On December 15, 2020 Eli Lilly and Company (NYSE: LLY) reported its 2021 financial guidance, highlighted by volume-based revenue growth, increased investment in research and development, operating margin expansion and strong earnings performance (Press release, Eli Lilly, DEC 15, 2020, View Source [SID1234572860]). The company also revised certain elements of its 2020 financial guidance and reviewed potential key events for the upcoming year, including important data readouts for several investigational medicines in its clinical pipeline and the possibility of multiple regulatory submissions and approvals.
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The company’s 2020 and 2021 financial guidance are being provided on both a reported and a non-GAAP basis. Reported guidance is presented in accordance with U.S. generally accepted accounting principles (GAAP). Non-GAAP measures reflect adjustments for the items described in the associated reconciliation tables. The non-GAAP measures are presented to provide additional insights into the underlying trends in the company’s business.
Josh Smiley, Lilly’s chief financial officer, outlined the company’s near-term growth prospects and provided 2021 financial guidance. "We’re pleased with our performance despite the unprecedented challenges facing the world in 2020. We expect 2021 to be another exciting year for Lilly, characterized by robust volume-driven revenue growth for our key medicines, while we continue to invest in and progress our pipeline, expand operating margins and deliver impressive EPS and cash flow growth. Reflecting this growth, we have announced a 15 percent increase in our dividend for 2021. One year after we outlined our high-level outlook through 2025, we are increasingly confident in our ability to deliver top-tier revenue growth and operating margin percent expansion into the mid-to-high 30s during this timeframe."
Commenting on the company’s cash flow expectations, Smiley added, "We expect to deliver strong cash flow in 2021, which we will continue to deploy thoughtfully across our capital allocation priorities. We remain focused on funding our existing marketed products, new launches, lifecycle opportunities and replenishing our pipeline. We will continue to leverage bolt-on acquisitions and licensing opportunities to augment our future growth prospects with external innovation. Finally, we plan to return cash to shareholders through an increased dividend and our ongoing share repurchase program, while maintaining strong investment grade ratings."
"Lilly is in the midst of an exciting period of prolonged growth for the company, driven by an expanding portfolio of new medicines focused on diabetes, oncology, immunology, and neuroscience," said David A. Ricks, Lilly’s chairman and chief executive officer. "We enter 2021 emboldened by the lessons we have learned during the COVID-19 pandemic, the agility and persistence we have displayed, and the knowledge that we are supported by one of the fastest growing portfolios in the industry. With more exciting data readouts and innovation prospects on the way, we have a remarkable opportunity to make life better for many more patients who can benefit from Lilly medicines."
2020 Financial Guidance
The company has updated certain elements of its 2020 financial guidance. On a reported basis, earnings per share for 2020 are now expected to be in the range of $6.28 to $6.48. On a non-GAAP basis, earnings per share for 2020 are now expected to be in the range of $7.45 to $7.65.
Revenue for 2020 is now expected to be in the range of $24.2 billion to $24.7 billion, reflecting expectations of increased bamlanivimab sales due to an additional purchase agreement with the U.S. government.
Gross margin as a percent of revenue is still expected to be approximately 78 percent on a reported basis and is now expected to be approximately 79 percent on a non-GAAP basis, reflecting expectations of increased bamlanivimab sales.
Marketing, selling and administrative expenses are still expected to be in the range of $6.0 billion to $6.1 billion. Research and development expenses are still expected to be in the range of $5.8 billion to $5.9 billion.
Operating margin, defined as operating income as a percent of revenue, is still expected to be approximately 25 percent on a reported basis, and is now expected to be approximately 30 percent on a non-GAAP basis.
Other income (expense) is now expected to be income in the range of $600 million to $700 million, reflecting additional projected gains on investments in equity securities. The market valuations for these securities could fluctuate significantly throughout the remainder of the year, with current valuations placing other income (expense) above the revised 2020 guidance range.
The 2020 effective tax rate is still expected to be approximately 14 percent on both a reported basis and a non-GAAP basis.
Change in Non-GAAP Measures Beginning in 2021
Beginning in 2021, the company will exclude the gains and losses on investments in equity securities from its non-GAAP measures for other income (expense) and earnings per share. Reflecting this change in the company’s updated 2020 financial guidance as detailed above would result in the exclusion of approximately $900 million of expected other income, thereby lowering the company’s 2020 expectations for other income (expense) on a non-GAAP basis to be expense in the range of $200 million to $300 million, and lowering the company’s earnings per share expectations on a non-GAAP basis for 2020 by approximately $0.75 per share to be in the range of $6.70 to $6.90.
2021 Financial Guidance
The company today issued its 2021 financial guidance. Earnings per share for 2021 are expected to be in the range of $7.25 to $7.90 on a reported basis and $7.75 to $8.40 on a non-GAAP basis. As noted, 2021 financial results will exclude gains and losses on investments in equity securities from non-GAAP measures.
The company anticipates 2021 revenue between $26.5 billion and $28.0 billion, including an estimated $1 billion to $2 billion of revenue from COVID-19 therapies. Revenue growth is expected to be driven by volume from key growth products including Trulicity, Taltz, Verzenio, Jardiance, Olumiant, Cyramza, Emgality, Tyvyt, and Retevmo, as well as by COVID-19 therapies. Revenue growth is expected to be partially offset by lower revenue for products that have recently lost patent exclusivity. The company expects mid-single digit net price declines globally in 2021. In the U.S., the company expects low-to-mid-single digit net price declines, driven primarily by increased rebates to maintain broad commercial access and segment mix, partially offset by the benefit from the implementation of a limited distribution program in the company’s 340B program. Outside the U.S., the company expects net price declines in China, Japan and Europe.
Gross margin as a percent of revenue for 2021 is expected to be approximately 77 percent on a reported basis, and approximately 79 percent on a non-GAAP basis.
Marketing, selling and administrative expenses for 2021 are expected to be in the range of $6.2 billion to $6.4 billion. Research and development expenses for 2021 are expected to be in the range of $6.5 billion to $6.7 billion, including approximately $300 million to $400 million of continued investment in COVID-19 therapies.
Operating margin for 2021 is expected to be approximately 30 percent on a reported basis and approximately 32 percent on a non-GAAP basis.
Other income (expense) for 2021 is expected to be expense in the range of $200 million to $300 million on both a reported basis and on a non-GAAP basis.
The 2021 effective tax rate is expected to be approximately 15 percent on both a reported basis and on a non-GAAP basis.
Webcast of Conference Call
As previously announced, investors and the general public can access a live webcast of the 2021 financial guidance conference call through a link on Lilly’s website at www.lilly.com. The conference call will begin at 8:30 a.m. Eastern time (ET) today and will be available for replay via the website.