UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

Quarterly Report ~~Under~~Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

~~FOR THE QUARTER ENDED~~ ~~SEPTEMBER~~For the quarterly period ended September 30, ~~2017~~2023

COMMISSION FILE NUMBER 001-6351

ELI LILLY AND COMPANY

(Exact name of Registrant as specified in its charter)



~~INDIANA~~Indiana						35-0470950
(State or other jurisdiction of						(I.R.S. Employer
incorporation or organization)						Identification No.)

~~LILLY CORPORATE CENTER, INDIANAPOLIS, INDIANA~~Lilly Corporate Center, Indianapolis, Indiana 46285

(Address and zip code of principal executive offices)

~~Registrant’s~~Registrant's telephone number, including area code (317) 276-2000

Securities registered pursuant to Section 12(b) of the Exchange Act:


Title of Each Class	Trading Symbols	Name of Each Exchange On Which Registered
Common Stock (no par value)	LLY	New York Stock Exchange
7 1/8% Notes due 2025	LLY25	New York Stock Exchange
1.625% Notes due 2026	LLY26	New York Stock Exchange
2.125% Notes due 2030	LLY30	New York Stock Exchange
0.625% Notes due 2031	LLY31	New York Stock Exchange
0.500% Notes due 2033	LLY33	New York Stock Exchange
6.77% Notes due 2036	LLY36	New York Stock Exchange
1.625% Notes due 2043	LLY43	New York Stock Exchange
1.700% Notes due 2049	LLY49A	New York Stock Exchange
1.125% Notes due 2051	LLY51	New York Stock Exchange
1.375% Notes due 2061	LLY61	New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes ý☒ No o☐

Indicate by check mark whether the ~~registrant~~Registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the ~~registrant~~Registrant was required to submit ~~and post~~ such files).

Yes ý☒ No o☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of ~~a “large~~"large accelerated filer,~~” “accelerated filer”~~" "accelerated filer," "smaller reporting company," and ~~“smaller reporting company”~~"emerging growth company" in Rule 12b-2 of the Exchange Act. ~~(Check one):~~

Large accelerated filerý

☒

Accelerated filero

☐

Non-accelerated filero

☐

~~(Do not check if a smaller reporting company)~~

Smaller reporting companyo

☐

Emerging growth companyo

☐

If an emerging growth company, indicate by check mark if the ~~registrant~~Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐

Indicate by check mark whether the ~~registrant~~Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o☐ No ý☒

The number of shares of common stock outstanding as of October ~~23, 2017~~:

30, 2023:



Class						Number of Shares Outstanding
Common						~~1,101,094,711~~949,307,237

Eli Lilly and Company

Form 10-Q

For the Quarter Ended September 30, ~~2017~~2023

Table of Contents


						Page
PART I. Financial Information						5

			~~Page~~
~~PART I. Financial Information~~Item 1.			4Financial Statements			5

~~Item 1.~~	~~Financial Statements~~		4
	Consolidated Condensed Statements of Operations		45
			Consolidated Condensed Statements of Comprehensive Income (Loss)			56
			Consolidated Condensed Balance Sheets			67
			Consolidated Condensed Statements of Equity			8
			Consolidated Condensed Statements of Cash Flows			710
			Notes to Consolidated Condensed Financial Statements			811
Item 2.			Management's Discussion and Analysis of Results of Operations and Financial Condition			35
			Executive Overview			35
			~~Revenue~~Results of Operations			4241
			~~Gross Margin, Costs,~~Financial Condition and ~~Expenses~~Liquidity			4645

			~~Financial Condition~~Critical Accounting Estimates			4746
			~~Financial Expectations~~		48
	Available Information on our Website		4846
Item 3.			Quantitative and Qualitative Disclosures About Market Risk			47
Item 4.			Controls and Procedures			4847

PART II. Other Information						4948

Item 1.			Legal Proceedings			4948
Item 1A.			Risk Factors			5048
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			5048
Item 6.5.			~~Exhibits~~Other Information			5048

~~Signatures~~		51
~~Index to Exhibits~~Item 6.				52Exhibits			49

Signatures						49

Forward-Looking Statements

T~~his~~This Quarterly Report on Form 10-Q ~~includes~~and our other publicly available documents include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (Exchange Act)., and are subject to the safe harbor created thereby under the Private Securities Litigation Reform Act of 1995. In particular, information appearing under "Management's Discussion and Analysis of Results of Operations and Financial Condition" includes forward-looking statements. Forward-looking statements include all statements that do not relate solely to historical or current facts, and generally can ~~generally~~ be identified by the use of words such as ~~“may,” “believe,” “will,” “expect,” “project,” “estimate,” “intend,” “anticipate,” “plan,” “continue”~~"may," "believe," "will," "expect," "project," "estimate," "intend," "anticipate," "plan," "continue," or similar ~~expressions.~~expressions or future or conditional verbs.

~~In particular, information appearing under “Management's Discussion and Analysis of Financial Condition and Results of Operations” includes forward-looking statements.~~ Forward-looking statements inherently involve many risks and uncertainties that could cause actual results to differ materially from those ~~projected~~expressed in ~~these~~forward-looking statements. Where, in any forward-looking statement, we ~~("Lilly" or the "company")~~ express an expectation or belief as to future results or events, it is based on management's current plans and expectations, expressed in good faith and believed to have a reasonable basis. However, we can give no assurance that any such expectation or belief will result or will be achieved or accomplished. Investors therefore should not place undue reliance on forward-looking statements. The following include some but not all of the factors that could cause actual results or events to differ materially from those anticipated:

•the significant costs and uncertainties in the pharmaceutical research and development process, including with respect to the timing and process of obtaining regulatory approvals;

•the impact and outcome of acquisitions and business development transactions and related costs;

•the expiration of intellectual property protection for certain of our products and competition from generic and/or biosimilar products;

•our ability to protect and enforce patents and other intellectual property;

•changes in patent law or regulations related to data package exclusivity;

•competitive developments affecting current products and our pipeline;

•market uptake of recently launched products;

•information technology system inadequacies, breaches, or operating failures;

•unauthorized access, disclosure, misappropriation, or compromise of confidential information or other data stored in our information technology systems, networks, and facilities, or those of third parties with whom we share our data;

•the impact of global macroeconomic conditions, trade disruptions, disputes, unrest, war, regional dependencies, or other costs, uncertainties and risks related to engaging in business globally;

•unexpected safety or efficacy concerns associated with our products;

•litigation, investigations, or other similar proceedings involving past, current, or future products or commercial activities as we are largely self-insured;

•issues with product supply and regulatory approvals stemming from manufacturing difficulties, disruptions, or shortages, including as a result of unpredictability and variability in demand, labor shortages, third-party performance, quality, or regulatory actions related to our facilities;

•dependence on certain products for a significant percentage of our total revenue and an increasingly consolidated supply chain;

•reliance on third-party relationships and outsourcing arrangements;

•the impact of public health outbreaks, epidemics, or pandemics, such as the COVID-19 pandemic;

•regulatory changes or other developments;

•regulatory actions regarding operations and products;

•continued pricing pressures and the impact of actions of governmental and private payers affecting pricing of, reimbursement for, and access to pharmaceuticals;

•devaluations in foreign currency exchange rates or changes in interest rates and inflation;

•changes in tax law, tax rates, or events that differ from our assumptions related to tax positions;

•asset impairments and restructuring charges;

•changes in accounting and reporting standards promulgated by the Financial Accounting Standards Board and the Securities and Exchange Commission (SEC);

•regulatory compliance problems or government investigations; and

•actual or perceived deviation from environmental-, social-, or governance-related requirements or expectations.

More information on factors that could cause actual results or events to differ materially from those anticipated is included from time to time in our reports filed with the ~~Securities and Exchange Commission (SEC),~~SEC, including in our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2022, particularly under the ~~captions “Forward-Looking Statements”~~caption "Risk Factors." Investors should understand that it is not possible to predict or identify all such factors and ~~“Risk Factors.”~~should not consider the risks described above and under Part I, Item 1A, "Risk Factors" of our Annual Report on Form 10-K to be a complete statement of all potential risks and uncertainties.

All forward-looking statements ~~herein~~ speak only as of the date of this ~~report~~Quarterly Report on Form 10-Q and are expressly qualified in their entirety by the cautionary statements included in or incorporated by reference into this ~~report.~~Quarterly Report on Form 10-Q. Except as is required by law, we expressly disclaim any obligation to publicly release any revisions to forward-looking statements to reflect events after the date of this ~~report.~~

Quarterly Report on Form 10-Q.

PART I. Financial Information

Item 1. Financial Statements

Consolidated Condensed Statements of Operations

(Unaudited)

ELI LILLY AND COMPANY AND SUBSIDIARIES

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


											Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended September 30,					Nine Months Ended September 30,					2023		2022		2023		2022
	2017		2016			2017		2016
Revenue	$	5,658.0	$	5,191.7		$	16,710.6	$	15,461.6
Revenue (Note 2)										Revenue (Note 2)	$	9,498.6	$	6,941.6	$	24,770.7	$	21,239.6
Costs, expenses, and other:										Costs, expenses, and other:
Cost of sales	1,566.1		1,400.9			4,445.4		4,188.9		Cost of sales	1,860.1		1,579.1		5,294.2		5,081.7
Research and development	1,319.4		1,236.4			3,808.6		3,793.3		Research and development	2,409.1		1,802.9		6,750.7		5,194.9
Marketing, selling, and administrative	1,555.5		1,565.4			4,807.6		4,661.9		Marketing, selling, and administrative	1,803.9		1,614.2		5,478.5		4,797.2
Acquired in-process research and development (Note 3)	205.0		—			1,062.6		—		Acquired in-process research and development (Note 3)	2,975.1		62.4		3,177.2		668.4
Asset impairment, restructuring, and other special charges (Note 5)	406.5		45.5			670.4		234.9		Asset impairment, restructuring, and other special charges (Note 5)	—		206.5		—		206.5
Other–net, (income) expense (Note 12)	13.9		(27.2		)	2.7		100.6
Other–net, (income) expense (Note 11)										Other–net, (income) expense (Note 11)	23.2		111.0		24.3		580.9
	5,066.4		4,221.0			14,797.3		12,979.6			9,071.4		5,376.1		20,724.9		16,529.6
Income before income taxes	591.6		970.7			1,913.3		2,482.0		Income before income taxes	427.2		1,565.5		4,045.8		4,710.0
Income taxes (Note 8)	36.0		192.7			460.5		516.2
Net income	$	555.6	$	778.0		$	1,452.8	$	1,965.8
Income taxes (Note 7)										Income taxes (Note 7)	484.6		113.8		995.1		402.9
Net income (loss)										Net income (loss)	$	(57.4)	$	1,451.7	$	3,050.7	$	4,307.1

Earnings per share:

Earnings (loss) per share:										Earnings (loss) per share:
Basic										Basic	$	(0.06)	$	1.61	$	3.39	$	4.78

Diluted										Diluted	$	(0.06)	$	1.61	$	3.38	$	4.76

Shares used in calculation of earnings (loss) per share:										Shares used in calculation of earnings (loss) per share:
Basic	$	0.53	$	0.74		$	1.38	$	1.86	Basic	899.8		900.7		900.2		901.8
Diluted	$	0.53	$	0.73		$	1.37	$	1.85	Diluted	899.8		903.8		903.1		904.5
Shares used in calculation of earnings per share:
Basic	1,053.4		1,057.7			1,054.8		1,058.4
Diluted	1,056.0		1,060.8			1,057.0		1,061.1

Dividends paid per share	$	0.52	$	0.51		$	1.56	$	1.53

See notes to consolidated condensed financial statements.

Consolidated Condensed Statements of Comprehensive Income (Loss)

(Unaudited)

ELI LILLY AND COMPANY AND SUBSIDIARIES

(Dollars in millions)

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Net income $ 555.6
$ 778.0
$ 1,452.8
$ 1,965.8
Other comprehensive income, net of tax (Note 11) ⁽¹⁾
167.7
113.5
651.2
323.0
Comprehensive income $ 723.3

$ 891.5

$ 2,104.0

$ 2,288.8

⁽¹⁾Other comprehensive income (loss) for the three and nine months ended September 30, 2017 consisted of $165.5 million and $664.6 million of other comprehensive income attributable to controlling interest, respectively, and $2.2 million and $(13.4) million of other comprehensive income (loss) attributable to non-controlling interest, respectively. Other comprehensive income (loss) for the three and nine months ended September 30, 2016 attributable to non-controlling interest is immaterial.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net income (loss)	$	(57.4)	$	1,451.7	$	3,050.7	$	4,307.1
Other comprehensive income (loss), net of tax (Note 10)	3.8		(8.1)		59.7		47.3
Comprehensive income (loss)	$	(53.6)	$	1,443.6	$	3,110.4	$	4,354.4

See notes to consolidated condensed financial statements.

Consolidated Condensed Balance Sheets

ELI LILLY AND COMPANY AND SUBSIDIARIES

(Dollars in millions)


	September 30, 2017			December 31, 2016				September 30, 2023		December 31, 2022
Assets	(Unaudited)						Assets	(Unaudited)
Current Assets							Current Assets
Cash and cash equivalents (Note 6)	$	3,724.3		$	4,582.1		Cash and cash equivalents (Note 6)	$	2,380.8	$	2,067.0
Short-term investments (Note 6)	3,218.8			1,456.5			Short-term investments (Note 6)	113.1		144.8
Accounts receivable, net of allowances of $42.1 (2017) and $40.3 (2016)	4,401.3			4,029.4
Accounts receivable, net of allowances of $13.4 (2023) and $16.0 (2022)							Accounts receivable, net of allowances of $13.4 (2023) and $16.0 (2022)	8,167.1		6,896.0
Other receivables	613.2			736.9			Other receivables	2,196.7		1,662.9
Inventories	4,406.9			3,561.9			Inventories	4,901.4		4,309.7
Prepaid expenses and other	1,063.9			734.6
Prepaid expenses and other current assets							Prepaid expenses and other current assets	5,247.9		2,954.1
Total current assets	17,428.4			15,101.4			Total current assets	23,007.0		18,034.5
Other Assets
Investments (Note 6)	6,148.7			5,207.5			Investments (Note 6)	2,691.7		2,901.8
Goodwill	4,365.6			3,972.7			Goodwill	4,085.2		4,073.0
Other intangibles	4,271.6			4,357.9
Sundry	2,197.6			1,913.8
Total other assets	16,983.5			15,451.9
Property and Equipment
Land, buildings, equipment, and construction in progress	17,730.7			16,777.6
Accumulated depreciation	(9,132.2		)	(8,525.0		)
Property and equipment, net	8,598.5			8,252.6
Other intangibles, net							Other intangibles, net	6,781.7		7,206.6
Deferred tax assets							Deferred tax assets	4,574.8		2,792.9
Property and equipment, net of accumulated depreciation of $10,767.8 (2023) and $10,233.4 (2022)							Property and equipment, net of accumulated depreciation of $10,767.8 (2023) and $10,233.4 (2022)	11,863.2		10,144.0
Other noncurrent assets							Other noncurrent assets	4,911.9		4,337.0
Total assets	$	43,010.4		$	38,805.9		Total assets	$	57,915.5	$	49,489.8
Liabilities and Equity							Liabilities and Equity
Current Liabilities							Current Liabilities
Short-term borrowings and current maturities of long-term debt	$	3,538.1		$	1,937.4		Short-term borrowings and current maturities of long-term debt	$	2,244.7	$	1,501.1
Accounts payable	1,200.1			1,349.3			Accounts payable	2,435.1		1,930.6
Employee compensation	821.1			896.9			Employee compensation	1,233.2		1,059.8
Sales rebates and discounts	4,332.7			3,914.9			Sales rebates and discounts	11,522.3		8,784.1
Dividends payable	—			548.1			Dividends payable	—		1,017.2
Income taxes payable	414.4			119.1			Income taxes payable	1,977.5		475.1
Other current liabilities	2,360.1			2,220.9			Other current liabilities	2,585.4		2,370.3
Total current liabilities	12,666.5			10,986.6			Total current liabilities	21,998.2		17,138.2
Other Liabilities							Other Liabilities
Long-term debt	9,926.6			8,367.8			Long-term debt	17,923.6		14,737.5
Accrued retirement benefits (Note 9)	2,458.1			2,453.9
Accrued retirement benefits (Note 8)							Accrued retirement benefits (Note 8)	1,311.9		1,305.1
Long-term income taxes payable	710.0			688.9			Long-term income taxes payable	3,468.3		3,709.6
Other noncurrent liabilities	2,288.6			2,228.2			Other noncurrent liabilities	1,906.1		1,824.0
Total other liabilities	15,383.3			13,738.8			Total other liabilities	24,609.9		21,576.2
Commitments and Contingencies (Note 10)
Eli Lilly and Company Shareholders’ Equity (Note 7)
Commitments and Contingencies (Note 9)							Commitments and Contingencies (Note 9)
Eli Lilly and Company Shareholders' Equity							Eli Lilly and Company Shareholders' Equity
Common stock	688.5			688.5			Common stock	593.6		594.1
Additional paid-in capital	5,754.7			5,640.6			Additional paid-in capital	7,160.0		6,921.4
Retained earnings	16,145.5			16,046.3			Retained earnings	10,309.9		10,042.6
Employee benefit trust	(3,013.2		)	(3,013.2		)	Employee benefit trust	(3,013.2)		(3,013.2)
Accumulated other comprehensive loss (Note 11)	(4,609.4		)	(5,274.0		)
Accumulated other comprehensive loss (Note 10)							Accumulated other comprehensive loss (Note 10)	(3,784.9)		(3,844.6)
Cost of common stock in treasury	(75.8		)	(80.5		)	Cost of common stock in treasury	(45.0)		(50.5)
Total Eli Lilly and Company shareholders’ equity	14,890.3			14,007.7
Total Eli Lilly and Company shareholders' equity							Total Eli Lilly and Company shareholders' equity	11,220.4		10,649.8
Noncontrolling interests	70.3			72.8			Noncontrolling interests	87.0		125.6
Total equity	14,960.6			14,080.5			Total equity	11,307.4		10,775.4
Total liabilities and equity	$	43,010.4		$	38,805.9		Total liabilities and equity	$	57,915.5	$	49,489.8

See notes to consolidated condensed financial statements.

Consolidated Condensed Statements of Equity

(Unaudited)

ELI LILLY AND COMPANY AND SUBSIDIARIES


	Equity of Eli Lilly and Company Shareholders
(Dollars in millions, except per-share data, and shares in thousands)	Common Stock			Additional Paid-in Capital		Retained Earnings		Employee Benefit Trust		Accumulated Other Comprehensive Loss		Common Stock in Treasury(1)			Noncontrolling Interests
	Shares	Amount										Shares	Amount
Balance at July 1, 2022	950,619	$	594.1	$	6,746.0	$	8,556.0	$	(3,013.2)	$	(4,287.7)	450	$	(50.5)	$	114.5
Net income (loss)						1,451.7									(15.7)
Other comprehensive loss, net of tax										(8.1)



Issuance of stock under employee stock plans, net	8			(2.1)
Stock-based compensation				85.1
Other						(1.2)									(3.0)
Balance at September 30, 2022	950,627	$	594.1	$	6,829.0	$	10,006.5	$	(3,013.2)	$	(4,295.8)	450	$	(50.5)	$	95.8

Balance at July 1, 2023	949,688	$	593.6	$	6,948.6	$	10,368.5	$	(3,013.2)	$	(3,788.7)	402	$	(45.0)	$	85.5
Net income (loss)						(57.4)									4.1
Other comprehensive income, net of tax										3.8



Issuance of stock under employee stock plans, net	17			(4.2)
Stock-based compensation				215.6
Other						(1.2)									(2.6)
Balance at September 30, 2023	949,705	$	593.6	$	7,160.0	$	10,309.9	$	(3,013.2)	$	(3,784.9)	402	$	(45.0)	$	87.0

(1) As of September 30, 2023, there was $2.50 billion remaining under our $5.00 billion share repurchase program authorized in May 2021.

See notes to consolidated condensed financial statements.


	Equity of Eli Lilly and Company Shareholders
(Dollars in millions, except per-share data, and shares in thousands)	Common Stock			Additional Paid-in Capital		Retained Earnings		Employee Benefit Trust		Accumulated Other Comprehensive Loss		Common Stock in Treasury(1)			Noncontrolling Interests
	Shares	Amount										Shares	Amount
Balance at January 1, 2022	954,116	$	596.3	$	6,833.4	$	8,958.5	$	(3,013.2)	$	(4,343.1)	463	$	(52.7)	$	175.6
Net income (loss)						4,307.1									(63.7)
Other comprehensive income, net of tax										47.3
Cash dividends declared per share: $1.96						(1,765.9)
Retirement of treasury shares	(5,607)	(3.5)				(1,496.5)						(5,607)	1,500.0
Purchase of treasury shares												5,607	(1,500.0)
Issuance of stock under employee stock plans, net	2,118	1.3		(282.6)								(13)	2.2
Stock-based compensation				278.2
Other						3.3									(16.1)
Balance at September 30, 2022	950,627	$	594.1	$	6,829.0	$	10,006.5	$	(3,013.2)	$	(4,295.8)	450	$	(50.5)	$	95.8

Balance at January 1, 2023	950,632	$	594.1	$	6,921.4	$	10,042.6	$	(3,013.2)	$	(3,844.6)	450	$	(50.5)	$	125.6
Net income						3,050.7									4.6
Other comprehensive income, net of tax										59.7
Cash dividends declared per share: $2.26						(2,034.0)
Retirement of treasury shares	(2,299)	(1.4)				(748.6)						(2,299)	750.0
Purchase of treasury shares												2,299	(750.0)
Issuance of stock under employee stock plans, net	1,372	0.9		(269.7)								(48)	8.8
Stock-based compensation				508.3
Other						(0.8)							(3.3)		(43.2)
Balance at September 30, 2023	949,705	$	593.6	$	7,160.0	$	10,309.9	$	(3,013.2)	$	(3,784.9)	402	$	(45.0)	$	87.0

(1) As of September 30, 2023, there was $2.50 billion remaining under our $5.00 billion share repurchase program authorized in May 2021.

See notes to consolidated condensed financial statements.

Consolidated Condensed Statements of Cash Flows

(Unaudited)

ELI LILLY AND COMPANY AND SUBSIDIARIES

(Dollars in millions)


	Nine Months Ended September 30,							Nine Months Ended September 30,
	2017			2016				2023		2022
Cash Flows from Operating Activities							Cash Flows from Operating Activities
Net income	$	1,452.8		$	1,965.8		Net income	$	3,050.7	$	4,307.1
Adjustments to Reconcile Net Income to Cash Flows from Operating Activities:							Adjustments to Reconcile Net Income to Cash Flows from Operating Activities:

Depreciation and amortization	1,155.4			1,152.0			Depreciation and amortization	1,139.6		1,147.5
Change in deferred income taxes	151.7			350.8			Change in deferred income taxes	(1,834.8)		(2,195.6)

Stock-based compensation expense	209.1			188.5			Stock-based compensation expense	508.3		278.2

Net investment losses							Net investment losses	144.5		676.4
Gains on sale of product rights							Gains on sale of product rights	(1,853.9)		(94.5)
Acquired in-process research and development	1,062.6			—			Acquired in-process research and development	3,177.2		668.4
Other changes in operating assets and liabilities, net of acquisitions	(525.2		)	(1,110.8		)
Other non-cash operating activities, net	365.7			298.2
Other changes in operating assets and liabilities, net of acquisitions and divestitures							Other changes in operating assets and liabilities, net of acquisitions and divestitures	117.2		823.4
Other operating activities, net							Other operating activities, net	103.2		312.1
Net Cash Provided by Operating Activities	3,872.1			2,844.5			Net Cash Provided by Operating Activities	4,552.0		5,923.0
Cash Flows from Investing Activities							Cash Flows from Investing Activities
Net purchases of property and equipment	(633.3		)	(627.2		)
Purchases of property and equipment							Purchases of property and equipment	(2,377.0)		(1,353.6)
Proceeds from sales and maturities of short-term investments	2,320.2			1,245.9			Proceeds from sales and maturities of short-term investments	155.2		83.1
Purchases of short-term investments	(2,973.8		)	(425.7		)	Purchases of short-term investments	(79.2)		(65.0)
Proceeds from sales of noncurrent investments	1,686.9			1,606.8
Proceeds from sales of and distributions from noncurrent investments							Proceeds from sales of and distributions from noncurrent investments	476.2		251.6
Purchases of noncurrent investments	(3,739.6		)	(3,640.7		)	Purchases of noncurrent investments	(474.8)		(474.1)
Cash paid for acquisitions, net of cash acquired (Note 3)	(882.1		)	(45.0		)
Purchase of in-process research and development (Note 3)	(1,036.8		)	—

Proceeds from sale of product rights							Proceeds from sale of product rights	1,604.3		65.8
Purchases of in-process research and development							Purchases of in-process research and development	(3,364.0)		(993.1)
Other investing activities, net	(178.0		)	(75.1		)	Other investing activities, net	(169.1)		(334.1)
Net Cash Used for Investing Activities	(5,436.5		)	(1,961.0		)	Net Cash Used for Investing Activities	(4,228.4)		(2,819.4)
Cash Flows from Financing Activities							Cash Flows from Financing Activities
Dividends paid	(1,643.8		)	(1,617.4		)	Dividends paid	(3,051.2)		(2,651.4)
Net change in short-term borrowings	1,226.8			(1.7		)	Net change in short-term borrowings	97.0		1,741.3
Proceeds from issuance of long-term debt	2,232.0			1,206.6			Proceeds from issuance of long-term debt	3,958.5		—
Repayments of long-term debt	(630.6		)	(0.2		)	Repayments of long-term debt	—		(1,560.0)
Purchases of common stock	(199.9		)	(300.1		)	Purchases of common stock	(750.0)		(1,500.0)

Other financing activities, net	(299.6		)	(232.2		)	Other financing activities, net	(303.4)		(295.2)
Net Cash Provided by (Used for) Financing Activities	684.9			(945.0		)
Net Cash Used for Financing Activities							Net Cash Used for Financing Activities	(49.1)		(4,265.3)
Effect of exchange rate changes on cash and cash equivalents	21.7			(115.9		)	Effect of exchange rate changes on cash and cash equivalents	39.3		(39.4)

Net decrease in cash and cash equivalents	(857.8		)	(177.4		)
Net increase (decrease) in cash and cash equivalents							Net increase (decrease) in cash and cash equivalents	313.8		(1,201.1)
Cash and cash equivalents at January 1	4,582.1			3,666.4			Cash and cash equivalents at January 1	2,067.0		3,818.5
Cash and Cash Equivalents at September 30	$	3,724.3		$	3,489.0		Cash and Cash Equivalents at September 30	$	2,380.8	$	2,617.4

See notes to consolidated condensed financial statements.

Notes to Consolidated Condensed Financial Statements

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

Note 1: Basis of Presentation

We have prepared the accompanying unaudited consolidated condensed financial statements in accordance with the requirements of Form 10-Q and, therefore, they do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States (GAAP). In our opinion, the consolidated condensed financial statements reflect all adjustments (including those that are normal and recurring) that are necessary for a fair presentation of the results of operations for the periods shown. In preparing financial statements in conformity with GAAP, we must make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures at the date of the financial statements and during the reporting period. Actual results could differ from those estimates.

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with our consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2022. We ~~issue~~issued our financial statements by filing them with the Securities and Exchange Commission and have evaluated subsequent events up to the time of the ~~filing.~~filing of this Quarterly Report on Form 10-Q.

All per-share amounts, unless otherwise noted in the footnotes, are presented on a diluted basis; that is, based on the weighted-average number of common shares outstanding plus the effect of incremental shares from our stock-based compensation programs, if dilutive.

We operate as a single operating segment engaged in the discovery, development, manufacturing, marketing, and sales of pharmaceutical products worldwide. A global research and development organization and a supply chain organization are responsible for the discovery, development, manufacturing, and supply of our products. Regional commercial organizations market, distribute, and sell the products. The business is also supported by global corporate staff functions. Our determination that we operate as a single segment is consistent with the financial information regularly reviewed by the chief operating decision maker for purposes of evaluating performance, allocating resources, setting incentive compensation targets, and planning and forecasting for future periods.

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

Research and development 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 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.

Reclassifications

Certain reclassifications have been made to prior periods in the consolidated condensed financial statements and accompanying notes to conform with the current presentation. ~~These reclassifications include $110.4 million that increased~~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 condensed 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 ~~increased~~ net cash used in investing activities of $418.3 million for ~~financing activities on~~ the ninemonths ended September 30, 2022.

Note 2: Revenue

The following table summarizes our revenue recognized in our consolidated condensed statements of ~~cash flows~~operations:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net product revenue	$	7,306.2	$	6,119.2	$	20,524.2	$	19,123.0
Collaboration and other revenue(1)	2,192.4		822.4		4,246.5		2,116.6
Revenue	$	9,498.6	$	6,941.6	$	24,770.7	$	21,239.6

(1) Collaboration and other revenue associated with prior period transfers of intellectual property was $31.3 million and $86.8 million during the three and nine months ended September 30, 2023, respectively, and $43.3 million and $130.9 million during the three and ninemonths ended September 30, 2022, respectively.

We recognize revenue primarily from two different types of contracts, product sales to customers (net product revenue) and collaborations and other arrangements. Revenue recognized from collaborations and other arrangements includes our share of profits from the collaborations, as well as royalties, upfront and milestone payments we receive under these types of contracts. See Note 4 for additional information related to our collaborations and other arrangements. Collaboration and other revenue disclosed above includes the revenue from the Jardiance® andTrajenta® 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.

Adjustments to Revenue

Adjustments to revenue recognized as a result of changes in estimates for our ~~adoption~~most significant United States (U.S.) sales returns, rebates, and discounts liability balances for products shipped in previous periods were 2 percent and 3 percent of U.S. revenue during the three months ended September 30, 2023 and 2022, respectively, and less than 1 percent of U.S. revenue during the nine months ended September 30, 2023 and 2022.

Contract Liabilities

Our contract liabilities result from arrangements where we have received payment in advance of performance under the contract and do not include sales returns, rebates, and discounts. Changes in contract liabilities are generally due to either receipt of additional advance payments or our performance under the contract.

The following table summarizes contract liability balances:


	September 30, 2023		December 31, 2022
Contract liabilities	$	200.7	$	219.2

During the three and nine months ended September 30, 2023 and 2022, revenue recognized from contract liabilities as of the beginning of the respective year was not material. Revenue expected to be recognized in the ~~fourth quarter~~future from contract liabilities as the related performance obligations are satisfied is not expected to be material in any one year.

Disaggregation of ~~2016 of Accounting Standards Update 2016-09,~~ ~~Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting~~ ~~as discussed in our Annual Report on Form 10-K~~Revenue

The following table summarizes revenue, including net product revenue and collaboration and other revenue, by product for the ~~year~~three months ended ~~December 31, 2016.~~September 30, 2023 and 2022:

~~All per-share amounts, unless otherwise noted in~~


	Three Months Ended September 30,
	2023						2022
	U.S.		Outside U.S.		Total		U.S.		Outside U.S.		Total

Diabetes:
Trulicity®	$	1,259.0	$	414.6	$	1,673.6	$	1,418.3	$	432.0	$	1,850.4
Mounjaro®	1,277.0		132.4		1,409.3		97.3		90.0		187.3
Jardiance(1)	415.9		284.8		700.8		350.9		222.4		573.3
Humalog® (2)	194.2		201.2		395.4		248.1		198.8		447.0
Humulin®	145.5		61.2		206.7		169.5		68.7		238.2
Basaglar® (3)	111.4		68.2		179.6		124.8		68.1		193.0
Baqsimi	3.8		9.3		13.1		35.2		7.8		43.0
Other diabetes	53.2		88.6		141.9		44.5		86.2		130.4
Total diabetes	3,460.0		1,260.3		4,720.4		2,488.6		1,174.0		3,662.6

Oncology:
Verzenio®	684.6		355.7		1,040.2		414.8		202.9		617.7
Cyramza®	88.0		136.1		224.1		87.5		144.6		232.1
Erbitux®	134.0		19.9		153.9		126.3		18.7		144.9
Alimta®	21.2		32.3		53.5		64.6		54.8		119.4
Other oncology	73.8		201.5		275.4		39.5		139.6		179.2
Total oncology	1,001.6		745.5		1,747.1		732.7		560.6		1,293.3

Immunology:
Taltz®	509.3		234.9		744.2		493.8		186.1		679.9
Olumiant® (4)	65.7		165.7		231.4		22.9		160.0		182.9
Other immunology	—		11.4		11.4		—		3.6		3.6
Total immunology	575.0		412.0		986.9		516.7		349.7		866.4

Neuroscience:
Zyprexa(5)	49.9		1,431.5		1,481.4		8.0		73.4		81.4
Emgality®	126.5		42.1		168.5		114.0		54.6		168.5
Other neuroscience	31.0		87.0		118.2		23.8		99.4		123.3
Total neuroscience	207.4		1,560.6		1,768.1		145.8		227.4		373.2


Other:
Forteo®	101.2		45.2		146.4		112.7		64.4		177.1
Cialis®	4.9		82.0		86.8		8.1		107.7		115.7
COVID-19 antibodies(6)	—		—		—		386.6		—		386.6
Other	18.0		24.8		42.9		30.9		35.7		66.6
Total other	124.1		152.0		276.1		538.3		207.8		746.0
Revenue	$	5,368.1	$	4,130.5	$	9,498.6	$	4,422.1	$	2,519.4	$	6,941.6

Numbers may not add due to rounding.

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

(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 rights for the ~~footnotes, are presented on a diluted basis,~~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.

The following table summarizes revenue, including net product revenue and collaboration and other revenue, by product for the nine months ended September 30, 2023 and 2022:


	Nine Months Ended September 30,
	2023						2022
	U.S.		Outside U.S.		Total		U.S.		Outside U.S.		Total

Diabetes:
Trulicity	$	4,177.7	$	1,285.6	$	5,463.2	$	4,162.4	$	1,341.1	$	5,503.5
Mounjaro	2,729.1		228.4		2,957.5		109.9		93.3		203.2
Jardiance(1)	1,131.5		815.1		1,946.6		831.4		622.4		1,453.7
Humalog(2)	695.6		601.2		1,296.8		855.8		656.4		1,512.3
Humulin	488.6		175.4		664.0		562.3		223.1		785.4
Baqsimi	633.1		25.4		658.4		79.5		21.7		101.2
Basaglar(3)	329.7		213.4		543.1		339.9		218.8		558.7
Other diabetes	131.1		260.7		392.0		116.1		254.8		371.0
Total diabetes	10,316.4		3,605.2		13,921.6		7,057.3		3,431.6		10,489.0

Oncology:
Verzenio	1,734.2		983.7		2,717.9		1,100.5		575.1		1,675.6
Cyramza	303.6		417.5		721.1		259.3		434.3		693.6
Erbitux	398.3		48.0		446.3		361.0		47.4		408.3
Alimta	59.2		113.5		172.6		490.5		200.5		691.1
Other oncology	194.7		521.4		716.2		124.1		422.3		546.4
Total oncology	2,690.0		2,084.1		4,774.1		2,335.4		1,679.6		4,015.0

Immunology:
Taltz	1,293.8		681.2		1,975.0		1,212.6		561.6		1,774.2
Olumiant(4)	158.8		520.4		679.2		104.6		520.1		624.7
Other immunology	—		39.0		39.0		0.1		12.1		12.1
Total immunology	1,452.6		1,240.6		2,693.2		1,317.3		1,093.8		2,411.0

Neuroscience:
Zyprexa(5)	69.1		1,581.9		1,651.0		26.2		235.5		261.7
Emgality	354.0		138.2		492.2		330.8		144.4		475.2
Other neuroscience	89.7		282.9		372.6		87.0		337.0		424.0
Total neuroscience	512.8		2,003.0		2,515.8		444.0		716.9		1,160.9

Other:
Forteo	269.2		147.6		416.8		261.4		191.7		453.0
Cialis	21.6		281.1		302.7		25.8		454.7		480.4
COVID-19 antibodies(6)	—		—		—		1,970.9		14.7		1,985.5
Other	73.0		73.4		146.5		119.4		125.1		244.8
Total other	363.8		502.1		866.0		2,377.5		786.2		3,163.7
Revenue	$	15,335.6	$	9,435.0	$	24,770.7	$	13,531.5	$	7,708.1	$	21,239.6

Numbers may not add due to rounding.

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

(2) Humalog revenue includes insulin lispro.

(3) Basaglar revenue includes Rezvoglar.

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

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

The following table summarizes revenue by geographical area:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenue(1):
U.S.	$	5,368.1	$	4,422.1	$	15,335.6	$	13,531.5
Europe	2,568.6		1,056.4		4,837.1		3,224.8
Japan	390.8		487.7		1,233.6		1,352.3
China	390.8		343.4		1,162.6		1,102.0
Other foreign countries	780.3		632.0		2,201.8		2,029.1
Revenue	$	9,498.6	$	6,941.6	$	24,770.7	$	21,239.6

Numbers may not add due to rounding.

(1) Revenue is attributed to the countries based on the ~~weighted-average number~~location of ~~outstanding common shares plus~~ the ~~effect of incremental shares from our stock-based compensation programs.~~

customer or other party.

~~Note 2: Implementation of New Financial Accounting Pronouncements~~

~~The following table provides a brief description of accounting standards that have not yet been adopted and could have a material effect on our financial statements:~~



~~Standard~~	~~Description~~	~~Effective Date~~	~~Effect on the financial statements or other significant matters~~
~~Accounting Standards Update 2014-09 and various other related updates,~~ ~~Revenue from Contracts with Customers~~	This standard will replace existing revenue recognition standards and will require entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity can apply the new revenue standard retrospectively to each prior reporting period presented or with the cumulative effect of initially applying the standard recognized at the date of initial application in retained earnings. We plan to use the latter approach.	~~This standard is effective January 1, 2018, and we will adopt on that date.~~	We are in the process of completing our evaluation of the impact of adopting the standard. We have identified two revenue streams from our contracts with customers: 1) product sales, which represented 96 percent of our 2016 consolidated revenue and 2) licensing and other arrangements, which represented 4 percent of our 2016 consolidated revenue. Our evaluation of our contracts for product sales is substantially complete and, based upon the results of our work to date we currently do not expect the application of the new standard to these contracts to have a material impact to our consolidated statements of operations or balance sheets either at initial implementation or on an ongoing basis. While we have completed most of our reviews of arrangements in which we have licensed or sold intellectual property, we are not yet able to estimate the anticipated impact to our consolidated financial statements from the application of the new standard to these arrangements as we continue to interpret and apply the principles in the new standard to our arrangements. ~~We are also evaluating the new disclosures required by the standard to determine what additional information will need to be disclosed.~~
~~Accounting Standards Update 2016-01,~~ ~~Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities~~	This standard will require entities to recognize changes in the fair value of equity investments with readily determinable fair values in net income (except for investments accounted for under the equity method of accounting or those that result in consolidation of the investee). An entity should apply the new standard through a cumulative effect adjustment to retained earnings as of the beginning of the fiscal year of adoption.	~~This standard is effective January 1, 2018, and we will adopt on that date.~~	~~We are unable to estimate the impact of adopting this standard as the significance of the impact will depend upon our equity investments as of the date of adoption.~~



~~Standard~~	~~Description~~	~~Effective Date~~	~~Effect on the financial statements or other significant matters~~
~~Accounting Standards Update 2016-02,~~ ~~Leases~~	This standard was issued to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities, including leases classified as operating leases under current GAAP, on the balance sheet and requiring additional disclosures about leasing arrangements. This standard requires a modified retrospective approach to adoption.	~~This standard is effective January 1, 2019, with early adoption permitted. We intend to adopt this standard on January 1, 2019.~~	~~We are in the process of determining the impact on our consolidated financial statements.~~
~~Accounting Standards Update 2016-16,~~ ~~Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory~~	~~This standard will require entities to recognize the income tax consequences of intra-entity transfers of assets other than inventory at the time of transfer. This standard requires a modified~~ ~~retrospective approach to adoption.~~	~~This standard is effective January 1, 2018, and we will adopt on that date.~~	We are continuing to assess the potential impact of this standard on our consolidated financial statements and currently estimate that the cumulative effect of initially applying the standard would result in an increase to deferred tax assets and the opening balance of retained earnings of approximately $2 billion on January 1, 2018. This estimate is subject to change based upon intra-entity transfers of assets other than inventory over the remainder of 2017 and ongoing assessments of the future deductibility and realizability of the deferred tax assets that would result from implementation.
~~Accounting Standards Update 2017-07,~~ ~~Compensation-Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~	This standard was issued to improve the transparency and comparability among organizations by requiring entities to separate their net periodic pension cost and net periodic postretirement benefit cost into a service cost component and other components. Currently, the costs of the other components along with the service cost component are classified based upon the function of the employee. This standard will require entities to classify the service cost component in the same financial statement line item or items as other compensation costs arising from services rendered by pertinent employees. The other components of net benefit cost will be presented separately from the line items that include the service cost component. When applicable, the service cost component will be the only component eligible for capitalization. An entity should apply the new standard retrospectively for the classification of the service cost and other components and prospectively for the capitalization of the service cost component.	~~This standard is effective January 1, 2018, and we will adopt this standard on that date.~~	Upon adoption of this standard, pension and postretirement benefit cost components other than service costs will be presented in other–net, (income) expense. We do not expect the application of the new standard to have a material impact on consolidated net income either at initial implementation or on an ongoing basis.

Note 3: Acquisitions

~~On January 3, 2017,~~We engage in various forms of business development activities to enhance our product pipeline, including acquisitions, collaborations, investments, and licensing arrangements. In connection with these arrangements, our partners may be entitled to future royalties and/or commercial milestones based on sales should products be approved for commercialization and/or milestones based on the successful progress of compounds through the development process.

In December 2022, we completed the acquisition of ~~Boehringer Ingelheim Vetmedica,~~Akouos, Inc.~~'s United States (U.S.) feline, canine, and rabies vaccine portfolio and other related assets (BIVIVP)~~ (Akouos). This transaction, as further discussed ~~in this note~~ below in Acquisition of a Business, was accounted for as a business combination under the acquisition method of accounting. Under this method, the assets acquired and liabilities assumed were recorded at their respective fair values as of the acquisition date in our consolidated condensed financial statements. The determination of estimated fair value required management to make significant estimates and assumptions. The excess of the purchase price over the fair value of the acquired net assets, where applicable, has been recorded as goodwill. The results of operations of this acquisition ~~are~~is included in our consolidated condensed financial statements from the date of acquisition.

~~In addition to the acquisition of a business, we~~We also acquired assets in development ~~in the nine months ended September 30, 2017,~~ which are further discussed ~~in this note~~ below in Asset Acquisitions. Upon each acquisition, the cost allocated to acquired ~~in-process research and development (IPR&D) charges related to these products were~~IPR&D was immediately expensed ~~because~~if the ~~products had~~compound has no alternative future use. ~~There were~~Milestone payment obligations incurred prior to regulatory approval of the compound are expensed as acquired IPR&D when the event triggering an obligation to pay the milestone occurs. We recognized acquired IPR&D charges of ~~$205.0 million~~$2.98 billion and ~~$1.06~~$3.18 billion for the three and nine months ended September 30, ~~2017, respectively. There were no acquired IPR&D charges~~2023, respectively, and $62.4 million and $668.4 million for the three and nine months ended September 30, ~~2016.~~

In October 2017, we entered into a global immuno-oncology collaboration agreement with CureVac AG (CureVac), to develop and commercialize up to five potential cancer vaccine products based on CureVac's proprietary RNActive^®technology. This transaction is subject to clearance under the Hart-Scott-Rodino Antitrust Improvements Act and other customary closing conditions. Subject to the closing of this transaction, CureVac will receive from us an initial payment of $50.0 million. CureVac will also be eligible to receive potential development and commercialization milestones, as well as tiered royalty payments based on future sales. We anticipate recording an acquired IPR&D charge of approximately $50 million upon the closing of the transaction.2022, respectively.

Acquisition of a Business

~~Boehringer Ingelheim Vetmedica, Inc. Vaccine Portfolio~~Akouos Acquisition

Overview of Transaction

WeIn December 2022, we acquired ~~BIVIVP~~all shares of Akouos for a purchase price that included $12.50 per share in cash (or an ~~all-cash transaction for $882.1 million.~~ aggregate of $327.2 million, net of cash acquired) plus one non-tradable contingent value right (CVR) per share. The CVR entitles the Akouos shareholders up to an additional $3.00 per share in cash (or an aggregate of approximately $122 million) payable, subject to certain terms and conditions, upon the achievement of certain specified milestones.

Under the terms of the agreement, we acquired potential gene therapy treatments for hearing loss and other inner ear conditions. The lead gene therapies in clinical development that we acquired included GJB2 (which encodes connexin 26) for a ~~manufacturing~~common form of monogenic deafness and ~~research~~hearing loss; AK-OTOF for hearing loss due to mutations in the otoferlin gene; AK-CLRN1 for Usher Type 3A, an autosomal recessive disorder characterized by progressive loss of both hearing and ~~development site, a U.S. vaccine portfolio, including vaccines used~~vision; and AK-antiVEGF for ~~the treatment of bordetella, Lyme disease, rabies, and parvovirus, among others.~~vestibular schwannoma.

Assets Acquired and Liabilities Assumed

Our access to ~~BIVIVP~~Akouos information was limited prior to the acquisition. As a consequence, we are in the process of determining ~~the~~ fair values and tax bases of a significant portion of the assets acquired and liabilities assumed, including the identification and valuation of intangible assets ~~inventory, property and equipment, accrued expenses,~~ 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 January 3, 2017
Inventories $ 108.6
Marketed products ⁽¹⁾
298.0
Property and equipment 148.2
Other assets and liabilities - net 5.2
Total identifiable net assets 560.0
Goodwill ⁽²⁾
322.1
Total consideration transferred - net of cash acquired $ 882.1


Estimated Fair Value at December 1, 2022
Cash	$	153.2
Acquired IPR&D(1)	184.0
Goodwill(2)	187.1

Other assets and liabilities, net	23.0
Acquisition date fair value of consideration transferred	547.3
Less:
Cash acquired	(153.2)
Fair value of CVR liability(3)	(66.9)
Cash paid, net of cash acquired	$	327.2

⁽¹⁾~~These intangible assets, which are being amortized~~Acquired IPR&D intangibles primarily relate to ~~cost of sales on a straight-line basis over their estimated useful lives, were expected to have a weighted average useful life of 10 years.~~GJB2.

⁽²⁾The goodwill recognized from this acquisition is attributable primarily to ~~expected synergies from combining the operations of BIVIVP with our legacy animal health business,~~ future unidentified projects and products and the assembled workforce ~~of BIVIVP. We anticipate that the goodwill associated with this acquisition will be~~for Akouos and is not deductible for tax purposes.

~~Our~~(3) See Note 6 for a discussion on the estimation of the CVR liability.

The results of operations attributable to Akouos for the three and nine months ended September 30, 2023 were immaterial.

Pro forma information has not been included as this acquisition did not have a material impact on our consolidated condensed ~~statement~~statements of operations for the three and nine months ended September 30, 2017, includes BIVIVP revenue of $61.2 million and $180.2 million, respectively. BIVIVP has been integrated into our animal health products segment and, as a result of these integration efforts, certain parts of the animal health business were operating on a combined basis during these periods, and we could not distinguish the operations between BIVIVP and our legacy animal health products business.2022.

Asset Acquisitions

The following table ~~and narrative~~ summarizes our significant asset acquisitions during the nine months ended September 30, ~~2017. There was no asset acquisition which resulted in acquired IPR&D expense during the nine months ended September 30, 2016.~~

2023 and 2022:

Counterparty Compound(s) or Therapy Acquisition Month
Phase of Development ⁽¹⁾
Acquired IPR&D Expense
CoLucid Pharmaceuticals, Inc. (CoLucid) Oral therapy for the acute treatment of migraine - lasmiditan March 2017 Phase III $ 857.6
KeyBioscience AG (KeyBioscience) Multiple molecules for treatment of metabolic disorders July 2017 Phase II $ 55.0
Nektar Therapeutics (Nektar) Immunological therapy - NKTR-358 August 2017 Phase I $ 150.0

Counterparty

Compound(s), Therapy or Asset

Acquisition Month

Phase of Development(1)

Acquired IPR&D Expense

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.

Priority Review Voucher

February 2022

Not applicable

110.0

⁽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.

In connection with our acquisition of Petra Pharma Corporation (Petra), we were required to make milestone payments to Petra shareholders contingent upon the ~~arrangements described herein, our partners may be entitled~~occurrence of certain future events linked to ~~future royalties and/or commercial milestones based on sales should these products be approved for commercialization and/or milestones based on~~ the ~~successful progress~~success of the ~~compounds through~~mutant-selective PI3Kα inhibitor. In the ~~development process.~~second quarter of 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 acquired IPR&D during the nine months ended September 30, 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 ~~lasmiditan by acquiring CoLucid. Under~~IPR&D charges during the ~~terms of the~~three and nine months ended September 30, 2023 and 2022.

Subsequent Events

In October 2023, we announced an agreement ~~we acquired all shares of CoLucid~~to acquire POINT Biopharma Global Inc. (POINT) for a ~~cash~~ purchase price of ~~$831.8 million, net~~$12.50 per share in cash (an aggregate of ~~cash acquired, plus net accrued liabilities assumed~~approximately $1.4 billion) payable at closing. The proposed acquisition is subject to customary closing conditions, including the tender of ~~$25.8 million. Substantially all~~a majority of the ~~value~~outstanding shares of ~~CoLucid was related to lasmiditan, its only significant asset. The acquired IPR&D expense is not tax deductible.~~

~~Our collaboration agreement with KeyBioscience provides us with access to KeyBioscience's Dual Amylin Calcitonin Receptor Agonists (DACRAs), a potential new class~~POINT's common stock, the receipt of treatments for metabolic disorders such as type 2 diabetes, along with multiple molecules. Prior to entering into the agreement, KeyBioscience had initiated Phase II development of the lead molecule. The other assets included in the collaboration rangerequired antitrust clearance, and license transfer approval from ~~pre-clinical to Phase I development. Under the terms of the agreement, we receive worldwide rights to develop and commercialize these molecules.~~

Our collaboration with Nektar is to co-develop Nektar's compound which has the potential to treat a number of autoimmune and other chronic inflammatory conditions. Under the terms of the agreement, we are responsible for all costs of global commercialization. Nektar will have an option to co-promote in the U.S. ~~under certain conditions.~~Nuclear Regulatory Commission.

Note 4: Collaborations and Other Arrangements

Collaborations and Other Similar 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 ~~and~~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. Elements within a collaboration are separated into individual units of accounting if they have standalone value from other elements within the arrangement. In these situations, the arrangement consideration is allocated to the elements on a relative selling price basis. Revenue related to products we sell pursuant to these arrangements are included in net product revenue, while other sources of revenue (e.g., royalties and profit-sharing due from our partner) are included in collaboration and other revenue.

~~The following table summarizes our collaboration and other revenue, which is included in revenue in the consolidated condensed statements of operations:~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Collaboration and other revenue $ 334.2
$ 216.5
$ 869.1
$ 607.3

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

Boehringer Ingelheim Diabetes Collaboration

We and Boehringer Ingelheim have a global agreement to jointly develop and commercialize a portfolio of diabetes compounds. Currently included in the collaboration are Boehringer ~~Ingelheim’s~~Ingelheim's oral diabetes products: Jardiance, Glyxambi, Synjardy, Trijardy XR, Trajenta,^™~~, Jentadueto~~^®~~, Jardiance~~^®~~, Glyxambi~~^®, and ~~Synjardy~~^Jentadueto®, as well as our basal ~~insulin:~~insulins, Basaglar^®.

~~The table below summarizes significant regulatory~~ and ~~commercialization events~~Rezvoglar. Glyxambi, Synjardy, and ~~milestones (deferred) capitalized for the compounds~~Trijardy XR are included in ~~this collaboration:~~

the Jardiance product family. Jentadueto is included in the Trajenta product family. Rezvoglar is included in the Basaglar product family.

Year Launched
Milestones
(Deferred) Capitalized ⁽¹⁾
Product Family U.S. Europe Japan Year Amount
Trajenta ⁽²⁾
2011 2011 2011
Cumulative ⁽⁴⁾- all prior to 2016
$ 446.4
Jardiance ⁽³⁾
2014 2014 2015
Cumulative ⁽⁴⁾- all prior to 2016
299.5
Basaglar 2016 2015 2015 2017 —
2016 (187.5 )

Cumulative ⁽⁴⁾
(250.0 )

⁽¹⁾In connection with the regulatory approvals of Jardiance, Trajenta, and Basaglar in the U.S., Europe, and Japan, milestone payments ~~received were recorded as deferred revenue~~made for Jardiance and ~~are being amortized through the term of the collaboration (2029) to collaboration and other revenue. In connection with the regulatory approvals of~~ Trajenta ~~and Jardiance, milestone payments made~~ were capitalized as intangible assets and are being amortized to cost of ~~sales.~~

⁽²⁾~~Jentadueto~~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 ~~included in~~determined based on the ~~Trajenta family~~latest to occur of ~~product results.~~

⁽³⁾~~Glyxambi and Synjardy~~(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 ~~included in~~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 the Basaglar product family as of ~~product results.~~September 30, 2023 and December 31, 2022:

⁽⁴⁾~~The cumulative amount~~


	Net Milestones Capitalized (Deferred)(1)
	September 30, 2023		December 31, 2022
Jardiance	$	101.3	$	116.2
Trajenta	45.0		63.5
Basaglar	(116.6)		(130.6)

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

InFor the ~~most significant markets,~~Jardiance product family, we and Boehringer Ingelheim generally share equally the ongoing development ~~costs,~~and commercialization costs ~~and agreed upon gross margin for any product resulting from~~in the ~~collaboration. We record our portion of the gross margin associated with Boehringer Ingelheim's compounds as collaboration~~most significant markets, and other revenue. We record our sales of Basaglar to third parties as net product revenue with the payments made to Boehringer Ingelheim for their portion of the gross margin recorded as cost of sales. For all compounds under this collaboration, we record our portion of the development and commercialization costs as research and development expense and marketing, selling, and administrative expense, respectively. ~~Each company~~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. Boehringer Ingelheim is entitled to potential performance payments depending on the net sales of the molecules it contributes to the collaboration. These performance payments result in the owner of the molecule retaining a greater share of the agreed upon gross margin of that product. Subject to achieving these thresholds, in a given period,Jardiance product family; therefore, our reported revenue for ~~Trajenta and~~ Jardiance may be reduced by any potential performance payments we make related to ~~these products. Similarly, performance payments we may receive~~this product family. 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 the Basaglar ~~effectively reduce Boehringer Ingelheim's share~~product family in the U.S. We record our sales of the ~~gross margin, which reduces our~~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 collaboration and other revenue recognized with respect to the ~~Trajenta~~Jardiance and ~~Jardiance~~Trajenta families of products and net product revenue recognized with respect to ~~Basaglar:~~

the Basaglar product family:


										Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended September 30,				Nine Months Ended September 30,					2023		2022		2023		2022
	2017		2016		2017		2016
Trajenta	$	153.3	$	115.4	$	408.2	$	330.8
Jardiance	127.2		47.5		304.3		125.8		Jardiance	$	700.8	$	573.3	$	1,946.6	$	1,453.7
Basaglar	145.7		19.4		278.3		46.6		Basaglar	179.6		193.0		543.1		558.7
Trajenta									Trajenta	95.2		103.8		284.7		293.0

~~Erbitux~~^®

We have several collaborations with respect to Erbitux. The most significant collaborations are or, where applicable, were in Japan, and prior to the transfer of commercialization rights in the fourth quarter of 2015, the U.S. and Canada (Bristol-Myers Squibb Company); and worldwide except the U.S. and Canada (Merck KGaA). Certain rights to Erbitux outside the U.S. and Canada (collectively, North America) will remain with Merck KGaA (Merck) upon expiration of that agreement.

~~The following table summarizes our revenue recognized with respect to Erbitux:~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Net product revenue $ 137.6
$ 155.9
$ 403.3
$ 455.8
Collaboration and other revenue 25.9
28.7
73.7
77.5
Revenue $ 163.5

$ 184.6

$ 477.0

$ 533.3

~~Bristol-Myers Squibb Company~~

Pursuant to commercial agreements with Bristol-Myers Squibb Company and E.R. Squibb (collectively, BMS), we had been co-developing Erbitux in North America exclusively with BMS. On October 1, 2015, BMS transferred their commercialization rights to us with respect to Erbitux in North America pursuant to a modification of our existing arrangement, and we began selling Erbitux at that time. This modification did not affect our rights with respect to Erbitux in other jurisdictions. In connection with the modification of terms, we provide consideration to BMS based upon a tiered percentage of net sales of Erbitux in North America estimated to average 38 percent through September 2018. The transfer of the commercialization rights was accounted for as an acquisition of a business. The consideration to be paid to BMS was accounted for as contingent consideration liability. See Note 6 for discussion regarding the estimation of this liability.

~~Merck KGaA~~

A development and license agreement grants Merck exclusive rights to market Erbitux outside of North America until December 2018. A separate agreement grants co-exclusive rights among Merck, BMS, and us in Japan and expires in 2032. This agreement was amended in 2015 to grant Merck exclusive commercialization rights in Japan but did not result in any changes to our rights.

Merck manufactures Erbitux for supply in its territory as well as for Japan. We receive a royalty on the sales of Erbitux outside of North America, which is included in collaboration and other revenue as the underlying sales occur. Royalties due to third parties are recorded as a reduction of collaboration and other revenue, net of any royalty reimbursements due from third parties.

~~Effient~~^®

We are in a collaborative arrangement with Daiichi Sankyo Co., Ltd. (Daiichi Sankyo) to develop, market, and promote Effient. Marketing rights for major territories are shown below. We and Daiichi Sankyo each have exclusive marketing rights in certain other territories.



~~Territory~~	~~Marketing Rights~~	~~Selling Party~~
~~U.S.~~	~~Co-promotion~~	~~Lilly~~
~~Major European markets~~	~~Co-promotion~~	~~Pre-January 1, 2016, Lilly~~ ~~Post-January 1, 2016, Daiichi Sankyo~~
~~Japan~~	~~Exclusive~~	~~Daiichi Sankyo~~

Beginning January 1, 2016, while major European markets continue to be a co-promotion territory under the terms of our arrangement, Daiichi Sankyo exclusively promotes Effient in these markets. The economic results for the major European markets continue to be shared in the same proportion as they were previously.

The parties share approximately 50/50 in the profits, as well as in the costs of development and marketing in the co-promotion territories. A third party manufactures bulk product, and we continue to produce the finished product for our exclusive and co-promotion territories, including the major European markets.

We record net product revenue in our exclusive and co-promotion territories where we are the selling party. Profit-share payments due to Daiichi Sankyo for co-promotion countries where we are the selling party are recorded as marketing, selling, and administrative expenses. Beginning January 1, 2016, any profit-share payments due to us from Daiichi Sankyo for the major European markets are recorded as collaboration and other revenue. We also record our share of the expenses in these co-promotion territories as marketing, selling, and administrative expenses. In our exclusive territories, we pay Daiichi Sankyo a royalty specific to these territories. All royalties due to Daiichi Sankyo and the third-party manufacturer are recorded in cost of sales. Generic versions of Effient launched in the U.S. in the third quarter of 2017.

~~The following table summarizes our revenue recognized with respect to Effient:~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Revenue $ 55.9
$ 127.7
$ 326.6
$ 394.3

Olumiant^®

We have a worldwide license and collaboration agreement with Incyte Corporation (Incyte), which provides us the development and commercialization rights to ~~its Janus tyrosine kinase inhibitor compound, now known~~baricitinib, which is branded and trademarked as ~~baricitinib (trade name Olumiant),~~Olumiant, and certain follow-on compounds, for the treatment of inflammatory and autoimmune ~~diseases.~~diseases and COVID-19. Incyte has the right to receive tiered, ~~double-digit~~double digit royalty payments on ~~future global~~worldwide net sales with rates ranging up to 20 ~~percent if~~percent. Incyte has the ~~product is successfully commercialized. The agreement provides Incyte with options~~right to ~~co-develop these compounds on~~receive an ~~indication-by-indication basis by funding 30 percent of the associated development costs from the initiation of a Phase IIb trial through regulatory approval in exchange for increased tiered royalties~~additional royalty ranging up to ~~percentages in~~ the ~~high twenties. Incyte exercised its option to co-develop Olumiant in rheumatoid arthritis in 2010 and psoriatic arthritis and atopic dermatitis in 2017.~~low teens on worldwide net sales for the treatment of COVID-19 that exceed a specified aggregate worldwide net sales threshold. The agreement calls for payments by us to Incyte associated with certain development, success-based regulatory, and sales-based milestones.

In ~~the first quarter of 2016, we incurred milestone-related expenses of $55.0 million in~~ connection with the regulatory ~~submissions~~approvals of Olumiant in the U.S., Europe, and ~~Europe, which~~Japan, as well as achievement of a sales-based milestone, milestone payments of $330.0 million were ~~recorded as research and development expense. We~~ capitalized as intangible assets ~~$65.0 million in the first quarter~~as of ~~2017~~September 30, 2023 and ~~$15.0 million in the third quarter of 2017 of milestones in connection with regulatory approvals in Europe~~December 31, 2022 and ~~Japan, respectively, which~~ are being amortized to cost of sales ~~over~~through the term of the collaboration. This represents the cumulative amounts that have been capitalized from the start of this collaboration through the end of each reporting period.

As of September 30, ~~2017,~~2023, Incyte is eligible to receive up to ~~$280.0~~$100.0 million of additional payments from us contingent upon certain development and success-based regulatory milestones, of which $100.0 million relates to the U.S. regulatory decision for a first indication. Incyte is also eligible to receive up to $150.0 million ofin 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:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Olumiant	$	231.4	$	182.9	$	679.2	$	624.7

~~Tanezumab~~COVID-19 Antibodies

We have a worldwide license and collaboration agreement with ~~Pfizer~~AbCellera Biologics Inc. ~~(Pfizer)~~(AbCellera) to ~~jointly develop and globally commercialize tanezumab~~co-develop therapeutic antibodies for the potential prevention and treatment of ~~osteoarthritis pain, chronic low back pain~~COVID-19, including bamlanivimab and ~~cancer pain. Under~~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 were recorded as cost of sales.

Pursuant to EUAs or similar regulatory authorizations, we recognized net product revenue associated with our sales of our COVID-19 antibodies of $386.6 million and $1.99 billion, primarily related to bebtelovimab, for the three and nine months ended September 30, 2022, respectively. We did not have sales of our COVID-19 antibodies during the three and nine months ended September 30, 2023.

Lebrikizumab

We have a worldwide license agreement with F. Hoffmann-La Roche Ltd and Genentech, Inc. (collectively, Roche), which provides us the ~~companies share equally~~worldwide development and commercialization rights to lebrikizumab. Roche has the ~~ongoing development costs and,~~right to receive tiered royalty payments on future worldwide net sales ranging in percentages from high single digits to high teens if ~~successful, in gross margins and certain commercialization expenses. Following~~ the U.S. Food and Drug Administration's (FDA's) decision in March 2015 to lift the partial clinical hold on tanezumab, certain Phase III trials resumed in July 2015. Upon the FDA's lifting of the partial clinical hold and the decision to continue the collaboration with Pfizer, we paid an upfront fee of $200.0 million, which was expensed as acquired IPR&D.product is successfully commercialized. As of September 30, ~~2017, Pfizer~~2023, Roche is eligible to receive up to ~~$350.0~~$160.0 million inof payments from us contingent upon the achievement of success-based regulatory milestones and up to ~~$1.23~~$1.03 billion in a series of sales-based milestones, contingent upon the commercial success of ~~tanezumab.~~

~~Lanabecestat~~lebrikizumab.

We have a ~~collaboration~~license agreement with ~~AstraZeneca~~Almirall, S.A. (Almirall), under which Almirall licensed the rights to develop and commercialize lebrikizumab for the ~~worldwide co-development and co-commercialization~~treatment or prevention of ~~AstraZeneca’s lanabecestat, an oral beta-secretase cleaving enzyme (BACE) inhibitor being investigated for~~dermatology indications, including, but not limited to, atopic dermatitis in Europe. We have the potential treatment of Alzheimer’s disease. We are responsible for leading development efforts, while AstraZeneca will be responsible for manufacturing efforts. If successful, both parties will take joint responsibility for commercialization. Underright to receive tiered royalty payments on future net sales in Europe ranging in percentages from low double digits to low twenties if the agreement, both parties share equally in the ongoing development costs and, if successful, in gross margins and certain other costs associated with commercialization of the molecule. As a result of the molecule moving into Phase III testing in April 2016, we incurred a $100.0 million developmental milestone, which was recorded as research and development expense in the second quarter of 2016. In July 2017, as a result of the outcome of an interim analysis, we incurred a $50.0 million developmental milestone, which was recorded as research and development expense in the third quarter of 2017.product is successfully commercialized. As of September 30, ~~2017, AstraZeneca is~~2023, we are eligible to receive ~~up to $300.0~~payments of $65.0 million ~~of additional payments~~ from usAlmirall contingent upon the achievement of ~~certain development and~~ success-based regulatory ~~milestones.~~milestones and up to $1.25 billion in a series of sales-based milestones, contingent upon the commercial success of lebrikizumab. During the three and nine months ended September 30, 2023 and 2022, collaboration and other revenue recognized under this license agreement was not material.

Divestitures

We periodically enter into arrangements to sell the rights of a product. We recognize the net gain or loss associated with the sale of rights of a product as collaboration and other revenue when control of the asset transfers to the other party.

We may be eligible to receive milestone payments contingent upon the occurrence of certain future events linked to the success of the divested product. Milestones are included in the transaction price only to the extent a significant reversal in the amount of revenue recognized is not probable of occurring when the uncertainties associated with the milestones are subsequently resolved.

We may enter into a supply arrangement as part of a divestiture of product rights. Our sale of product inventory under the supply agreement is recognized as 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.

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 September 30, 2023. We are eligible to receive milestone payments of up to $50.0 million, that have not been included in the transaction price as of September 30, 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 will recognize net product revenue over time as we manufacture the product.

During the three and nine months ended September 30, 2023, we recognized $1.42 billion in revenue primarily related to the net gain on the sale of rights for the olanzapine portfolio.

Baqsimi

In June 2023, we sold the rights for Baqsimito Amphastar Pharmaceuticals, Inc. (Amphastar). 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 September 30, 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 September 30, 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 will recognize net product revenue over time as we manufacture the product.

During the nine months ended September 30, 2023, we recognized $579.0 million in revenue primarily related to the net gain on the sale of rights for Baqsimi.

Note 5: Asset Impairment, Restructuring, and Other Special Charges

~~The components of the charges included in~~There were no asset impairment, restructuring, and other special charges ~~in our consolidated condensed statements of operations are described below.~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Severance:
Human pharmaceutical products $ 165.7
$ —
$ 277.1
$ —
Animal health products 5.8
8.3
62.1
37.0
Total severance 171.5
8.3
339.2
37.0
Asset impairment and other special charges:
Human pharmaceutical products 25.0
—
25.0
—
Animal health products 210.0
37.2
306.2
197.9
Total asset impairment and other special charges 235.0
37.2
331.2
197.9
Total asset impairment, restructuring, and other special charges $ 406.5
$ 45.5
$ 670.4
$ 234.9

Severance costs recognized during the three months ended September 30, 2017 were incurred as a result of actions taken to reduce our cost structure. Severance costs recognized during the nine months ended September 30, 2017 were incurred as a result of actions taken to reduce our cost structure, as well as the integration of Novartis Animal Health (Novartis AH). Severance costs recognized during the three and nine months ended September 30, ~~2016 related primarily to the integration~~2023.

We recognized $206.5 million of Novartis AH. Severance costs recognized during the nine months ended September 30, 2016 also related to our decision to close an animal health manufacturing plant in Ireland. Substantially all of the severance costs incurredasset impairment, restructuring, and other special charges during the three and nine months ended September 30, ~~2017 are expected~~2022, primarily related to ~~be paid~~an intangible asset impairment for GBA1 Gene Therapy, acquired in the ~~next 12 months.~~

~~Substantially all~~acquisition of Prevail Therapeutics Inc., as a result of changes in key assumptions used in the ~~asset impairment and other special charges related to animal health products recognized during the three months ended September 30, 2017 related to lower projected revenue for Posilac~~^® (rbST). The company is exploring strategic options for Posilac, including seeking a buyer for the molecule and its Augusta manufacturing site. The assets associated with Posilac were written down to their fair values, which were determined based upon a discounted cash flow valuation. The remaining book value of assets associated with Posilacsubsequent to the impairment charge are not material. Other asset impairment and other special charges recognized during the three months ended September 30, 2017 related to exit costs associated with site closures. Asset impairment and other special charges recognized during the nine months ended September 30, 2017 resulted primarily from charges associated with the Posilac impairment, integration costs of Novartis AH, as well as asset impairmentsvaluation due to site closures. Asset impairment and other special charges recognized during the three months ended September 30, 2016 related primarily to integration costs related to our acquisition of Novartis AH. Asset impairment and other special charges recognized during the nine months ended September 30, 2016 resulted primarily from $87.2 million of asset impairment and other charges related to our decision to close an animal health manufacturing plantdelays in ~~Ireland. The manufacturing plant was written down to its~~ estimated fair value, which was based primarily on recent sales of similar assets. The remaining asset impairment and other special charges recognized during the nine months ended September 30, 2016 consisted of integration costs related to our acquisition of Novartis AH.launch timing.

In September 2017, we announced plans to reduce our cost structure by streamlining our operations, including a U.S. voluntary early retirement program. In addition to the asset impairment, restructuring, and other special charges discussed above that were incurred during the three months ended September 30, 2017, we expect to incur additional charges of approximately $800 million in the fourth quarter of 2017 related to these plans. The fourth quarter charge could vary depending on the composition of participants within the U.S. voluntary early retirement program, as well as other actions taken to improve our cost structure.

Note 6: Financial Instruments

Investments in Equity and Debt Securities

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

•Investments in companies over which we have significant influence but not a controlling interest are accounted for using the equity method, with our share of earnings or losses reported in other-net, (income) expense.

•For equity investments that do not have readily determinable fair values, we measure these investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. Any change in recorded value is recorded in other-net, (income) expense.

•Our public equity investments are measured and carried at fair value. Any change in fair value is recognized in other-net, (income) expense.

We adjust our equity investments without readily determinable fair values based upon changes in the equity instruments' values resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. Downward adjustments resulting from an impairment are recorded based upon impairment considerations, including the financial condition and near-term prospects of the issuer, general market conditions, and industry specific factors. Adjustments recorded for the three and nine months ended September 30, 2023 and 2022 were not material.

The net losses recognized in our consolidated condensed statements of operations for equity securities were $62.9 million and $141.5 million for the three and nine months ended September 30, 2023, respectively, and $123.3 million and $667.6 million for the three and nine months ended September 30, 2022, respectively. The net gains (losses) recognized for the three and nine months ended September 30, 2023 and 2022 on equity securities sold during the respective periods were not material.

As of September 30, 2023, we had approximately $915 million of unfunded commitments to invest in venture capital funds, which we anticipate will be paid over a period of up to 10 years.

We record our available-for-sale debt securities at fair value, with changes in fair value reported as a component of accumulated other comprehensive income (loss). We periodically assess our investment in available-for-sale securities for impairment losses and credit losses. The amount of credit losses are determined by comparing the difference between the present value of future cash flows expected to be collected on these securities and the amortized cost. Factors considered in assessing credit losses include the position in the capital structure, vintage and amount of collateral, delinquency rates, current credit support, and geographic concentration. Impairment and credit losses related to available-for-sale securities were not material for the three and nine months ended September 30, 2023 and 2022.

The table below summarizes the contractual maturities of our investments in debt securities measured at fair value as of September 30, 2023:


	Maturities by Period
	Total		Less Than 1 Year		1-5 Years		6-10 Years		More Than 10 Years
Fair value of debt securities	$	628.3	$	88.2	$	201.6	$	109.4	$	229.1

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


	September 30, 2023		December 31, 2022
Unrealized gross gains	$	0.1	$	0.6
Unrealized gross losses	59.7		49.2
Fair value of securities in an unrealized gain position	30.4		46.8
Fair value of securities in an unrealized loss position	559.6		568.7

As of September 30, 2023, the available-for-sale securities in an unrealized loss position include primarily fixed-rate debt securities of varying maturities, which are sensitive to changes in the yield curve and other market conditions. Approximately 99 percent of the fixed-rate debt securities in a loss position are investment-grade debt securities. As of September 30, 2023, we do not intend to sell, and it is not more likely than not that we will be required to sell, the securities in a loss position before the market values recover or the underlying cash flows have been received, and there is no indication of a material default on interest or principal payments for our debt securities.

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Proceeds from sales	$	60.0	$	50.5	$	121.8	$	115.6
Realized gross gains on sales	0.3		—		0.6		0.2
Realized gross losses on sales	1.9		7.5		3.6		9.0

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

Fair Value of Investments

The following table summarizes certain fair value information at September 30, 2023 and December 31, 2022 for investment assets measured at fair value on a recurring basis, as well as the carrying amount and amortized cost of certain other investments:


					Fair Value Measurements Using
	Carrying Amount		Cost(1)		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
September 30, 2023
Cash equivalents(2)	$	1,201.4	$	1,201.4	$	1,196.5	$	4.9	$	—	$	1,201.4

Short-term investments:
U.S. government and agency securities	$	30.2	$	30.6	$	30.2	$	—	$	—	$	30.2
Corporate debt securities	57.4		57.7		—		57.4		—		57.4

Asset-backed securities	0.6		0.6		—		0.6		—		0.6
Other securities	24.9		24.9		—		11.0		13.9		24.9

Short-term investments	$	113.1

Noncurrent investments:
U.S. government and agency securities	$	139.3	$	160.0	$	139.3	$	—	$	—	$	139.3

Corporate debt securities	198.6		222.3		—		198.6		—		198.6
Mortgage-backed securities	144.9		161.9		—		144.9		—		144.9
Asset-backed securities	57.2		59.5		—		57.2		—		57.2
Other securities	171.1		77.0		—		6.2		164.9		171.1
Marketable equity securities	532.0		443.2		532.0		—		—		532.0
Equity investments without readily determinable fair values(3)	531.4
Equity method investments(3)	917.2
Noncurrent investments	$	2,691.7

December 31, 2022
Cash equivalents(2)	$	657.4	$	657.4	$	650.4	$	7.0	$	—	$	657.4

Short-term investments:
U.S. government and agency securities	$	30.8	$	31.1	$	30.8	$	—	$	—	$	30.8
Corporate debt securities	53.4		53.5		—		53.4		—		53.4

Asset-backed securities	2.0		2.0		—		2.0		—		2.0
Other securities	58.6		58.6		—		39.1		19.5		58.6

Short-term investments	$	144.8

Noncurrent investments:
U.S. government and agency securities	$	146.4	$	163.2	$	146.4	$	—	$	—	$	146.4
Corporate debt securities	213.9		235.8		—		213.9		—		213.9
Mortgage-backed securities	149.2		161.5		—		149.2		—		149.2
Asset-backed securities	50.6		52.5		—		50.6		—		50.6
Other securities	398.6		34.5		—		311.0		87.6		398.6
Marketable equity securities	683.6		484.7		683.6		—		—		683.6
Equity investments without readily determinable fair values(3)	478.4
Equity method investments(3)	781.1
Noncurrent investments	$	2,901.8

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

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

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

We determine our Level 1 and Level 2 fair value measurements based on a market approach using quoted market values, significant other observable inputs for identical or comparable assets or liabilities, or discounted cash flow analyses. Level 3 fair value measurements for other investment securities are determined using unobservable inputs, including the investments' cost adjusted for impairments and price changes from orderly transactions. Fair values are not readily available for certain equity investments measured under the measurement alternative.

Debt

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 2023, we renewed our $4.00 billion 364-day credit facility, which will expire in September 2024 and is available to support our commercial paper program. We have not drawn against the $4.00 billion 364-day facility as of September 30, 2023.

Fair Value of Debt

The following table summarizes certain fair value information at September 30, 2023 and December 31, 2022 for our short-term and long-term debt:


			Fair Value Measurements Using
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
Short-term commercial paper borrowings
September 30, 2023	$	(1,594.9)	$	—	$	(1,592.5)	$	—	$	(1,592.5)
December 31, 2022	(1,498.0)		—		(1,492.0)		—		(1,492.0)
Long-term debt, including current portion
September 30, 2023	$	(18,573.4)	$	—	$	(15,412.6)	$	—	$	(15,412.6)
December 31, 2022	(14,740.6)		—		(12,329.3)		—		(12,329.3)

Risk Management and Related Financial Instruments

Financial instruments that potentially subject us to credit risk consist principally of trade receivables and interest-bearing investments. Wholesale distributors of ~~life-science~~life science products account for a substantial portion of our trade receivables; collateral is generally not required. ~~The~~We seek to mitigate the risk associated with this concentration ~~is mitigated by~~through our ongoing credit-review procedures and insurance. ~~A large portion~~The majority of our cash is held by a few major financial ~~institutions.~~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. ~~Major financial institutions represent the largest component of our investments in corporate debt securities.~~ In accordance with documented corporate risk-management policies, we monitor the amount of credit exposure to any one financial institution or corporate ~~issuer.~~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 ~~any~~significant counterparties to fail to meet their obligations given their ~~high~~investment grade credit ratings.

We have entered into accounts receivable factoring agreements with financial institutions to sell certain of our non-U.S. accounts receivable. These transactions are accounted for as sales and result in a reduction in accounts receivable because the agreements transfer effective control over, and risk related to, the receivables to the buyers. Our factoring agreements do not allow for recourse in the event of uncollectibility, and we do not retain any interest in the underlying accounts receivable once sold. We derecognized $403.8 million and $422.1 million of accounts receivable as of September 30, 2023 and December 31, 2022, respectively, under these factoring arrangements. The costs of factoring such accounts receivable were not material for the three and nine months ended September 30, 2023 and 2022.

Our derivative activities are initiated within the guidelines of documented corporate risk-management policies and are intended to offset losses and gains on the assets, liabilities, and transactions being hedged. Management reviews the correlation and effectiveness of our derivatives on a quarterly basis.

For derivative instruments that are designated and qualify as fair value hedges, the derivative instrument is marked to market, with gains and losses recognized currently in income to offset the respective losses and gains recognized on the underlying exposure. For derivative instruments that are designated and qualify as cash flow hedges, ~~the effective portion of~~ gains and losses isare reported as a component of accumulated other comprehensive ~~loss~~income (loss) (see Note 10) and reclassified into earnings in the same period the hedged transaction affects earnings. For derivative and non-derivative instruments that are designated and qualify as net investment hedges, the ~~effective portion of~~ foreign currency translation gains or losses due to spot rate fluctuations are reported as a component of accumulated other comprehensive ~~loss. Hedge ineffectiveness is immediately recognized in earnings.~~income (loss) (see Note 10). Derivative contracts that are not designated as hedging instruments are recorded at fair value with the gain or loss recognized in ~~current~~ 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 ~~the Japanese yen)~~Swiss franc). Foreign currency derivatives used for hedging are put in place using the same or like currencies and duration as the underlying exposures. Forward and option contracts are principally used to manage exposures arising from subsidiary trade and loan payables and receivables denominated in foreign currencies. These contracts are recorded at fair value with the gain or loss recognized in other–net, (income) expense. ~~We may enter into foreign currency forward and option contracts and currency swaps as fair value hedges of firm commitments.~~ Forward contracts generally have maturities not exceeding 12 months. At September 30, ~~2017,~~2023, we had outstanding foreign currency forward commitments to purchase 502.9 million U.S. dollars and sell 422.1 million euro, commitments to purchase 735.7 million euro and sell 878.1 million U.S. dollars, commitments to purchase 428.4 million U.S. dollars and sell 47.90 billion Japanese yen, commitments to purchase 295.9 million British pounds and sell 334.8 million euro, and commitments to purchase 287.3 million U.S. dollars and sell 212.2 million British pounds,as follows, all of which ~~will all settle~~have settlement dates within ~~30 days.~~180 days:

September 30, 2023

Purchase

Sell

Currency

Amount
(in millions)

Currency

Amount
(in millions)

Euro

5,774.2

U.S. dollars

6,170.9

U.S. dollars

3,420.4

Euro

3,224.2

U.S. dollars

240.0

Chinese yuan

1,736.5

British pounds

185.7

U.S. dollars

229.7

U.S. dollars

200.2

Japanese yen

29,626.8

Foreign currency exchange risk is also managed through the use of foreign currency debt, ~~and~~ cross-currency interest rate ~~swaps.~~swaps, and foreign currency forward contracts. Our foreign currency-denominated notes had carrying amounts of ~~$3.67~~$6.74 billion and ~~$3.34~~$6.83 billion as of September 30, ~~2017~~2023 and December 31, ~~2016,~~2022, respectively, of which $5.38 billion and $5.45 billion have been designated as, and are effective as, economic hedges of net investments in certain of our ~~euro-denominated~~foreign operations as of September 30, 2023 and December 31, 2022, respectively. At September 30, 2023, we had outstanding cross-currency swaps with notional amounts of $1.01 billion swapping U.S. dollars to euro and $1.00 billion swapping Swiss ~~franc-denominated foreign operations.~~francs to U.S. dollars which have settlement dates ranging through 2028. Our cross-currency interest rate swaps, ~~that~~for which a majority convert a portion of our U.S. dollar-denominated ~~floating rate~~fixed-rate debt to ~~euro-denominated floating rate~~foreign-denominated fixed-rate debt, have also been designated as, and are effective as, economic hedges of net ~~investments in certain~~investments. At September 30, 2023, we had outstanding foreign currency forward contracts to sell 5.23 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 ~~our euro-denominated foreign operations.~~net investments.

In the normal course of business, our operations are exposed to fluctuations in interest rates which can vary the costs of financing, investing, and operating. We seek to address a portion of these risks through a controlled program of risk management that includes the use of derivative financial instruments. The objective of controlling these risks is to limit the impact of fluctuations in interest rates on earnings. Our primary interest-rate risk exposure results from changes in short-term U.S. dollar interest rates. In an effort to manage interest-rate exposures, we strive to achieve an acceptable balance between fixed- and floating-rate debt and investment positions and may enter into interest rate swaps or collars to help maintain that balance.

Interest rate swaps or collars that convert our fixed-rate debt to a floating rate are designated as fair value hedges of the underlying instruments. Interest rate swaps or collars that convert floating-rate debt to a fixed rate are designated as cash flow hedges. Interest expense on the debt is adjusted to include the payments made or received under the swap agreements. Cash proceeds from or payments to counterparties resulting from the termination of interest rate swaps are classified as operating activities in our consolidated condensed statements of cash flows. At September 30, ~~2017, substantially~~2023, all of our total long-term debt is at a fixed rate. We have converted approximately 3012 percent of our long-term fixed-rate notes to floating rates through the use of interest rate swaps.

We may enter into forward contracts and designate them as cash flow hedges to limit the potential volatility of earnings and cash flow associated with forecasted sales of available-for-sale securities.

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. ~~Upon completion of a debt issuance and termination of the swap, the~~The change in fair value of these instruments is recorded as part of other comprehensive income (loss) (see Note 10) and, upon completion of a debt issuance and termination of the swap, is amortized to interest expense over the life of the underlying debt.

~~In May 2017, we issued $750.0 million~~ As of ~~2.35 percent fixed-rate notes due~~September 30, 2023, the total notional amounts of forward-starting interest rate contracts in May 2022, $750.0 million of 3.10 percent fixed-rate notes due in May 2027, and $750.0 million of 3.95 percent fixed-rate notes due in May 2047, with interest to be paid semi-annually. We are using the net proceeds of $2.23designated cash flow hedging instruments were $1.00 billion, ~~from the sale of these notes for general corporate purposes,~~ which ~~may include the repayment of notes due in 2018 and 2019. Prior to such uses, we may temporarily invest the net proceeds in investment securities.~~

In May 2016, we issued Swiss franc-denominated notes consisting of Fr.200.0 million of 0.00 percent fixed-rate notes due in May 2018, Fr.600.0 million of 0.15 percent fixed-rate notes due in May 2024, and Fr.400.0 million of 0.45 percent fixed-rate notes due in May 2028, with interest to be paid annually. We are using the net cash proceeds of the offering of $1.21 billion for general corporate purposes, which included the repayment at maturity of certain of our U.S. dollar denominated fixed-rate notes due March 2017.

have settlement dates ranging through 2025.

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

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


	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,				Nine Months Ended September 30,
	2017			2016			2017			2016				2023		2022		2023		2022
Fair value hedges:													Fair value hedges:
Effect from hedged fixed-rate debt	$	(4.0	)	$	(18.8	)	$	3.6		$	92.4		Effect from hedged fixed-rate debt	$	(29.9)	$	(62.9)	$	(29.0)	$	(215.7)
Effect from interest rate contracts	4.0			18.8			(3.6		)	(92.4		)	Effect from interest rate contracts	29.9		62.9		29.0		215.7
Cash flow hedges:													Cash flow hedges:
Effective portion of losses on interest rate contracts reclassified from accumulated other comprehensive loss	3.7			3.8			11.1			11.2			Effective portion of losses on interest rate contracts reclassified from accumulated other comprehensive loss	3.2		4.1		10.3		12.3
Cross-currency interest rate swaps													Cross-currency interest rate swaps	24.7		33.1		(5.3)		75.0
Net losses on foreign currency exchange contracts not designated as hedging instruments	16.3			1.4			79.2			105.6			Net losses on foreign currency exchange contracts not designated as hedging instruments	201.0		129.6		177.8		280.7
Total													Total	$	228.9	$	166.8	$	182.8	$	368.0

During the three and nine months ended September 30, ~~2017~~2023 and ~~2016, net losses related to ineffectiveness, as well as net~~2022, the amortization of losses related to the portion of our ~~risk-management~~risk management hedging instruments, fair value hedges, and cash flow hedges that ~~were~~was excluded from the assessment of effectiveness ~~were~~was not material.

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

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


	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,				Nine Months Ended September 30,
	2017			2016			2017			2016				2023		2022		2023		2022
Net investment hedges:													Net investment hedges:
Foreign currency-denominated notes	$	(58.7	)	$	(37.0	)	$	(332.0	)	$	(80.0	)	Foreign currency-denominated notes	$	183.5	$	435.1	$	62.3	$	822.8
Cross-currency interest rate swaps	(38.2		)	(4.1		)	(95.8		)	2.2			Cross-currency interest rate swaps	28.6		92.1		9.0		171.4
Foreign currency exchange contracts	—			—			—			31.9
Foreign currency forward contracts													Foreign currency forward contracts	217.7		107.8		199.3		121.4
Cash flow hedges:													Cash flow hedges:
Forward-starting interest rate swaps	—			—			13.0			(3.4		)	Forward-starting interest rate swaps	84.3		57.5		141.4		337.7
Cross-currency interest rate swaps													Cross-currency interest rate swaps	16.4		19.9		30.5		38.4

During the next 12 months, we expect to reclassify ~~$14.7~~$13.1 million of pretax net losses on cash flow hedges from accumulated other comprehensive loss to other–net, (income) expense. During the three and nine months ended September 30, 2023 and 2022, the amounts excluded from the assessment of hedge effectiveness recognized in other comprehensive income (loss) were not material.

Fair Value of ~~Financial~~Risk-Management Instruments

The following ~~tables summarize~~table summarizes certain fair value information at September 30, ~~2017~~2023 and December 31, ~~2016~~2022 for risk management assets and liabilities measured at fair value on a recurring ~~basis, as well as the carrying amount and amortized cost of certain other investments:~~basis:


			Fair Value Measurements Using
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
September 30, 2023
Risk-management instruments:
Interest rate contracts designated as fair value hedges:


Other current liabilities	$	(5.6)	$	—	$	(5.6)	$	—	$	(5.6)
Other noncurrent liabilities	(157.7)		—		(157.7)		—		(157.7)


Interest rate contracts designated as cash flow hedges:
Other noncurrent assets	346.2		—		346.2		—		346.2

Cross-currency interest rate contracts designated as net investment hedges:
Other receivables	71.3		—		71.3		—		71.3



Cross-currency interest rate contracts designated as cash flow hedges:
Other receivables	58.3		—		58.3		—		58.3
Other noncurrent assets	30.7		—		30.7		—		30.7

Foreign exchange contracts designated as net investment hedges:
Other receivables	106.0		—		106.0		—		106.0

Foreign exchange contracts not designated as hedging instruments:
Other receivables	32.9		—		32.9		—		32.9
Other current liabilities	(100.5)		—		(100.5)		—		(100.5)


Contingent consideration liabilities:
Other current liabilities	(39.0)		—		—		(39.0)		(39.0)
Other noncurrent liabilities	(63.9)		—		—		(63.9)		(63.9)

Fair Value Measurements Using

Carrying
Amount

Cost ⁽¹⁾

Quoted Prices in Active Markets for Identical Assets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Fair
Value
September 30, 2017
Cash equivalents $ 2,066.7
$ 2,066.7
$ 1,611.0
$ 455.7
$ —
$ 2,066.7

Short-term investments:
U.S. government and agency securities $ 742.2
$ 742.7
$ 742.2
$ —
$ —
$ 742.2
Corporate debt securities 2,322.9
2,322.4
—
2,322.9
—
2,322.9
Asset-backed securities 149.8
149.8
—
149.8
—
149.8
Other securities 3.9
3.9
—
3.9
—
3.9
Short-term investments $ 3,218.8

Noncurrent investments:
U.S. government and agency securities $ 411.7
$ 415.3
$ 411.7
$ —
$ —
$ 411.7
Corporate debt securities 3,913.2
3,903.8
—
3,913.2
—
3,913.2
Mortgage-backed securities 165.1
166.0
—
165.1
—
165.1
Asset-backed securities 638.8
639.2
—
638.8
—
638.8
Other securities 130.7
75.5
—
—
130.7
130.7
Marketable equity securities 344.7
127.5
344.7
—
—
344.7
Cost and equity method investments ⁽²⁾
544.5

Noncurrent investments $ 6,148.7

December 31, 2016
Cash equivalents $ 2,986.8
$ 2,986.8
$ 2,699.4
$ 287.4
$ —
$ 2,986.8

Short-term investments:
U.S. government and agency securities $ 232.5
$ 232.6
$ 232.5
$ —
$ —
$ 232.5
Corporate debt securities 1,219.2
1,219.1
—
1,219.2
—
1,219.2
Asset-backed securities 4.3
4.3
—
4.3
—
4.3
Other securities 0.5
0.5
—
0.5
—
0.5
Short-term investments $ 1,456.5

Noncurrent investments:
U.S. government and agency securities $ 318.9
$ 323.8
$ 318.9
$ —
$ —
$ 318.9
Corporate debt securities 3,062.2
3,074.3
—
3,062.2
—
3,062.2
Mortgage-backed securities 183.1
185.4
—
183.1
—
183.1
Asset-backed securities 502.7
503.5
—
502.7
—
502.7
Other securities 153.7
77.6
—
—
153.7
153.7
Marketable equity securities 418.2
91.9
418.2
—
—
418.2
Cost and equity method investments ⁽²⁾
568.7

Noncurrent investments $ 5,207.5


			Fair Value Measurements Using
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
December 31, 2022
Risk-management instruments:
Interest rate contracts designated as fair value hedges:



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	246.0		—		246.0		—		246.0

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

Foreign exchange contracts designated as hedging instruments:
Other current liabilities	(38.3)		—		(38.3)		—		(38.3)
Foreign exchange contracts not designated as hedging instruments:
Other receivables	26.6		—		26.6		—		26.6
Other current liabilities	(21.5)		—		(21.5)		—		(21.5)
Contingent consideration liabilities:
Other current liabilities	(39.5)		—		—		(39.5)		(39.5)
Other noncurrent liabilities	(70.6)		—		—		(70.6)		(70.6)

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

⁽²⁾~~Fair value disclosures are not applicable for cost method and equity method investments.~~

Fair Value Measurements Using

Carrying
Amount

Quoted Prices in Active Markets for Identical Assets
(Level 1)

Significant
Other Observable Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Fair
Value
Short-term commercial paper borrowings
September 30, 2017 $ (2,526.0 ) $ —
$ (2,523.7 ) $ —
$ (2,523.7 )
December 31, 2016 (1,299.3 ) —
(1,299.3 ) —
(1,299.3 )
Long-term debt, including current portion
September 30, 2017 $ (10,938.7 ) $ —
$ (11,448.4 ) $ —
$ (11,448.4 )
December 31, 2016 (9,005.9 ) —
(9,419.1 ) —
(9,419.1 )

Fair Value Measurements Using

Carrying
Amount

Quoted Prices in Active Markets for Identical Assets
(Level 1)

Significant
Other Observable Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Fair
Value
September 30, 2017
Risk-management instruments:
Interest rate contracts designated as fair value hedges:
Other receivables $ 2.0
$ —
$ 2.0
$ —
$ 2.0
Sundry 43.0
—
43.0
—
43.0
Other current liabilities (0.4 ) —
(0.4 ) —
(0.4 )
Other noncurrent liabilities (1.8 ) —
(1.8 ) —
(1.8 )
Cross-currency interest rate contracts designated as net investment hedges:
Other current liabilities (43.4 ) —
(43.4 ) —
(43.4 )
Other noncurrent liabilities (20.5 ) —
(20.5 ) —
(20.5 )
Foreign exchange contracts not designated as hedging instruments:
Other receivables 21.0
—
21.0
—
21.0
Other current liabilities (13.9 ) —
(13.9 ) —
(13.9 )
Contingent consideration liabilities ⁽¹⁾:

Other current liabilities (201.8 ) —
—
(201.8 ) (201.8 )
Other noncurrent liabilities (92.2 ) —
—
(92.2 ) (92.2 )

December 31, 2016
Risk-management instruments:
Interest rate contracts designated as fair value hedges:
Other receivables $ 2.4
$ —
$ 2.4
$ —
$ 2.4
Sundry 37.0
—
37.0
—
37.0
Other noncurrent liabilities (0.5 ) —
(0.5 ) —
(0.5 )
Cross-currency interest rate contracts designated as net investment hedges:
Sundry 31.4
—
31.4
—
31.4
Foreign exchange contracts not designated as hedging instruments:
Other receivables 31.8
—
31.8
—
31.8
Other current liabilities (21.7 ) —
(21.7 ) —
(21.7 )
Contingent consideration liabilities ⁽¹⁾:

Other current liabilities (215.9 ) —
—
(215.9 ) (215.9 )
Other noncurrent liabilities (242.6 ) —
—
(242.6 ) (242.6 )

⁽¹⁾~~Contingent consideration liabilities primarily relate to the Erbitux arrangement with BMS discussed in Note 4.~~

Risk-management instruments above are disclosed on a gross basis. There are various rights of setoff associated with certain of the risk-management instruments above that are subject to an enforceable master netting ~~arrangement~~arrangements or similar agreements. 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.

~~We determine~~Contingent consideration liabilities relate to our ~~Level 1 and Level 2 fair value measurements based on~~liabilities arising in connection with the CVRs issued as a market approach using quoted market values, significant other observable inputs for identical or comparable assets or liabilities, or discounted cash flow analyses. Level 3 fair value measurements for other investment securities are determined using unobservable inputs, including the investments' cost adjusted for impairments and price changes from orderly transactions.result of acquisitions of businesses. The fair values of ~~cost and equity method investments are not readily available.~~

~~Contingent consideration~~the CVR liabilities ~~primarily include contingent consideration related to Erbitux, for which the fair value was~~were estimated using a discounted cash flow analysis and Level 3 inputs, including projections representative of a market ~~participant~~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 ~~net sales in North America through September 2018~~the compounds, and an estimated discount rate. The amount to be paid is calculated as a tiered percentage of net sales (see Note 4) and will, therefore, vary directly with increases and decreases in net sales of Erbitux in North America. There is no cap on the amount that may be paid pursuant to this arrangement. The decrease in the fair value of the contingent consideration liabilities during the nine months ended September 30, 2017 was due primarily to cash payments of $151.3 million related to Erbitux. The change in the fair value of the contingent consideration liabilities recognized in earnings during the three and nine months ended September 30, 2017 and 2016 due to changes in time value of money was not material.rates.

~~The table below summarizes the contractual maturities of our investments in debt securities measured at fair value as of September 30, 2017:~~

Maturities by Period
Total
Less Than
1 Year

1-5
Years

6-10
Years

More Than
10 Years
Fair value of debt securities $ 8,343.7
$ 3,214.9
$ 4,795.2
$ 122.4
$ 211.2

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

September 30, 2017 December 31, 2016
Unrealized gross gains $ 259.7
$ 352.6
Unrealized gross losses 27.2
34.1
Fair value of securities in an unrealized gain position 3,400.7
1,869.7
Fair value of securities in an unrealized loss position 4,013.9
3,262.3

We periodically assess our investment securities for other-than-temporary impairment losses. There were no other-than-temporary impairment losses in the three and nine months ended September 30, 2017. Other-than-temporary impairment losses recognized during the three and nine months ended September 30, 2016~~were $11.4 million and $53.0 million, respectively.~~

For fixed-income securities, the amount of credit losses are determined by comparing the difference between the present value of future cash flows expected to be collected on these securities and the amortized cost. Factors considered in assessing credit losses include the position in the capital structure, vintage and amount of collateral, delinquency rates, current credit support, and geographic concentration.

For equity securities, factors considered in assessing other-than-temporary impairment losses include the length of time and the extent to which the fair value has been less than cost, the financial condition and near term prospects of the issuer, our intent and ability to retain the securities for a period of time sufficient to allow for recovery in fair value, and general market conditions and industry specific factors.

As of September 30, 2017, the securities in an unrealized loss position include primarily fixed-rate debt securities of varying maturities, which are sensitive to changes in the yield curve and other market conditions. Approximately 95 percent of the fixed-rate debt securities in a loss position are investment-grade debt securities. As of September 30, 2017, we do not intend to sell, and it is not more likely than not that we will be required to sell the securities in a loss position before the market values recover or the underlying cash flows have been received, and there is no indication of default on interest or principal payments for any of our debt securities.

~~Activity related to our investment portfolio, substantially all of which related to available-for-sale securities, was as follows:~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Proceeds from sales $ 951.5
$ 926.3
$ 3,003.0
$ 2,503.4
Realized gross gains on sales 9.0
12.8
82.9
18.0
Realized gross losses on sales 0.8
1.3
3.2
11.7

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

~~Accounts Receivable Factoring Arrangements~~

We have entered into accounts receivable factoring agreements with financial institutions to sell certain of our non-U.S. accounts receivable. These transactions are accounted for as sales and result in a reduction in accounts receivable because the agreements transfer effective control over and risk related to the receivables to the buyers. Our factoring agreements do not allow for recourse in the event of uncollectibility, and we do not retain any interest in the underlying accounts receivable once sold. We derecognized $678.9 million and $661.6 million of accounts receivable as of September 30, 2017 and December 31, 2016, respectively, under these factoring arrangements. The cost of factoring such accounts receivable on our consolidated condensed results of operations for the nine months ended September 30, 2017 and 2016 was not material.

Note 7: ~~Shareholders’ Equity~~

During the nine months ended September 30, 2017 and 2016, we repurchased $259.9 million and $300.1 million of shares, respectively, associated with our $5.00 billion share repurchase program announced in October 2013. A payment of $60.0 million was made in the fourth quarter of 2016 for shares repurchased in 2017. As of September 30, 2017, there were $2.15 billion of shares remaining in that program.

~~Note 8:~~ Income Taxes

The effective tax rates were ~~6.1~~113.4 percent and ~~24.1~~24.6 percent for the three and nine months ended September 30, ~~2017,~~2023, respectively, ~~compared with 19.9 percent and 20.8 percent for~~primarily driven by the ~~same respective periods of 2016. The decrease~~non-deductible acquired IPR&D charges in ~~the effective tax rate for~~ the third quarter of ~~2017 is primarily due to~~2023. The effective tax rates were 7.3 percent and 8.6 percent for the ~~income~~three and nine months ended September 30, 2022, respectively, reflecting the favorable tax ~~benefit~~impacts of ~~acquired IPR&D charges~~net investment losses on equity securities and an intangible asset impairment ~~restructuring,~~charge.

At September 30, 2023 and December 31, 2022, prepaid expenses and other ~~special charges. The increase in the effective tax rate for the first nine months~~current assets included prepaid taxes of ~~2017 is primarily due to the non-tax deductible $857.6 million acquired IPR&D charge for the acquisition of CoLucid, partially offset by the income tax benefit of acquired IPR&D charges~~$4.08 billion and ~~asset impairment, restructuring, and other special charges.~~$2.37 billion, respectively.

During the first quarter of 2016, we completed and effectively settled the U.S. examination of tax years 2010-2012. As a result of this resolution, our gross uncertain tax positions were reduced by approximately $140 million, and our consolidated condensed results of operations benefited from an immaterial reduction in income tax expense. During 2016, we made cash payments of approximately $150 million related to tax years 2010-2012 after application of available tax credit carryforwards and carrybacks. The U.S. examination of tax years ~~2013-2015~~2016-2018 began in ~~2016~~2019 and remains ongoing. While it is ~~ongoing. The resolution~~reasonably possible that the Internal Revenue Service (IRS) examination of ~~matters in this audit period will likely extend beyond~~these tax years could conclude within the next 12 ~~months.~~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 IRS commenced its examination of tax years 2019-2021 during the third quarter of 2023.

Note 9:8: Retirement Benefits

Net pension and retiree health ~~benefit (income)~~(benefit) cost included the following components:


														Defined Benefit Pension Plans
	Defined Benefit Pension Plans													Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended September 30,						Nine Months Ended September 30,							2023		2022		2023		2022
	2017			2016			2017			2016
Components of net periodic benefit cost:
Components of net periodic cost:													Components of net periodic cost:
Service cost	$	86.0		$	70.2		$	251.6		$	212.2		Service cost	$	72.5	$	87.1	$	217.8	$	264.4
Interest cost	103.6			104.2			309.2			314.4			Interest cost	162.3		98.9		486.0		299.0
Expected return on plan assets	(196.4		)	(187.6		)	(585.7		)	(566.7		)	Expected return on plan assets	(264.0)		(235.1)		(791.5)		(711.6)
Amortization of prior service cost	1.4			2.9			4.3			8.6			Amortization of prior service cost	0.6		0.6		1.8		1.9
Recognized actuarial loss	72.5			71.0			215.6			213.4			Recognized actuarial loss	30.6		85.3		91.5		256.8
Net periodic benefit cost	$	67.1		$	60.7		$	195.0		$	181.9

Net periodic cost													Net periodic cost	$	2.0	$	36.8	$	5.6	$	110.5


	Retiree Health Benefit Plans
	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Components of net periodic benefit:
Service cost	$	7.9	$	11.7	$	23.8	$	35.0
Interest cost	15.3		9.4		46.0		28.4
Expected return on plan assets	(45.5)		(38.0)		(136.6)		(114.1)
Amortization of prior service benefit	(13.3)		(13.7)		(39.7)		(41.1)
Recognized actuarial (gain) loss	(1.5)		0.2		(4.4)		0.7

Net periodic benefit	$	(37.1)	$	(30.4)	$	(110.9)	$	(91.1)

Retiree Health Benefit Plans
Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Components of net periodic benefit income:
Service cost $ 11.6
$ 9.7
$ 34.8
$ 29.3
Interest cost 13.2
13.0
39.6
39.0
Expected return on plan assets (40.2 ) (37.6 ) (120.6 ) (112.7 )
Amortization of prior service benefit (22.5 ) (21.5 ) (67.5 ) (64.3 )
Recognized actuarial loss 4.6
5.2
13.8
15.5
Net periodic benefit income $ (33.3 ) $ (31.2 ) $ (99.9 ) $ (93.2 )

We have contributed approximately $30 million required to satisfy minimum funding requirements to our defined benefit pension and retiree health benefit plans during the nine months ended September 30, 2017. Additional discretionary funding in the aggregate was not material during the nine months ended September 30, 2017. During the remainder of 2017, we expect to make contributions to our defined benefit pension and retiree health benefit plans of approximately $10 million to satisfy minimum funding requirements. No additional discretionary funding for the remainder of 2017 has been approved at this time.

Note ~~10:~~9: Contingencies

We are ~~a party to~~involved in various lawsuits, claims, government investigations and other legal ~~actions~~proceedings that arise in the ordinary course of business. 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 ~~government investigations.~~marketing practices, environmental, commercial, contractual rights, licensing obligations, health and safety matters, consumer fraud, employment matters, product liability and insurance coverage, among others. The ~~most significant~~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 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 ~~except as noted below with respect to the Alimta~~^® ~~patent litigation and administrative proceedings,~~ 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.

~~Alimta Patent~~ Litigation accruals, environmental liabilities, and ~~Administrative Proceedings~~

~~A number of generic manufacturers~~the related estimated insurance recoverables are ~~seeking approvals in various countries to market generic forms of Alimta prior~~reflected on a gross basis as liabilities and assets, respectively, on our consolidated balance sheets. With respect to the ~~expiration of~~product liability claims currently asserted against us, we have accrued for our vitamin regimen patents, alleging that those patents are invalid, not infringed, or both. We believe our Alimta vitamin regimen patents are valid and enforceable against these generic manufacturers. However, it is not possible to determine the ultimate outcome of the proceedings, and accordingly, we can provide no assurance that we will prevail. An unfavorable outcome could have a material adverse impact on our future consolidated results of operations, liquidity, and financial position. We expect that a loss of exclusivity for Alimta would result in a rapid and severe decline in future revenue for the product in the relevant market.

~~U.S. Patent Litigation and Administrative Proceedings~~

We are engaged in various U.S. patent litigation matters involving Alimta brought pursuant to procedures set out in the Drug Price Competition and Patent Term Restoration Act of 1984 (the Hatch-Waxman Act). More than 10 Abbreviated New Drug Applications (ANDAs) seeking approval to market generic versions of Alimta priorestimated exposures to the ~~expiration of our vitamin regimen patent (expiring in 2021 plus pediatric exclusivity expiring in 2022) have been filed by a number of companies, including Teva Parenteral Medicines, Inc. (Teva)~~extent they are both probable and ~~APP Pharmaceuticals, LLC (APP). These companies have also alleged the patent is invalid.~~

In October 2010, we filed a lawsuit in the U.S. District Court for the Southern District of Indiana against Teva, APP and two other defendants seeking rulings that the U.S. vitamin regimen patent is valid and infringed (the Teva/APP litigation). A trial occurred in August 2013; the sole issue before the district court at that time was to determine patent validity. In March 2014, the district court ruled that the asserted claims of the vitamin regimen patent are valid. The U.S. District Court for the Southern District of Indiana held a hearing on the issue of infringement in May 2015. In September 2015, the district court ruled that the vitamin regimen patent would be infringed by the generic challengers' proposed products. Teva and APP appealed all of the district court’s substantive decisions. In January 2017, the U.S. Court of Appeals for the Federal Circuit affirmed the district court’s decisions concerning validity and infringement. The defendants did not file for writ of certiorari with the U.S. Supreme Court, making the Court of Appeal's decision final.

From 2012 through 2017, we filed similar lawsuits against other ANDA defendants seeking a ruling that our patents are valid and infringed. As a result of the completion of the Teva/APP litigation, the U.S. District Court for the Southern District of Indiana has entered a judgment against five companies. Cases remain pending against an additional six ANDA defendants.

We have filed lawsuits in the U.S. District Court for the Southern District of Indiana alleging infringement against Dr. Reddy's Laboratories (Dr. Reddy's), Hospira, Inc. (Hospira), Apotex, and Actavis LLC in response to their alternative forms of pemetrexed products. In November 2017, the court is expected to hold a hearing on a motion for summary judgment filed by Dr. Reddy's. If that motion is denied, trial is expected in early 2018. We have also filed a lawsuit against Eagle Pharmaceuticals (Eagle) in the U.S. District Court for Delaware. Eagle has filed suit against us in U.S. District Court of New Jersey alleging violations of federal competition law relating to its application for an alternative salt form of pemetrexed (the active ingredient in Alimta).

~~In June 2016, the U.S. Patent and Trademark Office (USPTO) granted petitions by Neptune Generics, LLC and Sandoz Inc. seeking~~ ~~inter partes~~review (IPR) of our vitamin regimen patent. Several additional generic companies filed petitions and joined these proceedings. In October 2017, the USPTO ruled in our favor, finding that the claims of the vitamin regimen patent are valid. The generic companies which filed petitions with the USPTO may appeal these rulings to the U.S. Court of Appeals for the Federal Circuit.

~~European Patent Litigation and Administrative Proceedings~~

In the United Kingdom (U.K.), Actavis Group ehf and other Actavis companies (collectively, Actavis) filed litigation asking for a declaratory judgment that commercialization of certain salt forms of pemetrexed would not infringe the vitamin regimen patents for Alimta in the U.K., Italy, France, and Spain. In trial court and court of appeal decisions, the alternative salt forms were found to indirectly infringe the Alimta vitamin regimen patent when reconstituted in saline, but not to directly infringe the patents as an equivalent. We appealed. In July 2017, the U.K. Supreme Court ruled that Actavis’s products directly infringe our vitamin regimen patents in the U.K., Italy, France, and Spain. The U.K. Supreme Court also affirmed an earlier finding by the U.K. Court of Appeal that the Alimta vitamin regimen

~~patent would be indirectly infringed by commercialization of Actavis’s products diluted in saline. We intend to pursue Actavis and others that launched at risk for damages.~~

Actavis sought a declaration of non-infringement from the U.K. High Court for a different proposed product diluted in dextrose solution. In February 2016, the trial court ruled that Actavis’ commercialization of this product would not infringe the patent in the U.K., Italy, France, and Spain. We are still seeking to appeal this ruling for procedural purposes, although it has now been superseded by the U.K. Supreme Court's recent decision.

We commenced separate infringement proceedings against certain Actavis companies in Germany. In April 2014, the German trial court ruled in our favor. The defendants appealed and the German Court of Appeal overturned the trial court and ruled that our vitamin regimen patent in Germany would not be infringed by a dipotassium salt form of pemetrexed. In June 2016, the German Federal Supreme Court granted our appeal, vacating the prior decision denying infringement, and returned the case to the German Court of Appeal to reconsider issues relating to infringement.

In separate proceedings, in May 2016 and June 2016, the German courts confirmed preliminary injunctions against Hexal AG (Hexal), which had stated its intention to launch a generic disodium salt product diluted in saline solution, and ratiopharm GmbH (ratiopharm), a subsidiary of Teva, which had stated its intention to launch a proposed alternative salt form of pemetrexed product diluted in dextrose solution. The German Court of Appeal affirmed the preliminary injunction against ratiopharm in May 2017. The preliminary injunctions against both Hexal and ratiopharm will remain in place pending the outcome of the cases on the merits.

In late 2016, the German courts issued preliminary injunctions against two other companies that had stated their intentions to launch a proposed alternative salt form of pemetrexed product diluted in dextrose solution.

~~Hexal and Stada Arzneimittel AG have separately challenged the validity of our vitamin regimen patent before the German Federal Patent court. The hearing will take place in mid-2018.~~

We do not anticipate any generic entry into the German market at least until the German Court of Appeal considers the issues remanded by the German Federal Supreme Court in the proceedings against Actavis, or if the injunctions are lifted.

Additional legal proceedings are ongoing in various national courts of other European countries. We are aware that generic competitors have received approval to market generic versions of pemetrexed in major European markets, and that a generic product is currently on the market in at least one major European market. In light of the U.K. Supreme Court's judgment finding infringement in the U.K., Italy, France, and Spain, Actavis has withdrawn its previously launched-at-risk generic products from these markets. We will continue to seek to remove any generic pemetrexed products launched at risk in other European markets.

~~Japanese Administrative Proceedings~~

Three separate sets of demands for invalidation of our two vitamin regimen patents, involving several companies, were filed with the Japanese Patent Office (JPO). In November 2015, the JPO issued written decisions in the invalidation trials initiated by Sawai Pharmaceutical Co., Ltd. (Sawai), which had been joined by three other companies, upholding both vitamin regimen patents. In February 2017, the Japan Intellectual Property High Court confirmed the decisions of the JPO and ruled in our favor in the invalidation trials initiated by Sawai. The Japan Intellectual Property High Court’s decisions regarding the demands initiated by Sawai are now final. In May 2017, the JPO resumed one of the two remaining sets of demands, brought by Nipro Corporation. We expect a decision from the JPO on those demands in the first half of 2018. The other set of demands, brought by Hospira and Hospira Japan remain suspended. If upheld through all challenges, these patents provide intellectual property protection for Alimta until June 2021.

Notwithstanding our patents, generic versions of Alimta were approved in Japan starting in February 2016. We do not currently anticipate that generic versions of Alimta will proceed to pricing approval.

~~Effient Patent Litigation and Administrative Proceedings~~

We, along with Daiichi Sankyo, Daiichi Sankyo, Inc., and Ube Industries (Ube) are engaged in U.S. patent litigation involving Effient brought pursuant to procedures set out in the Hatch-Waxman Act. More than 10 different companies have submitted ANDAs seeking approval to market generic versions of Effient prior to the expiration of Daiichi Sankyo’s and Ube’s patents (expiring in 2023) covering methods of using Effient with aspirin, and alleging the patents are invalid. One of these ANDAs also alleged that the compound patent for Effient (which expired in April 2017) was invalid. Beginning in March 2014, we filed lawsuits in the U.S. District Court for the Southern District of Indiana against these companies, seeking a ruling that the patents are valid and infringed. Following the

settlement related to the compound patent challenge, generic products launched in the U.S. in the third quarter of 2017. The remaining cases have been consolidated and stayed. The entry of generic competition has caused a rapid and severe decline in revenue for the product.

In 2015, several generic pharmaceutical companies filed petitions with the USPTO, requesting IPR of the method-of-use patents. In September 2016, the USPTO determined that the method-of-use patents are invalid. Daiichi Sankyo and Ube have appealed these decisions to the U.S. Court of Appeals for the Federal Circuit. We expect a final decision in late 2017. The consolidated lawsuit is currently stayed with respect to all parties pending the outcome of this appeal.

We believe the Effient method-of-use patents are valid and enforceable against these generic manufacturers. However, it is not possible to determine the outcome of the proceedings, and accordingly, we can provide no assurance that we will prevail.

~~Actos~~^® ~~Product Liability Litigation~~

We were named along with Takeda Chemical Industries, Ltd. and Takeda affiliates (collectively, Takeda) as a defendant in approximately 6,700 product liability cases in the U.S. related to the diabetes medication Actos, which we co-promoted with Takeda in the U.S. from 1999 until 2006. In general, plaintiffs in these actions alleged that Actos caused or contributed to their bladder cancer. Almost all of these cases were included as part of a resolution program announced by Takeda in April 2015 in which Takeda agreed to pay approximately $2.4 billion to resolve the vast majority of the U.S. product liability lawsuits involving Actos. Although the vast majority of U.S. product liability lawsuits involving Actos are included in the resolution program, there may be additional cases pending against Takeda and us following completion of the resolution program.

~~We are also named along with Takeda as a defendant in three purported product liability class actions in Canada related to Actos, including one in Ontario (Casseres et al. v. Takeda Pharmaceutical North America, Inc., et al. and Carrier et al. v. Eli Lilly et al.), one in Quebec (Whyte et al. v. Eli Lilly et al.), and one in Alberta (Epp v. Takeda Canada et al.). We promoted Actos in Canada until 2009.~~

~~We believe these lawsuits are without merit, and we and Takeda are prepared to defend against them vigorously.~~

~~Cymbalta~~^® ~~Product Liability Litigation~~

~~In October 2012, we were named as a defendant in a purported class-action lawsuit in the U.S. District Court for the Central District of California (now called~~ ~~Strafford et al. v. Eli Lilly and Company~~) involving Cymbalta. The plaintiffs, purporting to represent a class of all persons within the U.S. who purchased and/or paid for Cymbalta, asserted claims under the consumer protection statutes of four states, California, Massachusetts, Missouri, and New York, and sought declaratory, injunctive, and monetary relief for various alleged economic injuries arising from discontinuing treatment with Cymbalta. In December 2014, the district court denied the plaintiffs' motion for class certification. Plaintiffs filed a petition with the U.S. Court of Appeals for the Ninth Circuit requesting permission to file an interlocutory appeal of the denial of class certification, which was denied. Plaintiffs filed a second motion for certification under the consumer protection acts of New York and Massachusetts. The district court denied that motion for class certification in July 2015. The district court dismissed the suits and plaintiffs appealed to the U.S. Court of Appeals for the Ninth Circuit. In June 2017, we moved to dismiss the appeal for lack of jurisdictionreasonably estimable based on the ~~U.S. Supreme Court's recent decision in~~ ~~Microsoft v. Baker. In October 2017, the U.S. Court of Appeals~~information available to us. We accrue for ~~the Ninth Circuit granted our motion.~~

~~We are~~named in approximately 140 lawsuits involving approximately 1,470 plaintiffs filed in various federal and state courts alleging injuries arising from discontinuation of treatment with Cymbalta. These include approximately 40 individual and multi-plaintiff cases filed in California state court, centralized in a California Judicial Counsel Coordination Proceeding pending in Los Angeles. The first individualcertain product liability ~~cases were tried in August 2015~~claims incurred but not filed to the extent we can formulate a reasonable estimate of their costs. We estimate these expenses based primarily on historical claims experience and ~~resulted in~~data regarding product usage. Legal defense ~~verdicts against approximately five~~plaintiffs. We believe all these Cymbalta lawsuits and claims are without merit. We have reached a settlement framework which provides for a comprehensive resolution of nearly all of these personal injury claims, filed or unfiled, alleging injuries from discontinuing treatment with Cymbalta. There can be no assurances, however, that a final settlement will be reached.

~~Brazil–Employee Litigation~~

Our subsidiary in Brazil, Eli Lilly do Brasil Limitada (Lilly Brasil), is named in a lawsuit brought by the Labor Attorney for 15th Region in the Labor Court of Paulinia, State of Sao Paulo, Brazil, alleging possible harm to employees and former employees caused by exposure to heavy metals at a former Lilly manufacturing facility in Cosmopolis, Brazil, operated by the company between 1977 and 2003. The plaintiffs allege that some employees at the facility were

exposed to benzene and heavy metals; however, Lilly Brasil maintains that these alleged contaminants were never used in the facility. In May 2014, the labor court judge ruled against Lilly Brasil. The judge's ruling orders Lilly Brasil to undertake several actions of unspecified financial impact, including paying lifetime medical insurance for the employees and contractors who worked at the Cosmopolis facility more than six months during the affected years and their children born during and after this period. While we cannot currently estimate the range of reasonably possible financial losses that could arise in the event we do not ultimately prevail in the litigation, the judge has estimated the total financial impact of the rulingcosts expected to be ~~approximately 1.0 billion Brazilian real (approximately $315 million as of September 30, 2017) plus interest. We strongly disagree~~incurred in connection with ~~the decision~~significant product liability loss contingencies are accrued when both probable and ~~filed an appeal in May 2014. We expect a ruling on this appeal before the end of the year.~~

~~We are also named in approximately 40 lawsuits filed in the same court by individual former employees making similar claims.~~

Lilly Brasil and Elanco Quimica Ltda. have also been named in a lawsuit in 15th Region in the Labor Court of Paulinia, State of Sao Paulo, involving approximately 305 individuals alleging that the companies failed to provide warnings regarding exposure to heavy metals or proper equipment at the former Cosmopolis facility, and that this alleged failure could result in possible harm to employees, former employees, and their dependents. In June 2017, the court denied the plaintiffs' request for a preliminary injunction. In September 2017, the court dismissed all claims except the one filed by the first named plaintiff. The other plaintiffs have filed a motion for clarification, which may lead to the filing of an appeal.

~~We believe all of these lawsuits are without merit and are prepared to defend against them vigorously.~~

~~Product Liability Insurance~~reasonably estimable.

Because of the nature of pharmaceutical products, it is possible that we could become subject to large numbers of additional product liability and related claims in the future. Due to a very restrictive market for ~~product~~litigation liability insurance, we are self-insured for ~~product~~litigation liability losses for all our currently and previously marketed products.

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

We are a named defendant in litigation filed by Teva Pharmaceuticals International GMBH and Teva Pharmaceuticals USA, Inc. (collectively, Teva) in the U.S. District Court for the District of Massachusetts seeking a ruling that various claims in three different Teva patents would be infringed by our launch and continued sales of Emgality for the prevention of migraine in adults.

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

In June 2021, we were named as a defendant in a second litigation filed by Teva in the U.S. District Court for the District of Massachusetts seeking a ruling that two of Teva's patents, which are directed toward use of the active ingredient in Emgality to treat migraine, would be infringed by our continued sales of Emgality. We challenged these two patents by filing requests for Inter Partes Review with the Patent Trial and Appeal Board (PTAB) and in October 2022, the PTAB granted our requests. In September 2023, the PTAB issued decisions finding all claims of both patents invalid. Teva may appeal the decision. 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 are invalid or would not be infringed. We are not a party to this litigation. This matter is ongoing.

Environmental Proceedings

Under the Comprehensive Environmental Response, Compensation, and Liability Act, commonly known as "Superfund," we have been designated as one of several potentially responsible parties with respect to the cleanup of fewer than 10 sites. Under Superfund, each responsible party may be jointly and severally liable for the entire amount of the cleanup.

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 (Painters et al. v. Takeda et al.). 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. This matter is ongoing. Actos is a registered trademark of Takeda Pharmaceutical Company Limited.

340B Litigation and Investigations

We are the plaintiff in a lawsuit filed in January 2021 in the U.S. District Court for the Southern District of Indiana against the U.S. Department of Health and Human Services (HHS), the Secretary of HHS, the Health Resources and Services Administration (HRSA), and the Administrator of HRSA. The lawsuit challenges HHS's December 30, 2020 advisory opinion stating that drug manufacturers are required to deliver discounts under the 340B program to all contract pharmacies and HHS's Administrative Dispute Resolution regulations. We seek a declaratory judgment that the defendants violated the Administrative Procedure Act and the U.S. Constitution, a preliminary injunction enjoining implementation of the administrative dispute resolution process created by defendants and, with it, their application of the advisory opinion, and other related relief. 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 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 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 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 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. Both parties filed notices of appeal related to the court's summary judgment order. In October 2022, the U.S. Court of Appeals for the Seventh Circuit held oral argument. This matter is ongoing.

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. As described above, the U.S. 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 (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, 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.

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. We are cooperating with this subpoena.

Branchburg Manufacturing Facility

In May 2021, we received a subpoena from the U.S. Department of Justice requesting the production of certain documents relating to our manufacturing site in Branchburg, New Jersey. We are cooperating with the subpoena.

Brazil Litigation – Cosmopolis Facility

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 1.24 billion Brazilian reais (approximately $247 million as of September 30, 2023). 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; 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. A mediation hearing is scheduled for November 2023.

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 in June 2021 was limited in scope and the security was reduced to 100 million Brazilian reais (approximately $20 million as of September 30, 2023). 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 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. These individual lawsuits are at various stages in the litigation process.

Puerto Rico Tax Matter

In May 2013, the Municipality of Carolina in Puerto Rico (Municipality) filed a lawsuit against us alleging noncompliance with respect to a contract with the Municipality and seeking a declaratory judgment. In December 2020, the Puerto Rico Appellate Court (AP) reversed the summary judgment previously granted by the Court of First Instance (CFI) in our favor, dismissing the Municipality's complaint in its entirety. The AP remanded the case to the CFI for trial on the merits. The trial began in May 2022; 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. The AP denied the Municipality's motion for revision. This matter is ongoing and trial is expected to resume in mid-2024.

Average Manufacturer Price Litigation

In November 2014, we, along with another pharmaceutical manufacturer, were named as co-defendants in United States et al. ex rel. Streck v. Takeda Pharm. Am., Inc., et al., which was filed in November 2014 and unsealed in the U.S. District Court for the Northern District of Illinois. The complaint alleges that the defendants should have treated certain credits from distributors as retroactive price increases and included such increases in calculating average manufacturer prices. Following a trial in August 2022, the jury returned a verdict in favor of the plaintiff. Lilly filed its notice of appeal to the Seventh Circuit in June 2023. This matter is ongoing.

Health Choice Alliance

We are named as a defendant in two lawsuits filed in Texas and New Jersey state courts in October 2019 seeking damages under the Texas Medicaid Fraud Prevention Act and New Jersey Medicaid False Claims Act, respectively, for certain patient support programs related to our products Humalog, Humulin, and Forteo. The Texas state court action has been stayed. The New Jersey state court action was dismissed with prejudice pending an ongoing appeal before the Appellate Division of the New Jersey Superior Court. Oral argument before the Appellate Division in the New Jersey state court action is scheduled to take place in November 2023. This matter is ongoing.

Pricing Litigation

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 from 2017 through 2023 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.

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. Department of Justice, and the U.S. Federal Trade Commission, as well as information requests from the Mississippi, Washington D.C., California, Florida, Hawaii, and Nevada Attorney General Offices. In May 2023, Lilly entered into a non-monetary settlement agreement with the New York Attorney General's office that resolved all matters related to New York's insulin pricing subpoena.

In January 2022, the Michigan Attorney General filed a petition in Michigan state court seeking authorization to investigate Lilly for potential violations of the Michigan Consumer Protection Act (MCPA), and a complaint seeking a declaratory judgment that the Attorney General has authority to investigate Lilly's sale of insulin under the MCPA. The court authorized the proposed investigation and the issuance of civil investigative subpoenas. In April 2022, the parties entered into a stipulation providing that the State of Michigan will not issue any civil investigative subpoena to us under the MCPA until the declaratory judgment action is resolved. In July 2022, the court dismissed the case in its entirety. 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 we opposed in September 2023.

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.

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

Research Corporation Technologies, Inc.

In April 2016, we were named as a defendant in litigation filed by Research Corporation Technologies, Inc. (RCT) in the U.S. District Court for the District of Arizona. 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 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, which the court denied. A trial date has not been set. Potential damages payable under the litigation, if finally awarded after an appeal, could be material but are not currently reasonably estimable. This matter is ongoing.

Note ~~11:~~10: Other Comprehensive Income (Loss)

The following tables summarize the activity related to each component of other comprehensive income (loss) during the three months ended September 30, ~~2017~~2023 and ~~2016:~~

2022:


(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		Defined Benefit Pension and Retiree Health Benefit Plans		Net Unrealized Gains (Losses) on Cash Flow Hedges		Accumulated Other Comprehensive Loss
Balance at July 1, 2017	$	(1,349.4	)	$	153.2		$	(3,348.5	)	$	(197.6	)	$	(4,742.3	)
Balance at July 1, 2023																Balance at July 1, 2023	$	(1,885.3)	$	(33.5)	$	(2,058.8)	$	188.9	$	(3,788.7)

Other comprehensive income (loss) before reclassifications	135.8			33.9			(28.7		)	—			141.0			Other comprehensive income (loss) before reclassifications	(88.7)		(13.5)		10.5		79.6		(12.1)
Net amount reclassified from accumulated other comprehensive loss	8.1			(23.9		)	40.1			2.4			26.7			Net amount reclassified from accumulated other comprehensive loss	—		1.4		13.0		1.5		15.9
Net other comprehensive income (loss)	143.9			10.0			11.4			2.4			167.7			Net other comprehensive income (loss)	(88.7)		(12.1)		23.5		81.1		3.8

Balance at September 30, 2017 ⁽²⁾	$	(1,205.5	)	$	163.2		$	(3,337.1	)	$	(195.2	)	$	(4,574.6	)
Balance at September 30, 2023																Balance at September 30, 2023	$	(1,974.0)	$	(45.6)	$	(2,035.3)	$	270.0	$	(3,784.9)



(Amounts presented net of taxes)	Foreign Currency Translation Gains (Losses)		Net Unrealized Gains (Losses) on Available-For-Sale Securities		Defined Benefit Pension and Retiree Health Benefit Plans		Net Unrealized Gains (Losses) on Cash Flow Hedges		Accumulated Other Comprehensive Loss
Balance at July 1, 2022	$	(1,844.2)	$	(27.9)	$	(2,443.2)	$	27.6	$	(4,287.7)

Other comprehensive income (loss) before reclassifications	(165.1)		(24.9)		47.8		63.0		(79.2)
Net amount reclassified from accumulated other comprehensive loss	—		13.5		57.2		0.4		71.1
Net other comprehensive income (loss)	(165.1)		(11.4)		105.0		63.4		(8.1)

Balance at September 30, 2022	$	(2,009.3)	$	(39.3)	$	(2,338.2)	$	91.0	$	(4,295.8)

(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
Balance at July 1, 2016 $ (1,273.0 ) $ 36.8
$ (2,919.1 ) $ (215.9 ) $ (4,371.2 )

Other comprehensive income (loss) before reclassifications 5.8
48.9
18.7
—
73.4
Net amount reclassified from accumulated other comprehensive loss —
(0.4 ) 38.0
2.5
40.1
Net other comprehensive income (loss) 5.8
48.5
56.7
2.5
113.5

Balance at September 30, 2016 ⁽²⁾
$ (1,267.2 ) $ 85.3
$ (2,862.4 ) $ (213.4 ) $ (4,257.7 )

The following tables summarize the activity related to each component of other comprehensive income (loss) during the nine months endedSeptember 30, ~~2017~~2023 and ~~2016:~~2022:


(Amounts presented net of taxes)	Foreign Currency Translation Gains (Losses)		Net Unrealized Gains (Losses) on Available-For-Sale Securities		Defined Benefit Pension and Retiree Health Benefit Plans		Net Unrealized Gains (Losses) on Cash Flow Hedges		Accumulated Other Comprehensive Loss
Balance at January 1, 2023	$	(1,874.2)	$	(37.1)	$	(2,062.3)	$	129.0	$	(3,844.6)

Other comprehensive income (loss) before reclassifications	(74.6)		(11.3)		(11.9)		135.8		38.0
Net amount reclassified from accumulated other comprehensive loss	(25.2)		2.8		38.9		5.2		21.7
Net other comprehensive income (loss)	(99.8)		(8.5)		27.0		141.0		59.7

Balance at September 30, 2023	$	(1,974.0)	$	(45.6)	$	(2,035.3)	$	270.0	$	(3,784.9)


(Amounts presented net of taxes)	Foreign Currency Translation Gains (Losses)		Net Unrealized Gains (Losses) on Available-For-Sale Securities		Defined Benefit Pension and Retiree Health Benefit Plans		Net Unrealized Gains (Losses) on Cash Flow Hedges		Accumulated Other Comprehensive Loss
Balance at January 1, 2022	$	(1,550.2)	$	3.7	$	(2,583.6)	$	(213.0)	$	(4,343.1)

Other comprehensive income (loss) before reclassifications	(459.7)		(55.5)		72.9		297.2		(145.1)
Net amount reclassified from accumulated other comprehensive loss	0.6		12.5		172.5		6.8		192.4
Net other comprehensive income (loss)	(459.1)		(43.0)		245.4		304.0		47.3

Balance at September 30, 2022	$	(2,009.3)	$	(39.3)	$	(2,338.2)	$	91.0	$	(4,295.8)

(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
Balance at January 1, 2017 ⁽¹⁾
$ (1,867.3 ) $ 224.0
$ (3,371.6 ) $ (210.9 ) $ (5,225.8 )

Other comprehensive income (loss) before reclassifications 653.7
9.6
(83.3 ) 8.4
588.4
Net amount reclassified from accumulated other comprehensive loss 8.1
(70.4 ) 117.8
7.3
62.8
Net other comprehensive income (loss) 661.8
(60.8 ) 34.5
15.7
651.2

Balance at September 30, 2017 ⁽²⁾
$ (1,205.5 ) $ 163.2
$ (3,337.1 ) $ (195.2 ) $ (4,574.6 )

(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
Balance at January 1, 2016 ⁽¹⁾
$ (1,360.2 ) $ 10.1
$ (3,012.1 ) $ (218.5 ) $ (4,580.7 )

Other comprehensive income (loss) before reclassifications 18.5
61.9
39.2
(2.2 ) 117.4
Net amount reclassified from accumulated other comprehensive loss 74.5
13.3
110.5
7.3
205.6
Net other comprehensive income (loss) 93.0
75.2
149.7
5.1
323.0

Balance at September 30, 2016 ⁽²⁾
$ (1,267.2 ) $ 85.3
$ (2,862.4 ) $ (213.4 ) $ (4,257.7 )

⁽¹⁾Accumulated other comprehensive loss as of January 1, 2017 consists of $5,274.0 million of accumulated other comprehensive loss attributable to controlling interest and $48.2 million of accumulated other comprehensive income attributable to non-controlling interest. The accumulated other comprehensive loss attributable to non-controlling interest as of January 1, 2016 is immaterial.

⁽²⁾Accumulated other comprehensive loss as of September 30, 2017 consists of $4,609.4 million of accumulated other comprehensive loss attributable to controlling interest and $34.8 million of accumulated other comprehensive income attributable to non-controlling interest. The accumulated other comprehensive loss attributable to non-controlling interest as of September 30, 2016 is immaterial.

The tax effects on the net activity related to each component of other comprehensive income (loss) were as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,				Nine Months Ended September 30,
Tax benefit (expense)	2017			2016			2017			2016			Tax benefit (expense)	2023		2022		2023		2022
Foreign currency translation gains/losses	$	33.9		$	14.4		$	149.7		$	16.1		Foreign currency translation gains/losses	$	(90.3)	$	(133.3)	$	(50.2)	$	(234.2)
Unrealized net gains/losses on securities	(4.2		)	(26.1		)	25.4			(40.5		)
Net unrealized gains/losses on available-for-sale securities													Net unrealized gains/losses on available-for-sale securities	3.5		3.4		2.5		13.1
Defined benefit pension and retiree health benefit plans	(9.4		)	(9.5		)	(24.0		)	(57.0		)	Defined benefit pension and retiree health benefit plans	(6.9)		(22.4)		(13.9)		(73.2)
Effective portion of cash flow hedges	(1.3		)	(1.3		)	(8.4		)	(2.7		)
Benefit/(provision) for income taxes allocated to other comprehensive income (loss) items	$	19.0		$	(22.5	)	$	142.7		$	(84.1	)
Net unrealized gains/losses on cash flow hedges													Net unrealized gains/losses on cash flow hedges	(21.6)		(16.9)		(37.5)		(80.8)
Benefit (expense) for income taxes allocated to other comprehensive income (loss) items													Benefit (expense) for income taxes allocated to other comprehensive income (loss) items	$	(115.3)	$	(169.2)	$	(99.1)	$	(375.1)

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 6), income taxes were not provided for foreign currency translation. Generally, the assets and liabilities of foreign operations are translated into U.S. dollars using the current exchange rate. For those operations, changes in exchange rates generally do not affect cash flows; therefore, resulting translation adjustments are made in shareholders' equity rather than in the consolidated condensed statements of operations.

Reclassifications out of accumulated other comprehensive loss were as follows:


Details about Accumulated Other Comprehensive Loss Components	Three Months Ended September 30,				Nine Months Ended September 30,				Affected Line Item in the Consolidated Condensed Statements of Operations

	2023		2022		2023		2022
Amortization of retirement benefit items:
Prior service benefits, net	$	(12.7)	$	(13.1)	$	(37.9)	$	(39.2)	Other–net, (income) expense
Actuarial losses, net	29.1		85.5		87.1		257.5		Other–net, (income) expense
Total before tax	16.4		72.4		49.2		218.3
Tax benefit	(3.4)		(15.2)		(10.3)		(45.8)		Income taxes
Net of tax	13.0		57.2		38.9		172.5

Other, net of tax	2.9		13.9		(17.2)		19.9		Other–net, (income) expense

Total reclassifications, net of tax	$	15.9	$	71.1	$	21.7	$	192.4

Details about Accumulated Other Comprehensive Loss Components Three Months Ended
September 30, Nine Months Ended
September 30, Affected Line Item in the Consolidated Condensed Statements of Operations

2017 2016 2017 2016
Amortization of retirement benefit items:
Prior service benefits, net $ (21.1 ) $ (18.6 ) $ (63.2 ) $ (55.7 )
⁽¹⁾
Actuarial losses, net 77.1
76.2
229.4
228.9
⁽¹⁾
Total before tax 56.0
57.6
166.2
173.2

Tax benefit (15.9 ) (19.6 ) (48.4 ) (62.7 ) Income taxes
Net of tax 40.1
38.0
117.8
110.5

Unrealized gains/losses on available-for-sale securities:
Realized gains, net before tax (36.7 ) (12.0 ) (108.2 ) (6.8 ) Other–net, (income) expense
Impairment losses —
11.4
—
27.3
Other–net, (income) expense
Total before tax (36.7 ) (0.6 ) (108.2 ) 20.5

Tax (benefit) expense 12.8
0.2
37.8
(7.2 ) Income taxes
Net of tax (23.9 ) (0.4 ) (70.4 ) 13.3

Other, net of tax ⁽²⁾
10.5
2.5
15.4
81.8
Other–net, (income) expense
Total reclassifications for the period (net of tax) $ 26.7
$ 40.1
$ 62.8
$ 205.6

⁽¹⁾~~These accumulated other comprehensive loss components are included in the computation of net periodic benefit (income) cost (see Note 9).~~

⁽²⁾~~Amount for the nine months ended September 30, 2016 included primarily $74.5 million of foreign currency translation losses.~~

Note ~~12:~~11: Other–Net, (Income) Expense

Other–net, (income) expense consisted of the following:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Interest expense	$	124.6	$	81.5	$	347.7	$	247.6
Interest income	(48.9)		(20.1)		(129.1)		(37.3)
Net investment losses on equity securities (Note 6)	62.9		123.3		141.5		667.6
Retirement benefit plans	(115.5)		(92.4)		(346.9)		(280.0)

Other (income) expense	0.1		18.7		11.1		(17.0)
Other–net, (income) expense	$	23.2	$	111.0	$	24.3	$	580.9

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Interest expense $ 61.9
$ 47.2
$ 162.1
$ 133.8
Interest income (45.1 ) (29.1 ) (114.6 ) (76.8 )
Venezuela charge —
—
—
203.9
Other income (2.9 ) (45.3 ) (44.8 ) (160.3 )
Other–net, (income) expense $ 13.9

$ (27.2 )
$ 2.7

$ 100.6

Due to the financial crisis in Venezuela and the significant deterioration of the bolívar, we changed the exchange rate used to translate the assets and liabilities of our subsidiaries in Venezuela which resulted in a first quarter of 2016 charge of $203.9 million. Prior to this change, we used the Supplementary Foreign Currency Administration System (SICAD) rate; however, this official rate was discontinued in the first quarter of 2016. After considering several factors, including the future uncertainty of the Venezuelan economy, published exchange rates, and the limited amount of foreign currency exchanged, we changed to the Divisa Complementaria (DICOM) rate.

~~Note 13: Segment Information~~

We have two operating segments—human pharmaceutical products and animal health products. Our operating segments are distinguished by the ultimate end user of the product—humans or animals. Performance is evaluated based on profit or loss from operations before income taxes.

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Segment revenue—to unaffiliated customers:
Human pharmaceutical products:
Endocrinology:
Humalog^®
$ 696.2
$ 640.8
$ 2,083.0
$ 1,949.0
Trulicity^®
527.7
243.6
1,380.8
588.5
Forteo^®
441.7
391.2
1,235.8
1,077.5
Humulin^®
300.5
322.0
972.8
1,010.6
Trajenta 153.3
115.4
408.2
330.8
Other Endocrinology 441.3
262.8
1,094.4
734.5
Total Endocrinology 2,560.7
1,975.8
7,175.0
5,690.9

Oncology:
Alimta 514.5
570.4
1,537.3
1,741.7
Cyramza^®
196.0
159.0
553.5
437.0
Erbitux 163.5
184.6
477.0
533.3
Other Oncology 83.6
33.3
232.7
100.3
Total Oncology 957.6
947.3
2,800.5
2,812.3

Cardiovascular:
Cialis^®
564.9
588.2
1,725.7
1,795.3
Effient 55.9
127.7
326.6
394.3
Other Cardiovascular 42.1
57.6
120.2
165.4
Total Cardiovascular 662.9
773.5
2,172.5
2,355.0

Neuroscience:
Cymbalta ⁽¹⁾
183.2
313.5
564.4
748.7
Strattera^®
137.1
198.8
519.9
611.5
Zyprexa^®
140.6
148.9
428.9
572.3
Other Neuroscience 46.8
47.3
160.5
137.4
Total Neuroscience 507.7
708.5
1,673.7
2,069.9

Immunology:
Taltz^®
151.3
32.5
386.7
51.9
Other Immunology 16.3
—
22.9
—
Total Immunology 167.6
32.5
409.6
51.9

Other pharmaceuticals 60.9
47.9
184.5
161.1
Total human pharmaceutical products 4,917.4
4,485.5
14,415.8
13,141.1
Animal health products 740.6
706.2
2,294.8
2,320.5
Revenue $ 5,658.0
$ 5,191.7
$ 16,710.6
$ 15,461.6

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Segment profits:
Human pharmaceutical products $ 1,242.5
$ 1,089.0
$ 3,765.7
$ 2,975.3
Animal health products 121.9
104.9
422.6
464.3
Total segment profits $ 1,364.4
$ 1,193.9
$ 4,188.3
$ 3,439.6

Reconciliation of total segment profits to consolidated income before taxes:
Segment profits $ 1,364.4
$ 1,193.9
$ 4,188.3
$ 3,439.6
Other profits (losses):
Acquired in-process research and development (Note 3) (205.0 ) —
(1,062.6 ) —
Amortization of intangible assets (155.8 ) (177.7 ) (510.0 ) (518.8 )
Asset impairment, restructuring, and other special charges (Note 5) (406.5 ) (45.5 ) (670.4 ) (234.9 )
Inventory fair value adjustment related to BIVIVP (Note 3) (5.5 ) —
(32.0 ) —
Venezuela charge (Note 12) —
—
—
(203.9 )
Consolidated income before taxes $ 591.6
$ 970.7
$ 1,913.3
$ 2,482.0

~~Numbers may not add due to rounding.~~

⁽¹⁾~~Cymbalta revenues include reductions to the reserve for expected product returns of approximately $145 million and $175 million during the three and nine months ended September 30, 2016~~, ~~respectively.~~

For internal management reporting presented to the chief operating decision maker, certain costs are fully allocated to our human pharmaceutical products segment and therefore are not reflected in the animal health segment's profit. Such items include costs associated with treasury-related financing, global administrative services, certain acquisition-related transaction costs, and certain manufacturing costs.

Item 2. ~~Management’s~~Management's Discussion and Analysis of Results of Operations and Financial Condition

~~Results of Operations~~

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

General

~~Management’s~~Management's discussion and analysis of results of operations and financial condition is intended to assist the reader in understanding and assessing significant changes and trends related to ~~the~~our results of operations and financial ~~position of our consolidated company.~~position. This discussion and analysis should be read in conjunction with the consolidated condensed financial statements and accompanying footnotes in Part I, Item 1 ~~of Part I~~ of this Quarterly Report on Form 10-Q. Certain statements in this Part I, Item 2 ~~of Part I~~ of this Quarterly Report on Form 10-Q constitute forward-looking statements. Various risks and uncertainties, including those discussed in "Forward-Looking Statements" in this Quarterly Report on Form 10-Q and "Risk Factors" in Part I, Item 1A ~~“Risk Factors,” of Part I~~ of our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2022, may cause our actual results, financial position, and cash generated from operations to differ materially from these forward-looking statements.

~~Executive Overview~~EXECUTIVE OVERVIEW

This section provides an overview of our financial results, ~~recent product and~~ late-stage pipeline developments, and other matters affecting our company and the pharmaceutical industry. ~~Earnings per share (EPS) data are presented on a diluted basis.~~

Financial Results

The following table summarizes ~~our key operating results:~~

certain financial information:

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 Percent Change 2017 2016 Percent Change
Revenue $ 5,658.0
$ 5,191.7
9 $ 16,710.6
$ 15,461.6
8
Gross margin 4,091.9
3,790.8
8 12,265.2
11,272.7
9
Gross margin as a percent of revenue 72.3 % 73.0 %
73.4 % 72.9 %
Operating expense ⁽¹⁾
$ 2,874.9
$ 2,801.8
3 $ 8,616.2
$ 8,455.2
2
Acquired in-process research and development 205.0
—
NM 1,062.6
—
NM
Asset impairment, restructuring, and other special charges 406.5
45.5
NM 670.4
234.9
185
Net income 555.6
778.0
(29) 1,452.8
1,965.8
(26)
Earnings per share 0.53
0.73
(27) 1.37
1.85
(26)

⁽¹⁾~~Operating expense consists of research and development and marketing, selling, and administrative expenses.~~


	Three Months Ended September 30,				Percent Change	Nine Months Ended September 30,				Percent Change
	2023		2022			2023		2022
Revenue	$	9,498.6	$	6,941.6	37	$	24,770.7	$	21,239.6	17
Net income (loss)	(57.4)		1,451.7		NM	3,050.7		4,307.1		(29)
Earnings (loss) per share - diluted	(0.06)		1.61		NM	3.38		4.76		(29)

NM - not meaningful

In September 2017, we announced plans to reduce our cost structure by streamlining our operations. Global workforce reductions, including those from a U.S. voluntary early retirement program, are expected to impact approximately 3,500 positions. These plans are expected to result in charges of approximately $1.2 billion (pretax). In addition to the asset impairment, restructuring, and other special charges of $406.5 million that were incurred duringRevenue increased for the three months ended September 30, ~~2017, which are discussed further below, we expect to incur additional charges~~2023 driven by increased volume, higher realized prices and the favorable impact of approximately $800 million in the fourth quarter of 2017 related to these plans. The fourth quarter charge could vary depending on the composition of participants within the United States (U.S.) voluntary early retirement program, as well as other actions taken to improve our cost structure.

We are reviewing strategic alternatives for Elanco Animal Health (our animal health segment), including an initial public offering, merger, sale, or retention of the business, and will provide an update no later than the middle of 2018.

foreign exchange rates. Revenue increased for the nine months ended September 30, 2023 primarily driven by increased volume. The increase in revenue during the three and nine months ended September 30, ~~2017~~2023 was primarily driven by ~~increased volume for Trulicity~~^{sales of Mounjaro®}~~, Taltz~~^®~~, Basaglar~~^®, and ~~other new pharmaceutical products. Operating expense increased~~Verzenio®,as well as from the sale of the rights for the ~~three months ended September 30, 2017, driven~~olanzapine portfolio, including Zyprexa®, partially offset by ~~an increase in research and development expense. Operating expense increased~~the absence of COVID-19 antibodies revenue. Revenue for the nine months ended September 30, ~~2017~~2023 was also driven by ~~an increase~~the sale of rights for Baqsimi®, largely offset by lower sales of Alimta® following the entry of multiple generics in ~~marketing, selling,~~the first half of 2022.

Net income (loss) and ~~administrative expense. The following highlighted items also affect comparisons of our financial results for the three and nine months ended September 30, 2017 and 2016:~~

~~2017~~

~~Acquired in-process research and development (IPR&D) (Note 3 to the consolidated condensed financial statements)~~

~~We recognized acquired IPR&D charges of $205.0 million (pretax), or $0.13 per share, and $1.06 billion (pretax), or $0.94 per share, for the three and~~ ~~nine~~ ~~months ended~~ ~~September 30~~, respectively, related to upfront fees paid in connection with the collaboration agreements with Nektar Therapeutics (Nektar) and KeyBioscience AG (KeyBioscience). The charges for the nine months ended September 30 also included the charge associated with the acquisition of CoLucid Pharmaceuticals, Inc. (CoLucid) which was not tax-deductible.

~~Asset Impairment, Restructuring, and Other Special Charges (Note 5 to the consolidated condensed financial statements)~~

•

~~We recognized charges of $406.5 million (pretax), or $0.29 per share, and $670.4 million (pretax), or $0.48 per share, for the three and nine months ended~~ ~~September 30, respectively. The charges for the~~ ~~third~~ ~~quarter were partially associated with asset impairments related to lower projected revenue for Posilac~~^® ~~(rbST), as well as severance costs incurred as a result of actions taken to reduce the company's cost structure as discussed above. The charges for the nine months ended~~ ~~September 30~~ were primarily due to severance costs incurred as a result of actions taken to reduce our cost structure, charges associated with the Posilac impairment, integration costs related to the acquisition of Novartis Animal Health (Novartis AH), asset impairments and other charges related to animal health assets, as well as exit costs due to site closures.

~~2016~~

~~Asset Impairment, Restructuring, and Other Special Charges (Note 5 to the consolidated condensed financial statements)~~

~~We recognized charges of $45.5 million (pretax), or $0.03 per share, and $234.9 million (pretax), or $0.19~~earnings (loss) per share for the three and nine months ended September 30, respectively, related to the integration costs for our acquisition of Novartis AH and severance costs. The charges for the nine months ended September 30 also included asset impairment charges related to the closure of an animal health manufacturing facility in Ireland.

~~Other–Net, (Income) Expense (Note 12 to the consolidated condensed financial statements)~~

We recognized charges of $203.9 million (pretax), or $0.19 per share, in the first quarter, related to the impact of the Venezuelan financial crisis, including the significant deterioration of the bolívar.

~~The decreases in net income and EPS for the third quarter of 2017 were~~2023 decreased primarily due to higher ~~asset impairment, restructuring,~~acquired in-process research and ~~other special charges, higher acquired IPR&D~~development (IPR&D) charges and ~~to a lesser extent, higher operating~~increased research and development and marketing, selling, and administrative expenses, partially offset by ~~a higher gross margin and lower income taxes. The decreases in net income and EPS~~increased revenue.

See "Results of Operations" for the nine months ended September 30, 2017, were due to higher acquired IPR&D charges and, to a lesser extent, asset impairment, restructuring, and other special charges, and higher operating expenses, partially offset by a higher gross margin and, to a lesser extent, the 2016 charge related to the Venezuelan financial crisis, including the significant deterioration of the bolívar.additional information.

Late-Stage Pipeline

Our long-term success depends ~~to a great extent~~ on our ability to ~~continue to~~continually discover or acquire, develop, and ~~develop~~commercialize innovative ~~pharmaceutical products and acquire or collaborate on molecules currently in development by other biotechnology or pharmaceutical companies.~~new medicines. We currently have approximately ~~50 potential~~45 new ~~drugs~~medicine candidates in ~~human testing~~clinical development or under regulatory review, and a larger number of projects in ~~preclinical research.~~the discovery phase.

The following select new molecular entities (NMEs) ~~have been approved by regulatory authorities~~and new indication line extension (NILEX) products are currently in ~~at least one of the major geographies for use in the diseases described. The first quarter in which each NME initially was approved in any major geography for any indication is shown in parentheses:~~

~~Abemaciclib (Verzenio~~^™~~) (Q3 2017)~~—a small molecule cell-cycle inhibitor, selective for cyclin-dependent kinases 4 and 6 for the treatment of metastatic breast cancer. In the U.S., abemaciclib is protected by a compound patent (2029, not including possible patent extension).

~~Baricitinib (Olumiant~~^®~~) (Q1 2017)—a Janus tyrosine kinase inhibitor for the treatment of moderate-to-severe active rheumatoid arthritis (in collaboration with Incyte Corporation).~~

~~Olaratumab* (Lartruvo~~^™~~) (Q4 2016)—a human lgG1 monoclonal antibody for the treatment of advanced soft tissue sarcoma.~~

~~The following NME has~~Phase II or Phase III clinical trials or have been submitted for regulatory review ~~in at least one of the major geographies for potential use~~or have received regulatory approval in the ~~disease described.~~United States (U.S.), European Union (EU), or Japan. The ~~first quarter in which the NME initially was submitted in any major geography for any indication is shown in parentheses:~~

~~Galcanezumab* (Q3 2017)~~—a once-monthly subcutaneously injected calcitonin gene-related peptide (CGRP) antibody for the treatment of migraine prevention. In the U.S., galcanezumab is protected by a compound patent (2033). Refer to Item 1, "Legal Proceedings—Other Patent Matters" for discussion of the lawsuit filed by Teva Pharmaceuticals International GMBH.

The following NMEs and diagnostic agent are currently in Phase III clinical trial testing for potential use in the diseases described. The first quarter in which each NME and diagnostic agent initially entered Phase III for any indication is shown in parentheses:

~~Ultra-rapid insulin* (Q3 2017)—an ultra-rapid insulin for the treatment of type 1 and type 2 diabetes.~~

~~Flortaucipir** (Q3 2015)—a positron emission tomography (PET) tracer intended to image tau (or neurofibrillary) tangles in the brain, which are an indicator of Alzheimer's disease.~~

~~Lanabecestat (Q2 2016)—an oral beta-secretase cleaving enzyme (BACE) inhibitor for the treatment of early and mild Alzheimer's disease (in collaboration with AstraZeneca).~~

~~Lasmiditan (Q2 2015)—an oral 5-HT~~_1F ~~agonist for the acute treatment of migraine.~~

~~Nasal glucagon* (Q3 2013)—a glucagon nasal powder formulation for the treatment of severe hypoglycemia in patients with diabetes treated with insulin.~~

~~Solanezumab* (Q2 2009)—an anti-amyloid beta monoclonal antibody for the treatment of preclinical Alzheimer’s disease.~~

~~Tanezumab* (Q3 2008)—an anti-nerve growth factor monoclonal antibody for the treatment of osteoarthritis pain, chronic low back pain, and cancer pain (in collaboration with Pfizer Inc.).~~


*	~~Biologic molecule subject to the U.S. Biologics Price Competition and Innovation Act~~


**	~~Diagnostic agent~~

~~The following~~ table reflects the status of ~~each NME~~these NMEs and ~~diagnostic agent within our late-stage pipeline and recently approved~~NILEX products, including relevant developments since ~~January 1, 2017:~~

our Annual Report on Form 10-K for the year ended December 31, 2022.

Compound

~~Indication~~Indication/Study

~~U.S.~~Status

~~Europe~~Developments

~~Japan~~

~~Developments~~

~~Endocrinology~~Diabetes and Obesity

~~Nasal glucagon~~

~~Severe hypoglycemia~~

~~Phase III~~

~~Development of commercial manufacturing process is ongoing.~~

~~Ultra-rapid insulin~~

Empagliflozin (Jardiance®)(1)

~~Type 1 diabetes~~Chronic kidney disease

~~Phase III~~Approved

~~Initiated Phase III study~~Approved in the U.S. and in the EU in the third quarter of ~~2017.~~2023. Submitted in Japan in 2022.

~~Immunology~~

~~Olumiant~~Tirzepatide

~~Rheumatoid arthritis~~Obesity

~~See Developments~~Submitted

~~Launched~~

~~Approved and launched~~Submitted in ~~Europe~~the EU in the first quarter of ~~2017.~~2023 and in the U.S. in the second quarter of 2023. Received ~~complete response letter~~Priority Review designation from the U.S. Food and Drug Administration (FDA) ~~in second quarter of 2017. After discussions with FDA, resubmission~~. Announced in the ~~U.S. is expected before the end~~second and third quarters of ~~January 2018. Approved~~2023 that Phase III trials met all primary and ~~launched in Japan in third quarter of 2017.~~key secondary endpoints. Phase III trials are ongoing.

~~Neuroscience~~

~~Flortaucipir~~

~~Alzheimer's disease~~Cardiovascular outcomes in type 2 diabetes

Phase III

Phase III trial is ongoing.

~~Galcanezumab~~Heart failure with preserved ejection fraction

~~Cluster headache~~

Phase III

Phase III trials are ongoing.

~~Migraine prevention~~

~~Submitted~~

~~Phase III~~

~~Three Phase III trials met primary endpoints. Submitted to FDA~~Morbidity and mortality in ~~third quarter of 2017.~~

~~Lanabecestat~~

~~Early and mild Alzheimer's disease~~

~~Phase III~~

~~Phase III trials are ongoing.~~

~~Lasmiditan~~

~~Migraine~~

~~Phase III~~

Acquired from CoLucid in first quarter of 2017. In third quarter of 2017, announced Phase III trial met primary endpoint. Submission to FDA expected in second half of 2018. See Note 3 to the consolidated condensed financial statements for information on the acquisition.

~~Solanezumab~~

~~Preclinical Alzheimer's disease~~obesity

Phase III

Phase III trial is ongoing.

~~Tanezumab~~Obstructive sleep apnea (OSA)

~~Osteoarthritis pain~~

Phase III

Granted FDA Fast Track designation⁽¹⁾ ~~from the FDA in second quarter of 2017.~~

~~Chronic low back pain~~

~~Phase III~~

~~Cancer pain~~

~~Phase III~~

(2). Phase III trial is ongoing.

Higher doses

Phase II

Phase II trial initiated in the third quarter of 2023.

Nonalcoholic steatohepatitis

Phase II

Phase II trial is ongoing.

Insulin Efsitora Alfa

Type 1 and 2 diabetes

Phase III

Phase III trials are ongoing.

Orforglipron

Obesity

Phase III

Phase III trials initiated in the second quarter of 2023.

Type 2 diabetes

Phase III

Phase III trials initiated in the second and third quarters of 2023.

Retatrutide

Obesity, osteoarthritis, OSA

Phase III

Phase III trials initiated in the second and third quarters of 2023.

Type 2 diabetes

Phase II

Phase II trial was completed.

Bimagrumab

Obesity

Phase II

Acquired in the acquisition of Versanis Bio, Inc. (Versanis) in the third quarter of 2023. Phase II trial is ongoing.

Lepodisiran

Cardiovascular disease

Phase II

Phase II trial is ongoing.

Muvalaplin

Cardiovascular disease

Phase II

Phase II trial is ongoing.

Solbinsiran

Cardiovascular disease

Phase II

Phase II trial is ongoing.

Volenrelaxin (Relaxin-LA)

Heart failure

Phase II

Phase II trial initiated in the first quarter of 2023.

Compound

~~Indication~~Indication/Study

~~U.S.~~Status

~~Europe~~Developments

~~Japan~~

~~Developments~~

~~Oncology~~Immunology

~~Verzenio~~

Mirikizumab

(OmvohTM)

~~Adjuvant breast cancer~~Ulcerative colitis

Approved

Approved in Japan in the first quarter of 2023, in the EU in the second quarter of 2023, and in the U.S. in October 2023.

Crohn's Disease

Phase III

~~Initiated~~Announced in October 2023 that a Phase III ~~study~~trial met the co-primary and all major secondary endpoints versus placebo. Phase III trials are ongoing.

Lebrikizumab(3)

Atopic dermatitis

Submitted

Submitted in the U.S. and the EU in 2022 and in Japan in the first quarter of 2023. Announced in October 2023 we received a complete response letter from the FDA based on inspection findings at a third-party manufacturer with no stated concerns about the clinical data package, safety, or label. Phase III trials are ongoing.

DC-806

Psoriasis

Phase II

Acquired in the acquisition of DICE Therapeutics, Inc. (DICE) in the third quarter of ~~2017.~~2023. Phase II trial is ongoing.

~~Metastatic breast cancer~~Eltrekibart

~~Launched~~Hidradenitis suppurativa

~~Submitted~~Phase II

~~Two~~Phase II trial is ongoing.

Peresolimab

Rheumatoid arthritis

Phase II

Phase II trial is ongoing.

RIPK1 inhibitor

Rheumatoid arthritis

Phase II

Phase II trial initiated in the second quarter of 2023.

Ucenprubart

Atopic dermatitis

Phase II

Phase II trial initiated in the second quarter of 2023.

BTLA MAB Agonist

Systemic lupus erythematosus

Discontinued

Phase II trial failed to demonstrate efficacy in the third quarter of 2023.

Neuroscience

Donanemab

Early Alzheimer's disease

Submitted

Submitted for traditional approval in the U.S. in the second quarter of 2023 and in the EU and Japan in the third quarter of 2023. Granted FDA Breakthrough Therapy designation(4). Announced in the second quarter of 2023 that a Phase III trial met primary and all secondary endpoints. Phase III trials ~~met primary endpoints.~~ are ongoing.

Preclinical Alzheimer's disease

Phase III

Phase III trial is ongoing.

Remternetug

Early Alzheimer's disease

Phase III

Phase III trial is ongoing.

GBA1 Gene Therapy

Gaucher disease Type 1

Phase II

Phase II trial initiated in the second quarter of 2023.

Parkinson's disease

Phase II

Granted FDA Fast Track designation(2). Phase II trial is ongoing.

GRN Gene Therapy

Frontotemporal dementia

Phase II

Granted FDA Fast Track designation(2). Phase II trial is ongoing.

O-GlcNAcase Inh

Alzheimer's disease

Phase II

Phase II trial is ongoing.

P2X7 Inhibitor

Pain

Phase II

Phase II trials were recently completed.

SSTR4 Agonist

Pain

Phase II

Phase II trials are ongoing.

Compound

Indication/Study

Status

Developments

Oncology

Pirtobrutinib

(Jaypirca®)

Mantle cell lymphoma

Approved(5)

FDA granted accelerated approval(5) in the U.S. in the first quarter of 2023. Submitted in the EU in 2022 and ~~launched~~in Japan in the second quarter of 2023. Received a positive opinion from the Committee for Medicinal Products for Human Use in the EU in the second quarter of 2023. Phase III trial is ongoing.

Chronic lymphocytic leukemia

Submitted

Submitted in the U.S. in the third ~~and fourth quarters~~quarter of ~~2017, respectively. Submitted to regulatory authorities~~2023 under the accelerated approval pathway. Phase III trials are ongoing.

Selpercatinib (Retevmo®)

Lung cancer

Approved

Announced in ~~Europe and Japan in~~the third quarter of ~~2017.~~

~~KRAS-mutant non-small cell lung cancer~~

~~Terminated~~

~~In fourth quarter of 2017, announced~~2023 that a Phase III trial ~~did not meet~~met its primary ~~endpoint and further development of monotherapy in this indication has been discontinued.~~

~~Lartruvo~~

~~Soft tissue sarcoma~~

~~Launched~~

~~Phase III~~

~~Granted accelerated approval~~⁽²⁾ ~~by the FDA in fourth quarter of 2016 based on phase II data. Launched in the U.S. in the fourth quarter of 2016. Granted conditional approval~~⁽³⁾ ~~and launched in Europe in fourth quarter of 2016.~~endpoint. Phase III trial is ongoing.

Thyroid cancer

Approved

Announced in the third quarter of 2023 that a Phase III trial met its primary endpoint.

Abemaciclib

Prostate cancer

Phase III

Phase III trials are ongoing.

Imlunestrant

Adjuvant breast cancer

Phase III

Phase III trial is ongoing.

ER+HER2- metastatic breast cancer

Phase III

Phase III trial is ongoing.

⁽¹⁾~~The FDA's fast track program~~In collaboration with Boehringer Ingelheim.

(2) Fast Track designation is designed to facilitate the development and expedite the review of medicines to treat serious conditions and fill an unmet medical need.

(3) In collaboration with Almirall, S.A. in Europe.

(4) Breakthrough Therapy designation is designed to expedite the development and review of ~~new therapies~~potential medicines that are intended to treat a serious ~~conditions and address unmet medical needs.~~condition where preliminary clinical evidence indicates that the treatment may demonstrate substantial improvement over available therapy on a clinically significant endpoint.

⁽²⁾(5)Continued approval ~~for this indication~~ may be contingent on verification and description of clinical benefit in a confirmatory Phase III ~~trial.~~trials.

⁽³⁾As part of a conditional marketing authorization, results from an ongoing Phase III study will need to be provided. This study is fully enrolled. Until availability of the full data, the Committee for Medicinal Products for Human Use will review the benefits and risks of Lartruvo annually to determine whether the conditional marketing authorization can be maintained.

Other Matters

Patent Matters

We depend on patents or other forms of ~~intellectual-property~~intellectual property protection for most of our revenue, cash flows, and earnings. ~~We lost patent exclusivity for the schizophrenia and bipolar mania indications for Zyprexa~~^® in Japan in December 2015 and April 2016, respectively. Generic versions of Zyprexa were launched in Japan in June 2016. The loss of exclusivity for Zyprexa in Japan has caused a rapid and severe decline in revenue for the product.

~~We lost our patent exclusivity for Strattera~~^® ~~in the U.S. in May 2017, and generic versions of Strattera were approved in the same month. As described in~~See Note 109 to the consolidated condensed financial statements ~~following the settlement related to the compound patent challenge~~ for ~~Effient~~^®~~, generic products launched in the U.S. in the third quarter~~a description of ~~2017. The entry~~legal proceedings currently pending regarding certain of ~~generic competition for these products has caused a rapid and severe decline in revenue, which will, in the aggregate, have a material adverse effect on~~ our ~~consolidated results of operations and cash flows.~~patents.

~~We will lose our compound patent protection for Cialis~~^® ~~(tadalafil) and Adcirca~~^® (tadalafil) in major European markets in November 2017. We will also lose compound patent protection for Cialis and Adcirca in the U.S. in November 2017; however, we now expect U.S. exclusivity for Cialis to end in late September 2018 at the earliest. We expect that the entry of generic competition into these markets following the loss of exclusivity will cause a rapid and severe decline in revenue for the affected products, which will, in the aggregate, have a material adverse effect on our consolidated results of operations and cash flows.

~~Additionally, as described in Note 10 to the consolidated condensed financial statements, the Alimta~~^® vitamin regimen patents, which provide us with patent protection for Alimta through June 2021 in Japan and major European countries, and through May 2022 in the U.S., have been challenged in each of these jurisdictions. Our vitamin regimen patents have also been challenged in other smaller European jurisdictions. Our compound ~~patent~~patents for ~~Alimta~~Humalog® (insulin lispro) have expired in the U.S. ~~in January 2017,~~ and ~~expired in~~ major ~~European countries~~international markets, and ~~Japan in December 2015. We expect that the entry~~we have also introduced lower-priced versions of generic competition for Alimta following the loss of effective patent protection will cause a rapid and severe decline in revenue for the product, which will, in the aggregate, have a material adverse effect on our consolidated results of operations and cash flows. While the U.S. Patent and Trademark Office recently ruled in our favor regarding the validity of the vitamin regimen patent, the generic companies which filed petitions seeking inter partes reviewHumalog as part of our vitamin regimen patent may appeal these rulings as further described in Note 10 to the consolidated condensed financial statements. We are aware that generic competitors have received approval to market generic versions of pemetrexed in major European markets,insulin access and that a generic product is currently on the market in at least one major European market. In light of the United Kingdom (U.K.) Supreme Court's judgment finding infringement in the U.K., Italy, France, and Spain, Actavis has withdrawn its previously launched-at-risk generic products from these markets. We will continue to seek to remove any generic pemetrexed products launched at risk in other European markets. Notwithstanding our patents, generic versions of Alimta were also approved in Japan starting in February 2016. As described in Note 10 to the consolidated condensed financial statements,affordability solutions. On March 1, 2023, we ~~do not currently anticipate that generic versions of Alimta will proceed to pricing approval.~~

~~The compound patent for Humalog~~^® ~~(insulin lispro) has expired in major markets. Thus far, the loss of compound patent protection~~announced price reductions for Humalog ~~has not resulted in a rapid~~ and ~~severe decline in revenue. Global regulators have different legal pathways to approve similar versions~~an expansion of ~~insulin lispro.~~our Insulin Value Program that caps patient out-of-pocket costs at $35 or less per month. A ~~similar version of insulin lispro~~competitor has received tentative approval in the U.S. and could launch soon. We are also aware that a competitor's insulin lispro product has launched in certain European markets. Other manufacturers have efforts underway to bring to market a similar version of insulin lispro in the U.S. and ~~Europe. While it is difficult~~in certain European markets. Due to ~~estimate~~ the ~~severity~~expansion of our insulin access and affordability solutions in the U.S. and the impact of ~~similar insulin lispro~~competition and pricing pressure in the U.S. and certain international markets, we expect that lower revenue for Humalog due to realized price decline will continue over time.

Trends Affecting Pharmaceutical Pricing, Reimbursement, and Access

Reforms, including those that may stem from periods of economic downturn or uncertainty, or as a result of high inflation, emergence or escalation of, and responses to, war or unrest, or government budgeting priorities, may continue to result in added pressure on pricing and reimbursement for our products.

Global concern over access to and affordability of pharmaceutical products ~~entering~~continues to drive regulatory and legislative debate and action, as well as worldwide cost containment efforts by governmental authorities. Such measures include the use of mandated discounts, price reporting requirements, mandated reference prices, restrictive formularies, changes to available intellectual property protections, as well as other efforts. In August 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (IRA). Among other measures, the IRA requires the U.S. Department of Health and Human Services (HHS) to effectively set prices for certain single-source drugs and biologics reimbursed under Medicare Part B and Part D. Generally, these government prices apply nine (medicines approved under a New Drug Application) or thirteen (medicines approved under a Biologics License Application) years following initial FDA approval and will be capped at a statutory ceiling price that is likely to represent a significant discount from average prices to wholesalers and direct purchasers. While the law specifies a ceiling price, it does not set a minimum or floor price. In August 2023, HHS selected Jardiance, which is part of our collaboration with Boehringer Ingelheim, as one of the first ten medicines subject to government-set prices effective in 2026. Given our product portfolio, we expect additional of our significant products will be selected in future years, which would have the effect of accelerating revenue erosion prior to patent expiry. The effect of reducing prices and reimbursement for certain of our products would significantly impact our business and consolidated results of operations. The establishment of payment limits or other restrictions by drug affordability review boards and other state level actors would similarly impact us.

Other IRA provisions provide for rebate obligations on drug manufacturers that increase prices of Medicare Part B and Part D medicines at a rate greater than the rate of inflation and Part D benefit redesign that includes replacing the Part D coverage gap discount program with a new manufacturer discounting program. Manufacturers that fail to comply with the IRA may be subject to various penalties, including civil monetary penalties, which could be significant.

The IRA takes effect progressively with the first government-set prices effective in 2026. The IRA has and will meaningfully influence our business strategies and those of our competitors. In particular, the nine-year timeline to set prices for medicines approved under a new drug application reduces the attractiveness of investment in small molecule innovation. The IRA can cause changes to development approach and timing and investments at-risk. The full impact of the IRA on our business and the pharmaceutical industry, including the implications to us of competitors' products being selected for price setting, remains uncertain.

Additional policies, regulations, legislation, or enforcement, including those proposed and/or pursued by the U.S. Congress, the current U.S. presidential administration, and regulatory authorities worldwide, could adversely impact our business and consolidated results of operations.

Consolidation and integration of private payors and pharmacy benefit managers in the U.S. has also significantly impacted the market for pharmaceuticals by increasing payor leverage in negotiating manufacturer price or rebate concessions and pharmacy reimbursement rates. Furthermore, restrictive or unfavorable pricing, coverage, or reimbursement determinations for our medicines or product candidates by governments, regulatory agencies, courts, or private payers may adversely impact our business and consolidated results of operations. We expect that these actions may intensify and could particularly affect certain products which could adversely affect our business. In addition, we are engaged in litigation related to our 340B limited distribution program, access to insulin, and other matters that, if resolved adversely to us, could negatively impact our business and consolidated results of operations. It is not currently possible to predict the overall potential adverse impact to us or the general pharmaceutical industry of continued cost containment efforts worldwide.

In addition, regulatory issues concerning compliance with current Good Manufacturing Practices, quality assurance, safety signals, evolving standards, and increased scrutiny around excipients and potential impurities such as nitrosamines, and similar regulations and standards (and comparable foreign regulations and standards) for our products can lead to regulatory and legal actions, product recalls and seizures, fines and penalties, interruption of production leading to product shortages, import bans or denials of import certifications, contractual and manufacturing costs or penalties, inability to realize the benefit of capital expenditures, or delays or denials in new product approvals, line extensions or supplemental approvals of current products pending resolution of the issues, any of which could result in reputational harm or adversely affect our business. Moreover, increased focus on business combinations across industries and jurisdictions can lead to impediments to the completion of business combinations.

See "Business—Regulations and Private Payer Actions Affecting Pharmaceutical Pricing, Reimbursement, and Access" in Part I, Item 1 and "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022. See also Note 9 to the consolidated condensed financial statements.

Product Supply

We have faced challenges, and expect to continue to face challenges, meeting strong demand for our incretin products. In the U.S., given very strong uptake of Mounjaro following its launch for type 2 diabetes in the second quarter of 2022, and as demand for Trulicity® has remained strong, we have experienced intermittent delays in fulfilling certain orders for these products. Outside the U.S., we have implemented actions to manage strong demand amid tight supply, including measures to minimize impact to existing Trulicity patients. We have also progressed efforts to bring tirzepatide to patients via different delivery presentations outside the U.S., such as single-use vials and multi-use pens. We expect to continue to experience disruptions in our supply of Trulicity in international markets and for demand and supply considerations to influence the timing of tirzepatide launches in new markets.

We anticipate tight supplies of our incretin products will persist while additional manufacturing capacity is operationalized. We expect additional internal and contracted manufacturing capacity will become fully operational around the world in the next several years as part of our ongoing efforts to meet the significant demand for our incretin medicines. For example, we recently began production at our Research Triangle Park site in North Carolina and expect to continue significant capacity expansion over time as we increase production at this site and others.

Tax Matters

We are subject to income taxes and various other taxes in the U.S. and in many foreign jurisdictions; therefore, changes in both domestic and international tax laws or regulations have affected and may affect our effective tax rate, results of operations, and cash flows. The U.S. and countries around the world are actively proposing and enacting tax law changes. Further, actions taken with respect to tax-related matters by associations such as the Organisation for Economic Co-operation and Development and the European Commission could influence tax laws in countries in which we operate. Tax authorities in the U.S. and other jurisdictions in which we do ~~not expect~~business routinely examine our tax returns and are intensifying their scrutiny and examinations of profit allocations among jurisdictions. Changes to existing U.S. and foreign tax laws and increased scrutiny by tax authorities in the U.S. and other jurisdictions could adversely impact our future consolidated results of operations and cash flows.

The European Commission published its Pillar Two Directive (Directive), a ~~rapid and severe decline in revenue; however, we expect competitive pressure and some loss of market share initially~~legislative proposal that would ~~continue over time.~~provide a global minimum level of taxation for multinational companies with operations in the EU, in 2021. In 2022, the EU Member States adopted the Directive which requires them to enact initial legislation effective for years beginning on or after December 31, 2023. Currently, both EU and non-EU countries are drafting or have enacted legislation in order to implement the Pillar Two rules by the effective date. We are continuing to follow Pillar Two legislative developments in order to evaluate the potential future impact it could have on our consolidated results of operations, financial position, and cash flows.

Foreign Currency Exchange Rates and Other Impacts

As a global company, ~~with substantial operations outside the U.S.,~~ we face foreign currency risk exposure from fluctuating currency exchange rates, primarily the U.S. dollar against the euro, Japanese yen, and ~~British pound; and the British pound against the euro.~~Chinese yuan. While we seek to manage a portion of these exposures through hedging and other risk management techniques, significant fluctuations in currency rates can have a ~~substantial~~material impact, either positive or negative, on our ~~revenue, cost~~consolidated results of sales, and operating expenses. Over the past two years, we have seen significant foreign currency rate fluctuations between the U.S. dollar and several other foreign currencies, including the euro, British pound, and Japanese yen. While thereoperations in any given period. There is uncertainty in the future movements in foreign exchange rates, and fluctuations in these ~~fluctuations could negatively impact our future consolidated results of operations and cash flows.~~

The impact of the Venezuelan financial crisis, including the significant deterioration of the bolívar, resulted in a charge of $203.9 million in the first quarter of 2016. See Note 12 to the consolidated condensed financial statements for additional information related to the charge. As of September 30, 2017, our Venezuelan subsidiaries represented a ~~de minimis~~ portion of our consolidated assets and liabilities. We continue to monitor other deteriorating economies and it is possible that additional charges may be recorded in the future. Any additional charges are not expected to have a material adverse effect on our future consolidated results of operations.

~~Trends Affecting Pharmaceutical Pricing, Reimbursement, and Access~~

~~United States~~

In the U.S., public concern over access to and affordability of pharmaceuticals continues to drive the regulatory and legislative debate. These policy and political issues increase the risk that taxes, fees, rebates, or other federal and state measures may be enacted. Key health policy proposals affecting biopharmaceuticals include a reduction in biologic data exclusivity, modifications to Medicare Parts B and D, language that would allow the Department of Health and Human Services to negotiate prices for biologics and drugs in Medicare, proposals that would require biopharmaceutical manufacturers to disclose proprietary drug pricing information, and state-level proposals related to prescription drug prices and reducing the cost of pharmaceuticals purchased by government health care programs. Several states enacted legislation in 2017 related to prescription drug pricing transparency. Savings projected under these proposals are targeted as a means to fund both health care expenditures and non-health care initiatives, or to manage federal and state budgets.

In the private sector, consolidation and integration among healthcare providers is also a major factor in the competitive marketplace for human pharmaceuticals. Health plans, pharmaceutical benefit managers, wholesalers, and other supply chain stakeholders have been consolidating into fewer, larger entities, thus enhancing their purchasing strength and importance. Payers typically maintain formularies which specify coverage (the conditions under which drugs are included on a plan's formulary) and reimbursement (the associated out-of-pocket cost to the consumer). Formulary placement can lead to reduced usage of a drug for the relevant patient population due to coverage restrictions, such as prior authorizations and formulary exclusions, or due to reimbursement limitations which result in higher consumer out-of-pocket cost, such as non-preferred co-pay tiers, increased co-insurance levels and higher deductibles. Consequently, pharmaceutical companies compete for formulary placement not only on the basis of product attributes such as greater efficacy, fewer side effects, or greater patient ease of use, but also by providing rebates. Price is an increasingly important factor in formulary decisions, particularly in treatment areas in which the payer has taken the position that multiple branded products are therapeutically comparable. These downward pricing pressures could negatively affect future consolidated results of operations and cash flows.

The main coverage expansion provisions of the Affordable Care Act (ACA) are currently in effect through both state-based exchanges and the expansion of Medicaid. A trend has been the prevalence of benefit designs containing high out-of-pocket costs for patients, particularly for pharmaceuticals. In addition to the coverage expansions, many employers in the commercial market, driven in part by ACA changes such as the 2020 implementation of the excise tax on employer-sponsored health care coverage for which there is an excess benefit (the so-called "Cadillac tax"), continue to evaluate strategies such as private exchanges and wider use of consumer-driven health plans to reduce their healthcare liabilities over time. Repealing and replacing the ACA remains a priority for President Trump and Congress. Provisions included in final legislation could have a material adverse effect on our consolidated results of operations and cash flows. At the same time, the broader paradigm shift towards performance-based reimbursement and the launch of several value-based purchasing initiatives have placed demands on the pharmaceutical industry to offer products with proven real-world outcomes data and a favorable economic profile.

~~International~~

International operations also are generally subject to extensive price and market regulations. Cost-containment measures exist in a number of countries, including additional price controls and mechanisms to limit reimbursement for our products. Such policies are expected to increase in impact and reach, given the pressures on national and regional health care budgets that come from a growing aging population and ongoing economic challenges. In addition, governments in many emerging markets are becoming increasingly active in expanding health care system offerings. Given the budget challenges of increasing health care coverage for citizens, policies may be proposed that promote generics and biosimilars only and reduce current and future access to branded human pharmaceutical products.

~~Tax Matters~~

~~We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Changes in the relevant tax laws, regulations, administrative practices, principles, and interpretations~~rates could adversely affect our future effective tax rates. The U.S. and a number of other countries are actively considering or enacting changes in this regard. For example, the Trump administration has stated that one of its top priorities is comprehensive tax reform. The tax rates and the manner in which U.S. companies are taxed could be altered by any such potential tax reform and could have a material adverse effect on our consolidated results of operations and cash flows. Additionally, the Organisation for Economic Co-operation and Development issued its final recommendations of international tax reform proposals to influence international tax policy in major countries in which we operate. Other institutions have also become more active regarding tax-related matters, including the European Commission, the United Nations, the Group of Twenty, and the European Parliament. While outcomes of these initiatives continue to develop and remain uncertain, changes to key elements of the U.S. or international tax framework could have a material adverse effect onimpact our consolidated results of operations and cash flows.

Other factors have had, and may continue to have, an impact on our consolidated results of operations. These factors include cost and wage inflation, availability of adequate capacity in global transportation, supply chain and labor market complexities, international tension and conflicts, global economic downturns or uncertainty, and an increase in overall demand in our industry for certain products and materials.

Acquisitions

We invest in external research and technologies that we believe complement and strengthen our own efforts. These investments can take many forms, including acquisitions, collaborations, investments, and licensing arrangements. We view our business development activity as a way to enhance our pipeline and strengthen our business.

In the third quarter, we completed acquisitions of DICE, Versanis, and Emergence Therapeutics AG (Emergence) for an aggregate $2.98 billion, net of cash acquired.

In October 2023, we announced an agreement to acquire POINT Biopharma Global Inc. (POINT) for a purchase price of $12.50 per share in cash (an aggregate of approximately $1.4 billion) payable at closing. The proposed acquisition is subject to customary closing conditions, including the tender of a majority of the outstanding shares of POINT's common stock, the receipt of required antitrust clearance, and license transfer approval from the U.S. Nuclear Regulatory Commission.

See Note 3 to the consolidated condensed financial statements for further discussion regarding our recent ~~acquisitions~~and proposed acquisitions.

See "Risk Factors" in Part I, Item 1A of ~~businesses~~our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information on risk factors that could impact our business and ~~assets, including:~~operations.

Our acquisition of Boehringer Ingelheim Vetmedica, Inc.'s U.S. feline, canine, and rabies vaccine portfolio and other related assets (BIVIVP), completed on January 3, 2017, in an all-cash transaction for $882.1 million.

~~Our acquisition of CoLucid, completed on March 1, 2017, for a cash purchase price of $831.8 million, net of cash acquired.~~

~~Legal Matters~~

~~Information regarding contingencies relating to certain legal proceedings can be found in Note 10 to the consolidated condensed financial statements and is incorporated here by reference.~~

RESULTS OF OPERATIONS

Revenue

The following ~~tables summarize~~table summarizes our revenue activity by region:


												Three Months Ended September 30,				Percent Change	Nine Months Ended September 30,				Percent Change
	Three Months Ended September 30,					Nine Months Ended September 30,						2023		2022			2023		2022
	2017		2016		Percent Change	2017		2016		Percent Change
U.S. ⁽¹⁾	$	3,104.4	$	2,837.6	9	$	9,361.8	$	8,283.1	13
U.S.											U.S.	$	5,368.1	$	4,422.1	21	$	15,335.6	$	13,531.5	13
Outside U.S.	2,553.6		2,354.1		8	7,348.7		7,178.5		2	Outside U.S.	4,130.5		2,519.4		64	9,435.0		7,708.1		22
Revenue	$	5,658.0	$	5,191.7	9	$	16,710.6	$	15,461.6	8	Revenue	$	9,498.6	$	6,941.6	37	$	24,770.7	$	21,239.6	17

Numbers may not add due to rounding.

⁽¹⁾~~U.S. revenue includes revenue in Puerto Rico.~~

The following are components of the change in revenue compared with the prior year:


	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,						Nine Months Ended September 30,
	2017 vs. 2016						2017 vs. 2016							2023 vs. 2022						2023 vs. 2022
	U.S.		Outside U.S.		Consolidated		U.S.		Outside U.S.		Consolidated			U.S.		Outside U.S.		Consolidated		U.S.		Outside U.S.		Consolidated
Volume	6	%	8	%	7	%	8	%	5	%	7	%	Volume	9	%	69	%	31	%	10	%	30	%	17	%
Price	3		—		2		5		(1	)	2		Price	13		(7)		6		3		(5)		—
Foreign exchange rates	—		—		—		—		(1	)	(1	)	Foreign exchange rates	—		2		1		—		(2)		(1)
Percent change	9	%	8	%	9	%	13	%	2	%	8	%	Percent change	21	%	64	%	37	%	13	%	22	%	17	%

Numbers may not add due to ~~rounding~~rounding.

In the U.S., for the three and nine months ended September 30, ~~2017,~~2023, the increase in volume ~~increase~~ was primarily driven by ~~new pharmaceutical products, including~~Mounjaro, Verzenio, Trulicity, ~~Taltz, Basaglar, Lartruvo,~~Jardiance, and ~~Jardiance~~^Taltz®, ~~as well as increased~~partially offset by the absence of revenue from COVID-19 antibodies. In the U.S. for the nine months ended September 30, 2023, the increase in volume ~~for companion animal products~~was also driven by $579.0 million from the ~~acquisition~~sale of ~~BIVIVP,~~the rights for Baqsimi during the second quarter of 2023, partially offset by decreased volume ~~for several established pharmaceutical products, including Cialis due to decreased demand as well as Strattera due to~~from Alimta following the ~~loss~~entry of ~~exclusivity. The~~multiple generics in the first half of 2022. In the U.S. ~~increase in realized prices~~ for the three and nine months ended September 30, ~~2017 was~~2023, the higher realized prices were primarily driven by ~~several pharmaceutical products, primarily Forteo~~^®~~, Cialis,~~Mounjaro, partially offset by lower realized prices for Trulicity and Humalog. For the three and nine months ended September 30, ~~2017, Cymbalta~~^® ~~revenue declined as~~2023, the ~~third quarter of 2016 included an increase in revenue~~higher realized prices for Mounjaro were due to ~~a reduction~~decreased utilization of savings card programs as access continues to ~~the return reserve of approximately $145 million.~~

~~Outside the U.S., for~~expand. For the threeand ninemonths ended September 30, ~~2017,~~2023, the lower realized prices were due to unfavorable segment mix and higher contracted rebates, as well as changes to estimates for rebates and discounts for Trulicity and due to unfavorable segment mix for Humalog.

Outside the U.S. for the three and nine months ended September 30, 2023, the increase in volume ~~increase~~ was largely driven by ~~sales~~$1.42 billion from the sale of ~~several~~the rights for the olanzapine portfolio, including Zyprexa, as well as increased volume for Verzenio. Outside the U.S. for the three and nine months ended September 30, 2023, the lower realized prices were primarily driven by a new ~~pharmaceutical products, including Trulicity~~supply arrangement associated with the sale of the rights for the olanzapine portfolio, and ~~Cyramza~~^®~~. For~~to a lesser extent, lower realized prices from Verzenio and Trulicity. Outside the U.S. for the nine months ended September 30, ~~2017,~~2023, the ~~volume increase was partially offset~~lower realized prices were also driven by the ~~loss~~impact of ~~exclusivity~~government pricing in China from volume-based procurement for ~~several established products, including Zyprexa in Japan, Cymbalta in Canada and Europe, and Alimta in several countries.~~Humalog.

The following ~~tables summarize~~table summarizes our revenue, ~~activity~~including net product revenue and collaboration and other revenue, by ~~product:~~

Three Months Ended
September 30,
2017 2016
Product
U.S. ⁽¹⁾
Outside U.S. Total Total Percent Change
Humalog $ 414.9
$ 281.3
$ 696.2
$ 640.8
9
Cialis 319.6
245.3
564.9
588.2
(4)
Trulicity 412.9
114.8
527.7
243.6
117
Alimta 260.3
254.2
514.5
570.4
(10)
Forteo 234.1
207.6
441.7
391.2
13
Humulin^®
203.0
97.5
300.5
322.0
(7)
Cyramza 69.5
126.5
196.0
159.0
23
Cymbalta 19.6
163.5
183.2
313.5
(42)
Erbitux^®
136.0
27.4
163.5
184.6
(11)
Trajenta^{™ (2)}
68.4
84.9
153.3
115.4
33
Taltz 131.3
20.0
151.3
32.5
NM
Basaglar 115.2
30.5
145.7
19.4
NM
Zyprexa 12.6
128.0
140.6
148.9
(6)
Strattera 52.9
84.1
137.1
198.8
(31)
Jardiance ⁽³⁾
83.8
43.4
127.2
47.5
168
Effient 42.7
13.1
55.9
127.7
(56)
Other human pharmaceutical products 174.6
243.9
418.1
382.0
9
Animal health products 353.0
387.6
740.6
706.2
5
Revenue $ 3,104.4
$ 2,553.6
$ 5,658.0
$ 5,191.7
9

Nine Months Ended
September 30,
2017 2016
Product
U.S. ⁽¹⁾
Outside U.S. Total Total Percent Change
Humalog $ 1,254.3
$ 828.6
$ 2,083.0
$ 1,949.0
7
Cialis 997.3
728.5
1,725.7
1,795.3
(4)
Alimta 761.9
775.4
1,537.3
1,741.7
(12)
Trulicity 1,090.1
290.7
1,380.8
588.5
135
Forteo 661.5
574.3
1,235.8
1,077.5
15
Humulin 634.9
337.9
972.8
1,010.6
(4)
Cymbalta 100.8
463.6
564.4
748.7
(25)
Cyramza 204.3
349.2
553.5
437.0
27
Strattera 276.9
243.0
519.9
611.5
(15)
Erbitux 398.2
78.8
477.0
533.3
(11)
Zyprexa 49.3
379.6
428.9
572.3
(25)
Trajenta⁽²⁾
174.2
234.1
408.2
330.8
23
Taltz 343.6
43.1
386.7
51.9
NM
Effient 290.8
35.8
326.6
394.3
(17)
Jardiance ⁽³⁾
198.3
105.9
304.3
125.8
142
Basaglar 196.7
81.6
278.3
46.6
NM
Other human pharmaceutical products 555.3
677.2
1,232.6
1,126.3
9
Animal health products 1,173.4
1,121.4
2,294.8
2,320.5
(1)
Revenue $ 9,361.8
$ 7,348.7
$ 16,710.6
$ 15,461.6
8
product for the three months ended September 30, 2023 and 2022:


	Three Months Ended September 30,								Percent Change
	2023						2022
Product	U.S.		Outside U.S.		Total		Total
Trulicity	$	1,259.0	$	414.6	$	1,673.6	$	1,850.4	(10)
Zyprexa(1)	49.9		1,431.5		1,481.4		81.4		NM
Mounjaro	1,277.0		132.4		1,409.3		187.3		NM
Verzenio	684.6		355.7		1,040.2		617.7		68
Taltz	509.3		234.9		744.2		679.9		9
Jardiance(2)	415.9		284.8		700.8		573.3		22
Humalog(3)	194.2		201.2		395.4		447.0		(12)
Olumiant®(4)	65.7		165.7		231.4		182.9		27
Cyramza®	88.0		136.1		224.1		232.1		(3)
Humulin®	145.5		61.2		206.7		238.2		(13)
Basaglar® (5)	111.4		68.2		179.6		193.0		(7)
Emgality®	126.5		42.1		168.5		168.5		—
Erbitux®	134.0		19.9		153.9		144.9		6
Forteo®	101.2		45.2		146.4		177.1		(17)
Cialis®	4.9		82.0		86.8		115.7		(25)
Alimta	21.2		32.3		53.5		119.4		(55)
Baqsimi	3.8		9.3		13.1		43.0		(70)
COVID-19 antibodies(6)	—		—		—		386.6		(100)
Other products	176.0		413.4		589.7		503.2		17
Revenue	$	5,368.1	$	4,130.5	$	9,498.6	$	6,941.6	37

Numbers may not add due to rounding.

NM - not meaningful

⁽¹⁾~~U.S.~~Zyprexa revenue includes ~~revenue in Puerto Rico.~~sale of rights for the olanzapine portfolio.

⁽²⁾~~Trajenta revenue includes Jentadueto~~^®.

⁽³⁾Jardiance revenue includes Glyxambi^®,Synjardy®, and ~~Synjardy~~^Trijardy®. XR.

(3) Humalog revenue includes insulin lispro.

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

(5) Basaglar revenue includes Rezvoglar®.

The following table summarizes our revenue, including net product revenue and collaboration and other revenue, by product for the nine months ended September 30, 2023 and 2022:


	Nine Months Ended September 30,
	2023						2022
Product	U.S.		Outside U.S.		Total		Total		Percent Change
Trulicity	$	4,177.7	$	1,285.6	$	5,463.2	$	5,503.5	(1)
Mounjaro	2,729.1		228.4		2,957.5		203.2		NM
Verzenio	1,734.2		983.7		2,717.9		1,675.6		62
Taltz	1,293.8		681.2		1,975.0		1,774.2		11
Jardiance(1)	1,131.5		815.1		1,946.6		1,453.7		34
Zyprexa(2)	69.1		1,581.9		1,651.0		261.7		NM
Humalog(3)	695.6		601.2		1,296.8		1,512.3		(14)
Cyramza	303.6		417.5		721.1		693.6		4
Olumiant(4)	158.8		520.4		679.2		624.7		9
Humulin	488.6		175.4		664.0		785.4		(15)
Baqsimi	633.1		25.4		658.4		101.2		NM
Basaglar(5)	329.7		213.4		543.1		558.7		(3)
Emgality	354.0		138.2		492.2		475.2		4
Erbitux	398.3		48.0		446.3		408.3		9
Forteo	269.2		147.6		416.8		453.0		(8)
Cialis	21.6		281.1		302.7		480.4		(37)
Alimta	59.2		113.5		172.6		691.1		(75)
COVID-19 antibodies(6)	—		—		—		1,985.5		(100)
Other products	488.5		1,177.4		1,666.3		1,598.3		49
Revenue	$	15,335.6	$	9,435.0	$	24,770.7	$	21,239.6	17

Numbers may not add due to rounding.

NM - not meaningful

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

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

(3) Humalog revenue includes insulin lispro.

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

(5) Basaglar revenue includes Rezvoglar.

Revenue of ~~Humalog, our injectable human insulin analog for the treatment of diabetes, increased 10 percent and 8~~Trulicity decreased 11 percent in the U.S. during the three months ended September 30, 2023, primarily driven by lower realized prices, partially offset by wholesaler buying patterns and ~~and first~~increased demand. Revenue of Trulicity remained relatively flat in the U.S. during the nine months ~~of 2017, respectively,~~ended September 30, 2023, driven by increased demand and wholesaler buying patterns, offset by lower realized prices. The lower realized prices for the three and nine months ended September 30, 2023 were primarily due to unfavorable segment mix and higher contracted rebates, as well as changes to estimates for rebates and discounts, reflecting an unfavorable adjustment in the third quarter of 2023 and a favorable adjustment in the third quarter of 2022. Revenue outside the U.S. decreased 4 percent during the three months ended September 30, 2023, driven by lower realized prices and decreased volume, partially offset by the favorable impact of foreign exchange rates. Revenue outside the U.S. decreased 4 percent during the nine months ended September 30, 2023, driven by lower realized prices and unfavorable impact of foreign exchange rates, partially offset by increased volume. Volumes in international markets were affected by actions we have taken to manage strong demand amid tight supply, including measures to minimize impact to existing patients.

Revenue of Mounjaro in the U.S. during the three and nine months ended September 30, 2023 was $1.28 billion and $2.73 billion, respectively, reflecting increased demand and higher realized prices due to ~~changes in estimates~~decreased utilization of savings card programs as access continues to ~~rebates~~expand. During the three and ~~discounts and, to a lesser extent, increased volume. For the first~~ nine months of 2017, the increase in realized prices primarily resulted from decreased revenue in the first quarter of 2016 resulting from changes in estimates for rebates and discounts. Revenue outside the U.S. increased 7 percent and 5 percent during the three~~and nine~~months ended September 30, ~~2017,~~2023, we experienced intermittent delays fulfilling orders of certain Mounjaro doses given significant demand, which affected volume.

Revenue of Verzenio increased 65 percent and 58 percent in the U.S. during the three and nine months ended September 30, 2023, respectively, driven by increased ~~volume~~demand and, to a lesser extent, higher realized prices. Revenue outside the U.S. increased 75 percent and 71 percent during the three and nine months ended September 30, 2023, respectively, driven by increased demand, partially offset by lower realized prices. The increase in revenue outside the U.S. for the ninemonths ended September 30, ~~2017~~2023 was also partially offset by the unfavorable impact of foreign exchange rates. A similar version of insulin lispro has received tentative approval in the U.S. and could launch soon. We are also aware that a competitor's insulin lispro product has launched in certain European markets. While it is difficult to estimate the severity of the impact of similar insulin lispro products entering the market, we do not expect a rapid and severe decline in revenue; however, we expect competitive pressure and some loss of market share initially that would continue over time. See "Other Matters—Patent Matters" for more information.

Revenue of ~~Cialis, a treatment for erectile dysfunction and benign prostatic hyperplasia, decreased 8~~Taltz increased 3 percent and 67 percent in the U.S. during the threeand ninemonths ended September 30, ~~2017,~~2023, respectively, driven by ~~decreased~~increased demand, partially offset by ~~higher~~lower realized prices. Revenue outside the U.S. increased 2 percent in the third quarter of 2017, driven by higher realized prices and, to a lesser extent, the favorable impact of foreign exchange rates, partially offset by decreased volume. For the first nine months of 2017, revenue outside the U.S. decreased 2 percent, driven by decreased volume and, to a lesser extent, the unfavorable impact of foreign exchange rates, partially offset by higher realized prices. We will lose our compound patent protection for Cialis in major European markets in November 2017 and now expect U.S. exclusivity for Cialis to end in late September 2018 at the earliest. See "Other Matters—Patent Matters" for more information regarding our U.S. exclusivity. In addition to potential competition from generic tadalafil, we also currently face competition from generic sildenafil, which we expect to accelerate during 2018. We expect that the entry of generic competition following the loss of exclusivity will cause a rapid and severe decline in revenue.

~~Revenue of Alimta, a treatment for various cancers, decreased 6~~26 percent and 821 percent ~~in the U.S.~~ during the threeand ninemonths ended September 30, ~~2017,~~2023, respectively, ~~driven by decreased demand due to competitive pressure. Revenue outside the U.S. decreased 13 percent and 15 percent during the threeand nine~~months ended September 30, 2017, respectively, driven by competitive pressure, lower realized prices, and the loss of exclusivity in several countries. We have faced and remain exposed to generic entry in multiple countries that has eroded revenue and is likely to continue to erode revenue from current levels.

~~Revenue of Trulicity, a treatment for type 2 diabetes, increased119 percent and 132 percent in the U.S. during the threeand nine~~months ended September 30, 2017, respectively, driven by increased share of market for Trulicity and growth in the GLP-1 market. Revenue outside the U.S. increased 109 percent and 144 percent during the three~~and ninemonths ended September 30, 2017, respectively,~~ primarily ~~driven by uptake in Europe and Japan.~~

Revenue of Forteo, an injectable treatment for osteoporosis in postmenopausal women and men at high risk for fracture and for glucocorticoid-induced osteoporosis in men and postmenopausal women, increased 13 percent and 22 percent in the U.S. during the three~~and nine~~months ended September 30, 2017, respectively, driven by higher realized prices. Revenue outside the U.S. increased 13 percent and 7 percent during the third quarter of 2017 and the first nine months of 2017, respectively, driven by increased volume. Revenue for the first nine months of 2017 was partially offset by lower realized prices and the unfavorable impact of foreign exchange rates.

~~Revenue of Humulin, an injectable human insulin for the treatment of diabetes, increased 4 percent in the U.S. during the third quarter of 2017,~~ driven by increased volume, partially offset by lower realized prices. For the first nine months of 2017, revenue decreased 1 percent in the U.S., primarily resulting from a change in estimate in the first quarter of 2016 for a government rebate, which increased revenue in that period, partially offset by increased volume. Revenue outside the U.S. decreased 23 percent during the third quarter of 2017, driven by decreased volume, primarily due to buying patterns in China. For the first nine months of 2017, revenue decreased 9 percent outside the U.S., driven by lower realized prices and, to a lesser extent, the unfavorable impact of foreign exchange rates, and decreased volume.

Revenue of Cymbalta, a product for the treatment of major depressive disorder, diabetic peripheral neuropathic pain, generalized anxiety disorder, and for the treatment of chronic musculoskeletal pain and the management of fibromyalgia, was $19.6 million and $100.8 million in the U.S. during the three~~and ninemonths ended September 30, 2017, respectively, compared to $162.3 million and $246.2 million during the threeand ninemonths ended September 30, 2016, respectively. The decreases were driven by reductions to the reserve for expected product returns, which~~Jardiance increased revenue by approximately $145 million and $175 million in the third quarter and first nine months of 2016, respectively. Revenue increased 8 percent outside the U.S. during the third quarter of 2017, primarily driven by increased volume in Japan. Revenue decreased~~8 percent outside the U.S. during the ninemonths ended September 30, 2017, primarily driven by the loss of exclusivity in Canada and Europe, partially offset by increased volume in Japan.~~

Revenue of Cyramza, a treatment for various cancers, increased 4 percent in the U.S. during the third quarter of 2017, driven by increased volume. For the first nine months of 2017, revenue decreased 1 percent in the U.S., driven by lower realized prices and decreased demand due to competitive pressure. Revenue outside the U.S. increased 3819 percent and ~~52 percent during the threeand ninemonths ended September 30, 2017, respectively, primarily due to strong volume growth in Japan, partially offset by lower realized prices and the unfavorable impact of foreign exchange rates.~~

~~Revenue of Strattera, a treatment for attention-deficit hyperactivity disorder, decreased 56 percent and 27~~36 percent in the U.S. during the threeand ninemonths ended September 30, ~~2017,~~2023, respectively, primarily driven by the loss of exclusivity in the second quarter of 2017, partially offset by higher realized prices. We lost our patent protection for Strattera in the U.S. in May 2017. The entry of generic competition following the loss of effective patent protection has caused a rapid and severe decline in revenue.increased demand. Revenue outside the U.S. increased 628 percent and 531 percent during the threeand ninemonths ended September 30, ~~2017,~~2023, respectively, primarily driven by increased ~~volume in Japan, partially offset by lower realized prices and the unfavorable impact of foreign exchange rates.~~

Revenue of Erbitux, a treatment for various cancers, decreased 12 percent in the U.S. during both the third quarter and first nine months of 2017, due to competitive pressure from immuno-oncology products.

Worldwide food animal revenue decreased 6 percent during the third quarter of 2017, driven by market access and competitive pressures in U.S. cattle. Worldwide food animal revenue decreased 8 percent during the ninemonths ended September 30, 2017, driven by market access and competitive pressures in cattle and swine. Worldwide companion animal revenue increased 35 percent during the three months ended September 30, 2017, driven by the inclusion of $61.2 million in revenue from the BIVIVP acquisition and wholesaler buying patterns in the U.S. in the third quarter of 2016. The increase in revenue during the third quarter of 2017 was partially offset by competitive pressure and lower realized prices. Worldwide companion animal revenue increased 13 percent during the ninemonths ended September 30, 2017, driven by the inclusion of $180.2 million in revenue from the BIVIVP acquisition, partially offset by competitive pressure. We expect these pressures for both companion animal and food animal to continue.

~~Gross Margin, Costs, and Expenses~~

~~Gross margin as a percent of revenue decreased 0.7 percentage points to 72.3 percent and increased 0.5 percentage points to 73.4 percent for the threeand nine~~months ended September 30, 2017, respectively. The decrease in gross margin percent for the third quarter of 2017 was primarily due to the effect of foreign exchange rates on international inventories sold and negative product mix, partially offset by manufacturing efficiencies. The increase in gross margin percent for the ninemonths ended September 30, 2017 was primarily due to manufacturing efficiencies and higher realized prices, partially offset by the effect of foreign exchange rates on international inventories sold and negative product mix.

~~Research and development expenses increased 7 percent to $1.32 billion and remained relatively flat at $3.81 billion for the threeand nine~~months ended September 30, 2017, respectively. The increase for the third quarter of 2017 was primarily due to a $50.0 million milestone payment related to lanabecestat as part of our collaboration with AstraZeneca and, to a lesser extent, higher late-stage clinical development costs. For the nine~~months ended September 30, 2017, higher late-stage clinical development costs were essentially offset by lower milestone payments in 2017 as compared with 2016.~~volume. See Note 4 to the consolidated condensed financial statements for ~~additional~~ information regarding our collaboration with ~~AstraZeneca.~~Boehringer Ingelheim involving Jardiance.

There was no worldwide revenue for COVID-19 antibodies during the three and nine months ended September 30, 2023, and we do not anticipate any revenue from COVID-19 antibodies in 2023.

Gross Margin, Costs, and Expenses

The following table summarizes our gross margin, costs, and expenses:


	Three Months Ended September 30,						Percent Change	Nine Months Ended September 30,						Percent Change
	2023			2022				2023			2022

Gross margin	$	7,638.5		$	5,362.5		42	$	19,476.5		$	16,157.9		21
Gross margin as a percent of revenue	80.4		%	77.3		%		78.6		%	76.1		%

Research and development	$	2,409.1		$	1,802.9		34	$	6,750.7		$	5,194.9		30
Marketing, selling, and administrative	1,803.9			1,614.2			12	5,478.5			4,797.2			14
Acquired IPR&D	2,975.1			62.4			NM	3,177.2			668.4			NM
Asset impairment, restructuring, and other special charges	—			206.5			(100)	—			206.5			(100)
Other–net, (income) expense	23.2			111.0			(79)	24.3			580.9			(96)
Income taxes	484.6			113.8			NM	995.1			402.9			NM
Effective tax rate	113.4		%	7.3		%		24.6		%	8.6		%

NM - not meaningful

Gross margin as a percent of revenue for the three months ended September 30, 2023 increased 3.1 percentage points compared with the three months ended September 30, 2022, primarily driven by the sale of rights for the olanzapine portfolio and the absence of COVID-19 antibodies sales in 2023, as well as higher realized prices, partially offset by increased manufacturing expenses related to labor costs and investments in capacity expansion. Gross margin as a percent of revenue for the nine months ended September 30, 2023 increased 2.5 percentage points compared with the nine months ended September 30, 2022, primarily driven by the absence of COVID-19 antibodies sales in 2023 and the sales of the rights for the olanzapine portfolio and Baqsimi, partially offset by increased manufacturing expenses related to labor costs and investments in capacity expansion.

Research and development expenses increased 34 percent and 30 percent for the three and nine months ended September 30, 2023, respectively, primarily driven by higher development expenses for late-stage assets and additional investments in early-stage research.

Marketing, selling, and administrative expenses ~~decreased 1~~increased12 percent ~~to $1.56 billion~~ and ~~increased 3~~14 percent ~~to $4.81 billion~~ for the threeand ninemonths ended September 30, ~~2017, respectively. The decrease for the third quarter~~2023, respectively, primarily driven by costs associated with launches of ~~2017 was due to decreased expenses related to late life-cycle~~new products partially offset by increased expenses related to new pharmaceutical products. The increase for the first nine months of 2017 was due to increased expenses related to new pharmaceutical products, partially offset by decreased expenses related to late life-cycle products.and indications, as well as compensation and benefits costs.

We recognized ~~$205.0 million~~$2.98 billion and ~~$1.06~~$3.18 billion of acquired IPR&D charges for the threeand ninemonths ended September 30, ~~2017,~~2023, respectively, ~~compared with no~~primarily related to the acquisitions of DICE, Versanis, and Emergence. We recognized $62.4 million and $668.4 million of acquired IPR&D charges for the threeand ninemonths ended September 30, ~~2016.~~2022, respectively. The charges ~~during~~for the ~~third quarter of 2017 relate~~nine months ended September 30, 2022 primarily related to the ~~upfront payments associated with~~buy-out of substantially all future obligations that were contingent upon the occurrence of certain events linked to the success of our ~~collaborations with Nektar~~mutant-selective PI3kα inhibitor and ~~KeyBioscience. The charges during the first nine months~~a purchase of ~~2017, also include the acquired IPR&D charges associated with the acquisition of CoLucid.~~a Priority Review Voucher. See Note 3 to the consolidated condensed financial statements for additional information.

There were no asset impairment, restructuring, and other special charges recognized for the three and nine months ended September 30, 2023. We recognized asset impairment, restructuring, and other special charges of ~~$406.5 million and $670.4~~$206.5 million for the threeand ninemonths ended September 30, ~~2017, respectively, compared with charges of $45.5 million and $234.9 million for the threeand ninemonths ended September 30, 2016, respectively. The charges for the third quarter of 2017 were partially associated with asset impairments~~2022, primarily related to ~~lower projected revenue~~an intangible asset impairment for ~~Posilac, severance costs incurred as a result of actions taken to reduce our cost structure, as well as exit costs~~GBA1 Gene Therapy due to site closures. See "Executive Overview—Financial Results" for more information on the actions taken to reduce our cost structure. The charges for the first nine months of 2017 were due to severance costs incurred as a result of actions taken to reduce our cost structure, charges associated with the Posilac impairment, integration costs related to the acquisition of Novartis AH, asset impairments and other charges related to animal health assets, as well as exit costs due to site closures. We are exploring strategic options for Posilac, including seeking a buyer for the molecule and its Augusta manufacturing site. The charges for the third quarter of 2016 related to integration and severance costs for Novartis AH. The charges for the first nine ~~months of 2016 were primarily associated with integration costs related to our acquisition of Novartis AH, asset impairments related to the closure of an animal health manufacturing facility~~changes in ~~Ireland, as well as severance costs for Novartis AH.~~estimated launch timing. See Note 5 to the consolidated condensed financial statements for additional information.

Other–net, (income) expense ~~was expense~~included net investment losses on equity securities of ~~$13.9~~$62.9 million and ~~expense of $2.7~~$141.5 million for ~~the third quarter~~three and ~~first~~ nine months ended September 30, 2023, respectively. Other–net, (income) expense included net investment losses on equity securities of ~~2017, respectively, compared with income of $27.2~~$123.3 million and ~~expense of $100.6~~$667.6 million for ~~the third quarter~~three and ~~first~~ nine months of 2016. The increase in expense during the third quarter of 2017 was driven by higher net gains on investments in the third quarter of 2016 as compared to 2017. Other expense during the first nine months of 2016 was driven by a $203.9 million charge related to the impact of the Venezuelan financial crisis, including the significant deterioration of the bolívar.ended September 30, 2022, respectively. See Note 1211 to the consolidated condensed financial statements for additional information.

The effective tax rates were ~~6.1~~113.4 percent and ~~24.1~~24.6 percent for the three and nine months ended September 30, ~~2017,~~2023, respectively, ~~compared with 19.9 percent and 20.8 percent for~~primarily driven by the ~~same respective periods of 2016. The decrease~~non-deductible acquired IPR&D charges in ~~the effective tax rate for~~ the third quarter of ~~2017 is~~2023. The effective tax rates were 7.3 percent and 8.6 percent for the three and nine months ended September 30, 2022, respectively, reflecting the favorable tax impacts of net investment losses on equity securities and an intangible asset impairment charge.

FINANCIAL CONDITION AND LIQUIDITY

We believe our available cash and cash equivalents, together with our ability to generate operating cash flow and our access to short-term and long-term borrowings, are sufficient to fund our existing and planned capital requirements. For a discussion of our capital requirements, see "Management's Discussion and Analysis of Results of Operations and Financial Condition" in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022.

We have announced additional investment commitments in new facilities in Indiana, North Carolina, and Limerick, Ireland to manufacture existing and future products. We expect that these investments will result in higher capital expenditures in excess of $8 billion over the next several years.

In the third quarter, we completed acquisitions of DICE, Versanis, and Emergence for an aggregate $2.98 billion, net of cash acquired. These acquisitions were funded primarily ~~due~~through cash on hand and the issuance of commercial paper. See Note 3 to the ~~income tax benefit~~consolidated condensed financial statements for additional information.

In October 2023, we announced an agreement to acquire POINT for a purchase price of ~~acquired IPR&D charges~~$12.50 per share in cash (an aggregate of approximately $1.4 billion) payable at closing. The proposed acquisition is subject to customary closing conditions, including the tender of a majority of the outstanding shares of POINT's common stock, the receipt of required antitrust clearance, and ~~asset impairment, restructuring,~~license transfer approval from the U.S. Nuclear Regulatory Commission. We anticipate funding this acquisition through cash on hand and ~~other special charges. The increase in~~ the ~~effective tax rate for the first nine months~~issuance of 2017 is primarily due to the non-tax deductible $857.6 million acquired IPR&D charge for the acquisition of CoLucid, partially offset by the income tax benefit of acquired IPR&D charges and asset impairment, restructuring, and other special charges.

~~Financial Condition~~commercial paper.

Cash and cash equivalents ~~decreased~~increased to ~~$3.72~~$2.38 billion as of September 30, ~~2017,~~2023, compared with ~~$4.58~~$2.07 billion as of December 31, ~~2016.~~2022. Refer to the consolidated condensed statements of cash flows for additional ~~details~~information on the significant sources and uses of cash for the nine months ended September 30, ~~2017~~2023 and ~~2016.~~2022.

In addition to our cash and cash equivalents, we held total investments of ~~$9.37~~$2.80 billion and ~~$6.66~~$3.05 billion as of September 30, ~~2017~~2023 and December 31, ~~2016,~~2022, respectively. See Note 6 to the consolidated condensed financial statements for additional ~~details.~~information.

~~Total debt increased to $13.46 billion as~~As of September 30, ~~2017,~~2023, total debt was $20.17 billion, an increase of $3.93 billion compared with ~~$10.31~~$16.24 billion as of December 31, ~~2016. The increase was primarily~~2022. 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 ~~of $2.23 billion~~ from the ~~issuance~~offering of ~~fixed-rate notes and, to a lesser extent, the net increase in the balance of commercial paper outstanding of $1.23~~$3.96 billion ~~partially offset by~~for general business purposes, including the repayment of ~~$630.6 million of long term debt.~~outstanding commercial paper. See Note 6 to the consolidated condensed financial statements for additional ~~details regarding the May 2017 debt issuance. At~~information.

As of September 30, ~~2017,~~2023, we had a total of ~~$5.17~~$7.33 billion of unused committed bank credit facilities, ~~$5.00~~$7.00 billion of which is available to support our commercial paper program. We believe that amounts accessible through existing commercial paper markets should be adequate to fund short-term ~~borrowings.~~borrowing needs.

During the nine months ended September 30, ~~2017,~~2023, we repurchased ~~$259.9~~$750.0 million of shares ~~associated with~~under our ~~previously announced~~ $5.00 billion share repurchase program authorized in May 2021. As of September 30, 2023, we had $2.50 billion remaining under this program.

~~We believe that cash generated from operations, along with available cash and cash equivalents, will be sufficient~~During the nine months ended September 30, 2023, we paid dividends of $3.05 billion, or $3.39 per share, to ~~fund~~ our ~~normal operating needs, including dividends,~~shareholders. In November 2023, we declared a dividend for the fourth quarter of 2023 of $1.13 per share ~~repurchases, and capital expenditures.~~on outstanding common stock. The dividend of approximately $1.02 billion is payable on December 8, 2023 to shareholders of record at the close of business on November 15, 2023.

See ~~"Other~~"Executive Overview—Other Matters—Patent Matters" for information regarding ~~recent and upcoming~~ losses of patent protection.

Both domestically and abroad, we continue to monitor the potential impacts of the economic environment; the creditworthiness of our wholesalers and other customers, including foreign government-backed agencies and suppliers; the uncertain impact of ~~health care~~healthcare legislation; various international government funding levels; and ~~changes~~fluctuations in interest rates, foreign currency exchange rates (see ~~"Other~~"Executive Overview—Other Matters—Foreign Currency Exchange ~~Rates"~~Rates and Other Impacts").

, and fair values of equity securities.

~~Financial Expectations~~

~~Full-year 2017 EPS is now anticipated~~As we expand our manufacturing capacity in order to ~~be in~~meet existing and expected demand of our incretin products, we have entered, and expect to continue to enter, into various agreements for contract manufacturing and for supply of materials. The executed agreements could, under certain circumstances, require us to pay up to approximately $8.5 billion if we do not purchase specified amounts of goods or services over the range of $1.73 to $1.83 reflecting charges associated with recently announced streamlining initiatives. We now expect 2017 revenue of between $22.4 billion and $22.7 billion, primarily due to uptake trends for new pharmaceutical products and, to a lesser extent, the positive impactdurations of the ~~Euro. Excluding~~agreements, which generally range from 2 to 8 years.

CRITICAL ACCOUNTING ESTIMATES

For a discussion of our critical accounting estimates, refer to "Management's Discussion and Analysis of Results of Operations and Financial Condition" in Part II, Item 7 and the ~~impact~~notes to our consolidated financial statements in Part II, Item 8 of foreign exchange rates, we expect revenue growth from new pharmaceutical products including Trulicity, Taltz, Basaglar, Cyramza, Jardiance, and Lartruvo, as well as a number of established pharmaceutical products including Trajenta, Forteo, and Humalog.our Annual Report on Form 10-K for the year ended December 31, 2022. See also Note 1 to the consolidated condensed financial statements. There have been no material changes to our critical accounting estimates since our Annual Report on Form 10-K for the year ended December 31, 2022.

Gross margin as a percent of revenue is still expected to be approximately 72.5 percent. Research and development expenses are now expected to be in the range of $5.1 billion to $5.2 billion. Marketing, selling, and administrative expenses are still expected to be in the range of $6.4 billion to $6.6 billion. Other—net, (income) expense is still expected to be income of up to $100 million.

~~The 2017 tax rate is now expected to be approximately 20.0 percent.~~

~~Capital expenditures are still expected to be approximately $1.1 billion.~~

~~Available Information on our Website~~AVAILABLE INFORMATION ON OUR WEBSITE

We make available through our company website, free of charge, our company filings with the Securities and Exchange Commission (SEC) as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. The reports we make available include annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, registration statements, and any amendments to those documents.

The website link to our SEC filings is ~~http://~~investor.lilly.com/~~sec.cfm~~financial-information/sec-filings.

We routinely post important information for investors in the “Investors” section of our website, www.lilly.com. We may use our website as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor the “Investors” section of our website, in addition to following our press releases, filings with the SEC, public conference calls, presentations, and webcasts. We may also use social media channels to communicate with investors and the public about our business, products and other matters, and those communications could be deemed to be material information. The information contained on, or that may be accessed through, our website or social media channels, is not incorporated by reference into, and is not a part of, this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

For a discussion of our market risk, see “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2022.

Item 4. Controls and Procedures

~~(a)~~

~~Evaluation of Disclosure Controls and Procedures~~. Under applicable SEC regulations, management of a reporting company, with the participation of the principal executive officer and principal financial officer, must periodically evaluate the company’s “disclosure controls and procedures,” which are defined generally as controls and other procedures of a reporting company designed to ensure that information required to be disclosed by the reporting company in its periodic reports filed with the SEC (such as this Form 10-Q) is recorded, processed, summarized, and reported on a timely basis.

(a)Evaluation of Disclosure Controls and Procedures. Under applicable Securities and Exchange Commission (SEC) regulations, management of a reporting company, with the participation of the principal executive officer and principal financial officer, must periodically evaluate the company's "disclosure controls and procedures," which are defined generally as controls and other procedures of a reporting company designed to ensure that information required to be disclosed by the reporting company in its periodic reports filed with the SEC (such as this Quarterly Report on Form 10-Q) is recorded, processed, summarized, and reported on a timely basis.

Our management, with the participation of David A. Ricks, ~~chairman,~~ president and chief executive officer, and ~~Derica W. Rice,~~Anat Ashkenazi, executive vice president ~~global services,~~ and chief financial officer, evaluated our disclosure controls and procedures (as such terms are defined in our Annual Report on Form 10-K for the year ended December 31, 2022) as of September 30, ~~2017,~~2023, and concluded that they were effective.

(b)Changes in Internal Controls. During the third quarter of 2023, there were no changes in our internal control over financial reporting that materially affected, or are ~~effective.~~


~~(b)~~	~~Changes in Internal Controls. During the~~ ~~third~~ quarter of 2017, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

reasonably likely to materially affect, our internal control over financial reporting. We rely extensively on information systems and technology to manage our business, including integrated supply chain operations, and global consolidated financial results. We are currently preparing to implement a new global enterprise resource planning (ERP) system, which will replace existing operating and financial systems. The ERP system is designed to accurately maintain our financial records, support integrated supply chain and other operational functionality, and provide timely information to our management team related to the operation of the business. We currently expect to commence and complete the global implementation in the first quarter of 2024, with post-implementation activities following thereafter. As the implementation and post-implementation activities take place, we will have changes to certain of our processes and procedures, and we will evaluate quarterly whether the changes materially affect our internal control over financial reporting.

PART II. Other Information

Item 1. Legal Proceedings

We are a party to various currently pending legal actions, government investigations, and environmental proceedings. See ~~"Notes~~Note 9 to ~~Consolidated Condensed Financial Statements—Note 10, Contingencies"~~the consolidated condensed financial statements for information on various legal ~~proceedings, including but not limited to:~~proceedings.

•~~The patent litigation and administrative proceedings involving Alimta and Effient.~~

•~~The product liability litigation involving Actos~~^®~~and Cymbalta.~~

•~~The employee litigation in Brazil.~~

~~That information is incorporated into this Item by reference.~~

This Item should be read in conjunction with ~~the Legal Proceedings disclosures~~"Legal Proceedings" in Part I, Item 3 of our Annual Report on Form 10-K for the year ended December 31, ~~2016 (Part I, Item 3) and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2017 and June 30, 2017 (Part II, Item 1).~~2022.

~~Other Product Liability Litigation~~

~~We are named as a defendant in approximately 505 Byetta~~^®product liability lawsuits in the U.S. involving approximately 770 plaintiffs. Approximately 60 of these lawsuits, covering about 320 plaintiffs, are filed in California state court and coordinated in a Los Angeles Superior Court. Approximately 440 lawsuits, covering about 445 plaintiffs, are filed in federal court, the majority of which are coordinated in a multidistrict litigation (MDL) in the U.S. District Court for the Southern District of California. The remaining three lawsuits, representing approximately five plaintiffs, are in various state courts. Approximately 495 of the lawsuits, involving approximately 730 plaintiffs, contain allegations that Byetta caused or contributed to the plaintiffs' cancer (primarily pancreatic cancer or thyroid cancer); most others allege Byetta caused or contributed to pancreatitis. The federal and state trial courts granted summary judgment in favor of us and our co-defendants on the claims alleging pancreatic cancer. The plaintiffs appealed those rulings. In October 2017, oral argument was held in the U.S. Court of Appeals for the Ninth Circuit for the federal court decision. No oral argument date has been set for appeal of the state court decision. We are aware of approximately 20 additional claimants who have not yet filed suit. These additional claims allege damages for pancreatic cancer or thyroid cancer. We believe these lawsuits and claims are without merit and are prepared to defend against them vigorously.

We are named as a defendant in approximately 135 Cialis product liability lawsuits in the U.S. These cases, originally filed in various federal courts, contain allegations that Cialis caused or contributed to the plaintiffs' cancer (melanoma). In December 2016, the Judicial Panel on Multidistrict Litigation (JPML) granted the plaintiffs' petition to have the filed cases and an unspecified number of future cases coordinated into a federal MDL in the U.S. District Court for the Northern District of California, alongside an existing coordinated proceeding involving Viagra^®~~. The JPML ordered the transfer of the existing cases to the now-renamed MDLIn re: Viagra (Sildenafil Citrate) and Cialis (Tadalafil) Products Liability Litigation. We believe these lawsuits and claims are without merit and are prepared to defend against them vigorously.~~

~~Other Patent Matters~~

In Canada, several generic companies previously challenged the validity of our Zyprexa patent. In September 2012, the Canadian Court of Appeals affirmed the lower court's decision that the patent was invalid for lack of utility. In 2013, our petition for leave to appeal the decision to the Supreme Court of Canada was denied. Two of the generic companies, Apotex Inc. (Apotex) and Teva Canada Limited (Teva Canada), pursued claims for damages arising from our enforcement of the patent under Canadian regulations. In April 2014, the Supreme Court of Canada dismissed Apotex's damages suit. Teva Canada's claim for damages remains, and a separate trial to determine the total amount of damages that may be awarded to Teva Canada concluded in May 2016. In January 2017, the court issued a ruling that Teva Canada is entitled to damages. We have appealed this decision and a hearing is expected in late 2017.

In October 2017, Teva Pharmaceuticals International GMBH filed a lawsuit against us in U.S District Court for the District of Massachusetts seeking a ruling that various patents would be infringed if we launch galcanezumab. We believe these patents are invalid and that this lawsuit is without merit. We are prepared to vigorously defend against this lawsuit.

~~Other Matters~~

~~We,along with Sanofi, Novo Nordisk, and various pharmacy benefit managers, are named as defendants in a purported class action lawsuit in the U.S. District Court of Western District of Texas,~~ ~~MSP Recovery Claims, Series, LLC et al. v. CVS Health Corp., et al.~~, relating to insulin pricing. The complainants are seeking damages under common law fraud, unjust enrichment, and the federal Racketeer Influenced and Corrupt Organizations Act. We believe this lawsuit and these claims are without merit and are prepared to defend against them vigorously.

~~We are also a defendant in other litigation and investigations, including product liability, patent, employment, and premises liability litigation, of a character we regard as normal to our business.~~

Item 1A. Risk Factors

Our material risk factors are disclosed in "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2022. There have been no material changes from the risk factors previously disclosed in our Annual ~~Report.~~Report on Form 10-K for the year ended December 31, 2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~There were no share~~Information relating to the principal market for our common stock and related shareholder matters is described in "Management's Discussion and Analysis of Results of Operations and Financial Condition" in Part II, Item 7 and in "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" in Part III, Item 12 of our Annual Report on Form 10-K for the year ended December 31, 2022.

The following table summarizes the activity related to repurchases of our equity securities during the three months ended September 30, ~~2017.~~2023:


Period	Total Number of Shares Purchased (in thousands)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (in thousands)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions)
July 2023	—	$	—	—	$	2,500.0
August 2023	—	—		—	2,500.0
September 2023	—	—		—	2,500.0
Total	—	—		—

During the three months ended September 30, 2023, we did not repurchase any shares under our $5.00 billion share repurchase program authorized in May 2021.

Item 5. Other Information

During the three months ended September 30, 2023, none of our directors or officers adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Regulation S-K.

Item 6. Exhibits

The following documents are filed as ~~exhibits to~~a part of this Quarterly Report:


Exhibit		Description
3.1		Amended Articles of Incorporation, incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on May 4, 2022

~~EXHIBIT 3.1~~3.2		~~Amended Articles of Incorporation~~ Bylaws, as amended, incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K filed on May 4, 2022

~~EXHIBIT 3.2~~31.1		~~By-laws, as amended~~

~~EXHIBIT 12.~~	~~Statement re: Computation of Ratio of Earnings to Fixed Charges~~

~~EXHIBIT 31.1~~	Rule 13a-14(a) Certification of David A. Ricks, ~~Chairman,~~Chair, President, and Chief Executive ~~Officer~~Officer*

~~EXHIBIT~~ 31.2		Rule 13a-14(a) Certification of ~~Derica W. Rice,~~Anat Ashkenazi, Executive Vice President ~~Global Services~~ and Chief Financial ~~Officer~~Officer*

~~EXHIBIT 32.~~32		Section 1350 ~~Certification~~Certification*

~~EXHIBIT 101.~~101		Interactive Data Files (embedded within the Inline XBRL document)*

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)*

* Filed herewith.

Long-term debt instruments under which the total amount of securities authorized does not exceed 10 percent of our consolidated assets are not filed as exhibits to this Quarterly Report. We will furnish a copy of these agreements to the Securities and Exchange Commission upon request.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.


				ELI LILLY AND COMPANY
				(Registrant)

Date:			November 2, 2023	~~ELI LILLY AND COMPANY~~/s/ Anat Ashkenazi
				~~(Registrant)~~Anat Ashkenazi
				Executive Vice President and Chief Financial Officer
Date:			~~October 27, 2017~~November 2, 2023	/s/~~Bronwen L. Mantlo~~ Donald Zakrowski
				~~Bronwen L. Mantlo~~Donald Zakrowski
				~~Corporate Secretary~~
~~Date:~~	~~October 27, 2017~~	~~/s/Donald A. Zakrowski~~
		~~Donald A. Zakrowski~~
		Senior Vice President, Finance, and Chief Accounting Officer

~~Index to Exhibits~~

~~The following documents are filed as a part of this Report:~~



~~Exhibit~~
~~EXHIBIT 3.1~~		~~Amended Articles of Incorporation are incorporated by reference to Exhibit 3.1 to the Company's Report on Form 10-K for the year ended December 31, 2013.~~

~~EXHIBIT 3.2~~		~~By-laws, as amended, are incorporated by reference to Exhibit 99.1 to the Company's Report on Form 8-K dated August 29, 2017.~~

~~EXHIBIT 12.~~		~~Statement re: Computation of Ratio of Earnings to Fixed Charges~~

~~EXHIBIT 31.1~~		~~Rule 13a-14(a) Certification of David A. Ricks, Chairman, President, and Chief Executive Officer~~

~~EXHIBIT 31.2~~		~~Rule 13a-14(a) Certification of Derica W. Rice, Executive Vice President, Global Services and Chief Financial Officer~~

~~EXHIBIT 32.~~		~~Section 1350 Certification~~

~~EXHIBIT 101.~~		~~Interactive Data Files~~

5249



Estimated Fair Value at January 3, 2017
Inventories	$	108.6
Marketed products ⁽¹⁾	298.0
Property and equipment	148.2
Other assets and liabilities - net	5.2
Total identifiable net assets	560.0
Goodwill ⁽²⁾	322.1
Total consideration transferred - net of cash acquired	$	882.1



Counterparty	Compound(s) or Therapy	Acquisition Month	Phase of Development ⁽¹⁾	Acquired IPR&D Expense
CoLucid Pharmaceuticals, Inc. (CoLucid)	Oral therapy for the acute treatment of migraine - lasmiditan	March 2017	Phase III	$	857.6
KeyBioscience AG (KeyBioscience)	Multiple molecules for treatment of metabolic disorders	July 2017	Phase II	$	55.0
Nektar Therapeutics (Nektar)	Immunological therapy - NKTR-358	August 2017	Phase I	$	150.0



	Year Launched			Milestones (Deferred) Capitalized ⁽¹⁾
Product Family	U.S.	Europe	Japan	Year	Amount
Trajenta ⁽²⁾	2011	2011	2011	Cumulative ⁽⁴⁾- all prior to 2016	$	446.4
Jardiance ⁽³⁾	2014	2014	2015	Cumulative ⁽⁴⁾- all prior to 2016	299.5
Basaglar	2016	2015	2015	2017	—
				2016	(187.5		)
				Cumulative ⁽⁴⁾	(250.0		)



					Fair Value Measurements Using
	Carrying Amount		Cost ⁽¹⁾		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
September 30, 2017
Cash equivalents	$	2,066.7	$	2,066.7	$	1,611.0	$	455.7	$	—	$	2,066.7

Short-term investments:
U.S. government and agency securities	$	742.2	$	742.7	$	742.2	$	—	$	—	$	742.2
Corporate debt securities	2,322.9		2,322.4		—		2,322.9		—		2,322.9
Asset-backed securities	149.8		149.8		—		149.8		—		149.8
Other securities	3.9		3.9		—		3.9		—		3.9
Short-term investments	$	3,218.8

Noncurrent investments:
U.S. government and agency securities	$	411.7	$	415.3	$	411.7	$	—	$	—	$	411.7
Corporate debt securities	3,913.2		3,903.8		—		3,913.2		—		3,913.2
Mortgage-backed securities	165.1		166.0		—		165.1		—		165.1
Asset-backed securities	638.8		639.2		—		638.8		—		638.8
Other securities	130.7		75.5		—		—		130.7		130.7
Marketable equity securities	344.7		127.5		344.7		—		—		344.7
Cost and equity method investments ⁽²⁾	544.5
Noncurrent investments	$	6,148.7

December 31, 2016
Cash equivalents	$	2,986.8	$	2,986.8	$	2,699.4	$	287.4	$	—	$	2,986.8

Short-term investments:
U.S. government and agency securities	$	232.5	$	232.6	$	232.5	$	—	$	—	$	232.5
Corporate debt securities	1,219.2		1,219.1		—		1,219.2		—		1,219.2
Asset-backed securities	4.3		4.3		—		4.3		—		4.3
Other securities	0.5		0.5		—		0.5		—		0.5
Short-term investments	$	1,456.5

Noncurrent investments:
U.S. government and agency securities	$	318.9	$	323.8	$	318.9	$	—	$	—	$	318.9
Corporate debt securities	3,062.2		3,074.3		—		3,062.2		—		3,062.2
Mortgage-backed securities	183.1		185.4		—		183.1		—		183.1
Asset-backed securities	502.7		503.5		—		502.7		—		502.7
Other securities	153.7		77.6		—		—		153.7		153.7
Marketable equity securities	418.2		91.9		418.2		—		—		418.2
Cost and equity method investments ⁽²⁾	568.7
Noncurrent investments	$	5,207.5