custodian and a sample of fund managers at year end.

/s/ Ernst & Young LLP

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Eli Lilly and Company

To the Shareholders and Board of Directors of Eli Lilly and Company

Opinion on Internal Control Over Financial Reporting

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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