# Lilly (Eli) (LLY) Financial Model

Free Excel 3-statement financial model and company analysis for Lilly (Eli).

- Canonical: https://finamodel.com/companies/lilly-eli
- Industry: Pharmaceuticals
- Downloadable model: Yes
- Excel download: https://finamodel.com/company-models/LLY.xlsx

## Model Purpose

This model provides a comprehensive equity valuation and scenario planning tool for Eli Lilly and Company (LLY), enabling an analyst to forecast the rapid scale-up of its incretin franchise (Mounjaro and Zepbound), assess the margin impact of massive manufacturing capacity investments, and determine a sum-of-the-parts or discounted cash flow (DCF) valuation.

## Company Overview

- **What the company does:** Eli Lilly is a global pharmaceutical company that discovers, develops, manufactures, and markets human medicines, with a dominant focus on cardiometabolic diseases, oncology, immunology, and neuroscience.
- **Business segments:** Lilly operates as a single business segment (Human Pharmaceutical Products), but revenue is driven by key therapeutic areas: Cardiometabolic (approx. 60-65% of revenue, driven by Mounjaro, Zepbound, Jardiance, Trulicity), Oncology (approx. 15-20%, driven by Verzenio), Immunology (approx. 10%), and Neuroscience.
- **Key geographies:** United States (approx. 60-65% of revenue) and International (approx. 35-40%, with strong growth in Europe and Japan).
- **Business model type:** Asset-heavy pharmaceutical innovator. Unlike some peers that outsource heavily, Lilly is currently investing billions in internal manufacturing capacity (biologics and peptide synthesis) to meet unprecedented demand for its GLP-1/GIP therapies.
- **Competitive position:** Lilly is a top-three global pharmaceutical firm by market capitalisation. It operates in a duopoly with Novo Nordisk in the booming obesity and diabetes incretin market.
- **Recent major events:** The launches of Zepbound (obesity) and Kisunla (Alzheimer's); massive capital expenditure announcements for manufacturing sites in Indiana, North Carolina, Ireland, and Germany; and bolt-on acquisitions to bolster the pipeline (e.g., POINT Biopharma, Morphic, SiteOne Therapeutics).

## Revenue Deep Dive

Lilly reports revenue by product rather than traditional business segments.

### Incretin Franchise (Mounjaro & Zepbound)

- **Segment name:** Reported under "New Products" / Cardiometabolic.
- **Revenue driver formula:** Total Prescriptions (TRx) x Net Realised Price per Prescription.
- **Historical growth rate:** >100% YoY (Mounjaro revenue surged 110% YoY in Q4 2025 to $7.4B; Zepbound surged 123% to $4.2B).
- **Key growth levers and headwinds:** Supply capacity (manufacturing constraints), label expansions (e.g., obstructive sleep apnea, cardiovascular outcomes), and international rollouts. Headwinds include payer pushback and step-therapy requirements.
- **Pricing dynamics:** High gross-to-net spread. List prices are high, but net realised prices decline over time due to commercial rebates, Medicare Part D redesign, and competitive contracting with PBMs.
- **Seasonality:** Q1 is typically the weakest due to the reset of patient deductibles in the US (the "donut hole" effect), leading to higher out-of-pocket costs and lower net realised prices.

### Oncology (Verzenio, Jaypirca)

- **Segment name:** Oncology (Growth Products / New Products).
- **Revenue driver formula:** Patient Volume x Duration of Therapy x Net Price.
- **Historical growth rate:** Low double-digits (Verzenio grew ~3% YoY in Q4 2025 to $1.6B as it matures).
- **Key growth levers and headwinds:** Adjuvant breast cancer uptake for Verzenio; pipeline readouts for radiopharmaceuticals.

### Legacy Diabetes (Trulicity, Humalog)

- **Segment name:** Legacy / Established Products.
- **Revenue driver formula:** Volume x Net Price.
- **Historical growth rate:** Declining (negative 10-20% YoY).
- **Key growth levers and headwinds:** Cannibalisation by Mounjaro, biosimilar competition for insulins, and mandated price caps (e.g., $35 out-of-pocket insulin cap in the US).

## Cost Structure



### Variable Costs / COGS

- **Line-by-line breakdown:** Manufacturing labour, raw materials (APIs, peptides), device components (autoinjector pens), overhead allocation, and royalties paid to third parties.
- **Gross margin range:** 81.0% - 83.5% (Q4 2025 GM was 83.2%).
- **Key input costs:** Peptide synthesis materials, sterile fill-finish capacity.
- **How COGS scales:** Step-function. As new multi-billion-dollar manufacturing plants come online, unabsorbed overhead temporarily hits COGS until production scales up.

### Operating Expenses

- **R&D:** Typically 20-25% of revenue ($10.99B or 24% in 2024). Covers early discovery, clinical trials (Phase 1-3), and regulatory filings. Excludes Acquired IPR&D.
- **SG&A:** Typically 15-18% of revenue. Driven by direct-to-consumer (DTC) advertising (especially for Zepbound), sales force deployment, and corporate overhead.
- **Acquired IPR&D:** Highly volatile. Lilly frequently records large, one-time in-process R&D charges for bolt-on acquisitions and licensing deals. These are excluded from non-GAAP earnings.
- **Depreciation & Amortisation:** D&A is rising rapidly due to the massive capex cycle. Amortisation relates to acquired intangible assets.

### Margin Profile

- **Gross margin:** 81-83.5%.
- **Operating margin:** Expanding rapidly from ~30% historically to ~38-42% as incretin revenues scale faster than fixed operating costs.
- **Net margin:** 23-28%, heavily influenced by the effective tax rate and IPR&D charges.

## Balance Sheet Structure

- **Total assets:** >$60 billion, heavily weighted towards PP&E and Intangibles.
- **Goodwill & intangibles:** Significant portion of assets due to historical M&A (e.g., Loxo Oncology, Dermira, POINT Biopharma).
- **Working capital profile:**
  - **DSO:** 60-70 days (standard for pharma wholesalers).
  - **DIO:** 180-220 days. Inventory is structurally high to ensure supply chain resilience for critical medicines and to buffer the complex peptide manufacturing process.
  - **DPO:** 70-90 days.
  - **Net working capital:** Generally positive. The massive scale-up of Mounjaro/Zepbound requires significant inventory builds, acting as a use of cash.
- **PP&E:** Rapidly expanding. Consists of global manufacturing sites. Useful lives are typically 15-25 years for buildings and 5-15 years for manufacturing equipment.

## Capital Expenditure & Investment

- **Capex as % of revenue:** 15-20% currently (historically 5-8%). Capex was $8.4B in 2024.
- **Maintenance vs. growth:** >80% is growth capex, specifically dedicated to new active pharmaceutical ingredient (API) and fill-finish facilities for incretins.
- **M&A pattern:** Serial bolt-on acquirer. Lilly typically buys early-to-mid clinical stage biotech companies for $1B-$5B to replenish its pipeline, rather than engaging in transformational mega-mergers.

## Debt & Capital Structure

- **Total debt:** Net debt was approximately $30.4B at the end of 2024.
- **Debt/EBITDA ratio:** ~1.5x - 2.0x. S&P rating is A+.
- **Key debt instruments:** Unsecured senior notes (bonds) and commercial paper for short-term liquidity.
- **Interest rate profile:** Predominantly fixed-rate long-term bonds.
- **Share repurchase programme:** Active but secondary to capex and M&A. Lilly uses buybacks primarily to offset dilution from stock-based compensation.
- **Dividend policy:** Progressive dividend policy. Yield is typically low (~1.0%) due to the massive market capitalisation, but the payout grows annually.

## Cash Flow Characteristics

- **Operating cash flow conversion:** Historically strong, but currently pressured by massive working capital needs (inventory builds) to support the GLP-1 launch.
- **Free cash flow margin:** Compressed in the near term (FCF was only ~$414M in 2024 despite massive net income) due to the $8.4B capex burden and working capital swings.
- **Major non-cash items:** Depreciation, amortisation of intangibles, stock-based compensation, and acquired IPR&D charges.
- **Cash tax rate:** Generally tracks the GAAP effective tax rate (17-19%), benefiting from US R&D tax credits and lower tax jurisdictions for manufacturing (e.g., Ireland).

## Sheet Structure

1. **Assumptions:** Hardcoded drivers for macroeconomic factors, tax rates, WACC, and product-level market share/pricing.
2. **Product Revenue Build:** The most critical sheet. Forecasts TRx volumes, gross-to-net pricing discounts, and net revenue for Mounjaro, Zepbound, Verzenio, Jardiance, Trulicity, and "Other". Split by US and International.
3. **Income Statement:** Consolidated view. Links to Revenue Build. Calculates COGS, R&D, SG&A, and Acquired IPR&D to arrive at GAAP and Non-GAAP Operating Income.
4. **Working Capital:** Schedules for Accounts Receivable, Inventory, and Accounts Payable based on DSO, DIO, and DPO.
5. **Capex & Depreciation:** Waterfall schedule for PP&E. Crucial for modelling the $8B+ annual capex spend and the resulting depreciation drag on future earnings.
6. **Intangibles & Amortisation:** Tracks acquired IPR&D and amortisation of marketed products.
7. **Debt Schedule:** Tranches of senior notes, commercial paper, interest expense (fixed/floating), and interest income on cash balances.
8. **Balance Sheet:** Standard format balancing Assets against Liabilities & Equity.
9. **Cash Flow Statement:** Indirect method bridging Net Income to OCF, CFI, and CFF.
10. **DCF Valuation:** Unlevered free cash flow calculation, WACC build, terminal value (using perpetuity growth), and implied share price.

## Key Financial Relationships

1. `Mounjaro US Revenue = Mounjaro US TRx Volume x Mounjaro US Net Price per TRx`
2. `Zepbound US Revenue = Zepbound US TRx Volume x Zepbound US Net Price per TRx`
3. `Total Revenue = Sum of Product Revenues (Mounjaro + Zepbound + Verzenio + Trulicity + Jardiance + Taltz + Other)`
4. `Gross Profit = Total Revenue - COGS` (Targeting ~83% margin)
5. `R&D Expense = Total Revenue x R&D Margin` (Targeting 20-24%)
6. `SG&A Expense = Total Revenue x SG&A Margin` (Targeting 15-18%)
7. `Non-GAAP Operating Income = Gross Profit - R&D Expense - SG&A Expense` (Excludes Acquired IPR&D)
8. `Performance Margin = Non-GAAP Operating Income / Total Revenue` (Guided to 46.0% - 47.5% for 2026)
9. `Inventory Balance = (COGS / 365) x DIO`
10. `Unlevered Free Cash Flow = Non-GAAP EBIT x (1 - Effective Tax Rate) + D&A - Capex - Change in Net Working Capital`

## Cross-Sheet Dependencies

- The **Product Revenue Build** is the engine of the model; it feeds the top line of the **Income Statement**.
- **Income Statement** COGS drives the Inventory calculations on the **Working Capital** sheet.
- **Capex & Depreciation** feeds D&A into the **Income Statement** and **Cash Flow Statement**, and updates PP&E on the **Balance Sheet**.
- **Debt Schedule** calculates interest expense, which feeds the **Income Statement**. This creates a circular reference if cash flow shortfalls are funded by a revolving credit facility, requiring an iterative calculation toggle.
- **Cash Flow Statement** ending cash feeds the **Balance Sheet** cash line, ensuring the balance sheet balances.

## Sign Convention

- **Revenue and Assets:** Positive.
- **Expenses (COGS, R&D, SG&A, Interest, Taxes):** Positive inputs in the Assumptions sheet, but subtracted in the Income Statement formulas (e.g., `Gross Profit = Revenue - COGS`).
- **Cash Flow:** Inflows are positive, outflows (Capex, Dividends, Debt Repayment) are negative.
- **Working Capital:** An increase in an asset (e.g., Inventory) is a negative adjustment to operating cash flow; an increase in a liability (e.g., Accounts Payable) is a positive adjustment.

## Things Most Likely to Go Wrong

1. **Underestimating Capex:** Lilly is in an unprecedented manufacturing build-out. Assuming historical pharma capex levels (5% of revenue) will drastically overstate Free Cash Flow. Model must reflect $8B-$10B+ annual capex.
2. **Ignoring Gross-to-Net Pricing:** List prices for GLP-1s are high, but net prices decline due to rebates and payer mix. Revenue must be modelled on *net* realised price, not list price.
3. **Misinterpreting IPR&D:** Lilly frequently reports large Acquired IPR&D charges that crush GAAP EPS. The model must separate GAAP from Non-GAAP EPS to align with management guidance and consensus estimates.
4. **Working Capital Drag:** The massive volume growth of Mounjaro requires huge inventory builds. Failing to model this will overstate Operating Cash Flow.
5. **Cannibalisation:** Trulicity revenue is falling rapidly as patients switch to Mounjaro. The model must explicitly forecast Trulicity's decline, not hold it flat.
6. **Tax Rate Volatility:** The GAAP tax rate is highly volatile due to non-deductible IPR&D charges. Use the Non-GAAP effective tax rate (18-19%) for core valuation.
7. **Seasonality in Q1:** US pharma revenue dips in Q1 due to deductible resets. Do not straight-line Q4 run-rates into Q1 without a seasonal haircut.
8. **Foreign Exchange:** Lilly generates ~35-40% of revenue outside the US. A strong dollar is a material headwind to reported revenue growth.

## Validation Checks

- "Gross margin should be in the 81-84% range; flag if outside this band".
- "Capex as % of revenue should be >10% in the near term due to manufacturing expansion".
- "Non-GAAP Operating Margin (Performance Margin) should expand towards 46-47.5% by 2026".
- "Effective tax rate (Non-GAAP) should be 18-19%; flag if outside this range".
- "Balance sheet must balance: Total Assets = Total Liabilities + Equity in every period."
- "Trulicity revenue growth must be negative YoY."
- "Net Debt / EBITDA should remain below 2.5x to maintain the A+ credit rating".

## Key Assumptions (Default Values)

| Assumption | Default Value | Unit | Rationale |
|---|---|---|---|
| 2026 Total Revenue Guidance | 81,500 | $ Millions | Midpoint of management's 2026 guidance ($80B - $83B). |
| Mounjaro YoY Volume Growth | 45.0 | % | Continued aggressive uptake and global rollout, decelerating slightly from 2025's >100% growth. |
| Zepbound YoY Volume Growth | 60.0 | % | Massive unmet need in obesity and expanding supply capacity. |
| Trulicity YoY Revenue Growth | -20.0 | % | Cannibalisation by Mounjaro and competitive pressures. |
| Gross Margin | 83.2 | % | Based on Q4 2025 actuals; reflects favourable product mix offset by lower net prices. |
| R&D as % of Revenue | 22.0 | % | Elevated to support massive Phase 3 pipeline (orforglipron, retatrutide). |
| SG&A as % of Revenue | 16.0 | % | Scaling down as a % of revenue due to top-line leverage, despite absolute dollar increases in DTC marketing. |
| Non-GAAP Effective Tax Rate | 18.5 | % | Midpoint of 2026 guidance (18% - 19%). |
| Days Sales Outstanding (DSO) | 65 | Days | Standard pharmaceutical wholesale collection terms. |
| Days Inventory Outstanding (DIO) | 200 | Days | Structurally high to support GLP-1 supply chain resilience. |
| Days Payable Outstanding (DPO) | 80 | Days | Standard vendor payment terms. |
| Capex | 9,000 | $ Millions | Continued heavy investment in global manufacturing sites. |
| Cost of Debt | 4.5 | % | Weighted average interest rate on long-term senior notes. |
| WACC | 7.5 | % | Standard discount rate for large-cap, low-beta pharmaceutical company. |
| Terminal Growth Rate | 2.0 | % | Long-term GDP growth proxy. |

## Data Sources & Benchmarks

- **Filings:** SEC EDGAR (10-K, 10-Q, 8-K) and the Eli Lilly Investor Relations website (investor.lilly.com) for earnings presentations and guidance updates.
- **Peers for Benchmarking:** Novo Nordisk (NVO) for direct incretin duopoly comparison; Johnson & Johnson (JNJ), Merck (MRK), and AbbVie (ABBV) for general large-cap pharma margin and multiple benchmarking.
- **Industry Data:** IQVIA (for weekly TRx and NRx prescription data in the US), Symphony Health.
- **Consensus Estimates:** Bloomberg, FactSet, or Visible Alpha for consensus revenue builds by product.

## Sources

- Eli Lilly Q4 2025 Earnings Press Release and 2026 Guidance (Feb 4, 2026)
- Eli Lilly Q4 2024 Earnings Press Release and 2025 Guidance (Feb 6, 2025)
- S&P Global Ratings: Eli Lilly & Co. Credit Rating Update
- Fierce Biotech: Top 10 pharma R&D budgets in 2024
- The Motley Fool: Eli Lilly Q4 2024 Earnings Call Transcript
- Monexa AI: Eli Lilly Financial Analysis (Growth, Margins & Cash Flow)
- Porter's Five Forces: Competitive Landscape of Eli Lilly Company

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## Frequently asked questions

### What does Eli Lilly (LLY) do?

Eli Lilly is a global pharmaceutical company that discovers, develops, manufactures, and markets human medicines. It primarily focuses on cardiometabolic diseases, oncology, immunology, and neuroscience, operating as an asset-heavy innovator.

### What are the primary revenue drivers for Eli Lilly?

Eli Lilly's revenue is predominantly driven by its cardiometabolic franchise, including Mounjaro, Zepbound, Jardiance, and Trulicity, which accounts for 60-65% of total revenue. Oncology, immunology, and neuroscience therapeutic areas also contribute significantly to its sales.

### Why is Eli Lilly's capital expenditure currently so high?

Eli Lilly's capital expenditure is currently 15-20% of revenue, significantly higher than its historical 5-8%. Over 80% of this spending is growth capex, specifically dedicated to new manufacturing facilities for its incretin therapies like Mounjaro and Zepbound to meet unprecedented demand.

### What are the key cost assumptions in Eli Lilly's financial model?

Key cost assumptions in Eli Lilly's financial model include COGS at approximately 22.66% of revenue, R&D at about 24.71% of revenue, and SGA at roughly 23.95% of revenue. These reflect the company's significant investment in research and development and its asset-heavy manufacturing strategy.

### What is the purpose of the Eli Lilly financial model?

The Eli Lilly financial model provides a comprehensive tool for equity valuation and scenario planning for LLY. It enables analysts to forecast the rapid scale-up of its incretin franchise, assess the margin impact of manufacturing investments, and determine a sum-of-the-parts or discounted cash flow (DCF) valuation.

### Can I download an Excel financial model for Eli Lilly (LLY)?

Yes, an Excel financial model for Eli Lilly (LLY) is available for download. This model offers a forecast horizon from FY2026 to FY2030, allowing for detailed analysis of the company's future financial performance and valuation.

[Interactive forecast calculator](https://finamodel.com/companies/lilly-eli/forecast)