Eli Lilly (LLY): Two Drugs Drove 88% Of Growth, EPS Hit By $4.57 R&D

Investment Thesis

Eli Lilly grew revenue 39% to $24.4B and raised its 2026 revenue guide to $91B to $92B, but two drugs supply 88% of the growth, realised price fell 15%, and $4.57 per share of acquired R&D cut non-GAAP EPS growth to 7%.

• Earnings. Revenue was $24,397M (+39%) against $22.42B expected. Non-GAAP EPS was $7.48 (+7%) against $5.60 expected (Investing.com). Reported EPS was $7.22 (+16%).
• Concentration. Mounjaro ($10,723M) and Zepbound ($5,352M) together were $16,075M, 66% of revenue, and added $5,972M of the $6,796M revenue increase, or 88% (derived). All other products combined grew 11% (derived).
• Price. Volume rose 53% and realised price fell 15%. Outside the U.S. volume rose 76% and price fell 29%. About $900M of Q3 revenue came from one-time benefits, mainly $410M of Jardiance milestones and favourable rebate and discount adjustments.
• Acquired R&D. Acquired in-process R&D was $4,181M, or $4.57 per share, against $656M and $0.71. Adding it back, non-GAAP EPS would be $12.05 against $7.73, up 56% (derived).
• Guidance. Non-GAAP EPS guidance moved to $35 to $36 from $35.50 to $36.50, a $0.50 cut at the midpoint, even though revenue guidance rose $5.5B. The release attributes this to the $4.57 charge offsetting a $4.07 underlying raise.
• Cash. Nine-month operating cash flow doubled to $27.4B and free cash flow reached $19.0B (derived). Acquisitions and purchased R&D took $18.2B of it, 96% (derived).
• Balance sheet. Inventories rose 32% and other intangibles rose 177% since December. Goodwill and intangibles are now 69% of equity, and tangible equity fell 13% (derived).
• Stock. It closed at $1,288.30 before the report and traded 6.5% higher at $1,371.60 premarket on Oct 29 (Investing.com). At the pre-report price it was about 36x the guided EPS midpoint (derived).
• This article contains no price target or rating. Every figure comes from Lilly's filings or a named source, and anything I calculated is marked.

Sources: Lilly Form 10-Q for the quarter ended Sept 30, 2026; Lilly Q3 2026 results release, as published by BioSpace.

Q3 2026 At A Glance

Revenue grew 39% and net income grew 16%, because acquired R&D took $4.2B out of the quarter.

(d) = derived. Both Q3 2026 EPS figures include $4.57 of acquired IPR&D per share (Q3 2025: $0.71). Sources: Lilly Form 10-Q; Lilly Q3 2026 results release.

What The Market Believes vs. What The Data Actually Shows

Lilly beat revenue and EPS estimates and raised revenue guidance, and the stock rose 6.5% premarket, but the EPS guide fell and the price per unit keeps dropping.

Price reaction: Investing.com reports Lilly rose 6.47% to $1,371.60 in premarket trading on Oct 29, from a prior close of $1,288.30. I could not confirm the closing price for Oct 29 or any later date, so the valuation below uses both quotes.

Whether the EPS estimate of $5.60 was set before or after the $4.57 charge matters. Guidance excludes IPR&D that has not yet been incurred, so analysts usually cannot model it, and the beat is not a clean measure of operations. On the call, management said about $2B of 2026 one-time items, including milestones and rebate and discount estimate changes, will not recur (call summary).

Sources: Lilly Q3 2026 results release; Investing.com call transcript summary.

Forensic #1: Two Drugs Are 66% Of Revenue And 88% Of Growth

Mounjaro and Zepbound added $5,972M of the $6,796M increase in quarterly revenue.

(d) = derived. Source: Lilly Form 10-Q.

Q3 2026 Revenue Bridge From Q3 2025, By Product Group, $M (Self-Made)

The rest of the portfolio is mixed. Trulicity fell 14% to $904M, Taltz fell 5% to $856M, and Verzenio rose 3% to $1,511M. Jardiance rose 65% to $1,578M, and the release cites $410M of Jardiance milestones in the roughly $900M of Q3 one-time benefits. The release extract I read does not say which revenue line the milestones were booked in, so I did not adjust the product figures. Neuroscience, immunology and oncology grew 41%, 5% and 8% (derived from the 10-Q totals).

Mounjaro is now more international than domestic: $5,725M outside the U.S. against $4,998M in the U.S. Zepbound is almost all U.S. ($5,267M of $5,352M). Newer products are small so far: the release lists Foundayo at $184M, Jaypirca at $228M, Ebglyss at $202M and Kisunla at $193M in Q3.

Sources: Lilly Form 10-Q; Lilly Q3 2026 results release.

Forensic #2: Volume Rose 53%, Price Fell 15%, And $900M Will Not Recur

Growth is coming from selling many more doses at much lower prices.

Source: Lilly Q3 2026 results release. Currency effects were not stated in the extract I read, and the components are additive, not multiplicative.

Q3 2026 Volume And Realised Price Change vs Q3 2025, By Region (Self-Made)

The U.S. price decline of 7% includes a favourable rebate and discount adjustment; the call summary says excluding it the U.S. price fell 10%. The 10-Q says adjustments to U.S. revenue from prior-period sales returns, rebates and discounts were 2% of U.S. revenue in 2026 against under 1% in 2025. The liability for sales rebates and discounts grew to $24,170M from $17,382M at December (+39%), larger than accounts receivable of $22,089M (derived).

About $900M of Q3 revenue was one-time, 3.7% of the total (derived). If Q3 2025 had no comparable items, which the release does not say, underlying growth was about 33.5% (derived). The guide for the year implies Q4 revenue of $23,830M to $24,830M (derived from $91B to $92B less nine-month revenue of $67,170M), which is 2.3% below to 1.8% above Q3. Management expects net realised price to stay a headwind in 2027, offset by volume growth, and to give full 2027 guidance in January (call summary).

Sources: Lilly Q3 2026 results release; Lilly Form 10-Q; Investing.com call transcript summary.

Forensic #3: $4.57 Per Share Of Acquired R&D Hides A 56% Underlying EPS Gain

Lilly is buying its pipeline, and the cost runs through earnings.

(d) = derived: non-GAAP EPS plus acquired IPR&D per share. Lilly's non-GAAP measure does not remove acquired IPR&D. Source: Lilly Q3 2026 results release.

Q3 Non-GAAP EPS And The Acquired IPR&D Charge Per Share, 2025 vs 2026 (Self-Made)

Acquired IPR&D was $4,181M in Q3 and $7,541M for nine months, against $2,381M a year ago. The 10-Q names the Q3 deals: AtaiBeckley at $2,610M and Curevo at $954M, together $3,564M or 85% of the quarter's charge (derived). Earlier in 2026 it lists Orna at $1,233M and Ajax at $909M. It also reports the business combinations of Kelonia, Centessa and Ventyx, and a subsequent-event acquisition of Merida Biosciences in October for up to $2.9B including milestones. The press release's own wording on whether Merida had completed is inconsistent.

The guidance arithmetic follows. Underlying EPS guidance rose $4.07 at the midpoint, the $4.57 charge more than offset it, and the guide fell $0.50. Because guidance excludes IPR&D incurred after Sept 30, any further deals in Q4 would lower EPS again. The October Merida deal could be one, but I did not see how Lilly will account for it. The non-GAAP tax rate guide rose to 19% to 20% from 18% to 19%, and the 10-Q says the 2026 tax rates were driven by the unfavourable tax effect of nondeductible IPR&D. The Q3 non-GAAP tax rate was 24.0% against 17.7%.

Sources: Lilly Q3 2026 results release; Lilly Form 10-Q.

Forensic #4: Free Cash Flow Doubled, And 96% Of It Went To Acquisitions

Lilly's cash generation is large, and so is the amount it is putting back into assets.

(d) = derived. Operating cash flow minus capex is my measure, not a company figure. Source: Lilly Form 10-Q.

Acquisitions and purchased R&D together were $18,240M, 96% of the $18,983M (derived). Adding dividends and buybacks of $8,969M brings uses to $27,209M, $8,226M more than free cash flow, which was funded by $7,318M of net new debt and a $2,383M fall in cash (derived).

(d) = derived. Source: Lilly Form 10-Q.

Eli Lilly Balance Sheet Changes From Dec 31, 2025 To Sep 30, 2026 (Self-Made)

Goodwill and intangibles together grew to $27,958M from $12,419M and are 69% of equity, up from 47% (derived). Equity minus goodwill and intangibles fell 13% to $12,313M (derived), because the acquisitions added more intangibles than equity grew. Contingent consideration liabilities rose to $2,888M from $251M. Debt less cash rose 27% to about $44.6B (derived, excluding $4,013M of noncurrent investments). Work in process is $10,688M, 59% of inventories (derived). Lilly issued $9,000M of notes in May at rates from 4.150% to 5.700%, and its two credit facilities, $6.0B and $4.0B, are undrawn.

The company is also building capacity: groundbreakings on a facility in Houston ($6.5B) and one in Richmond ($5B), per the call summary. Capex of $8,437M in nine months already reflects part of this.

Sources: Lilly Form 10-Q; Investing.com call transcript summary.

Valuation Snapshot

At $1,288.30, Lilly traded at about 36x the midpoint of its 2026 non-GAAP EPS guide, and about 39x at the premarket price.

All ratios are derived. The EPS guide includes acquired IPR&D incurred through Sept 30 (including $4.57 in Q3), so the multiple is higher than it would be on EPS before those charges; the release does not give the nine-month IPR&D per share on a non-GAAP basis. The 10-Q cover shows 940,745,031 shares outstanding as of Oct 26, 2026, which does not reconcile with the 893.4M weighted diluted shares, and I used the weighted figure that matches the guidance share count of about 894M. Prices are from a secondary source and have moved.

Risks: What Would Break The Thesis

The concern is dependence on two drugs whose price keeps falling, and rising spending on acquired assets.

• Price erosion accelerates. Outside the U.S., price fell 29% in Q3. If U.S. price falls as the Medicare programme and other channels scale, volume has to keep growing faster.
• One-time items. About $900M of Q3 revenue and about $2B of 2026 revenue will not recur (call summary). Q4 implied revenue is flat on Q3.
• Concentration. Mounjaro and Zepbound are 66% of revenue. Competition, supply or a safety issue in the class would reach the whole group.
• Deal spending. Acquired IPR&D rose to $7.5B in nine months, and any further deals reduce EPS under Lilly's accounting while guidance excludes them.
• Balance sheet. Intangibles and goodwill are 69% of equity and contingent consideration is $2.9B. Impairments, such as the partial intangible impairment the 10-Q mentions, would reduce equity.
• Working capital. Inventories rose 32% and the rebate liability exceeds receivables. A change in payer mix would show in the rebate line first.
• Valuation. At about 36x to 39x guided EPS the stock already prices continued growth.

What To Watch Next

• Q4 results and 2027 guidance. Management said it will provide 2027 guidance on the Q4 call in January, with expectations for sustained volume growth, a full year of the Medicare GLP-1 Bridge programme and the launch of Foundayo in type 2 diabetes (call summary).
• Realised price. The split between volume and price, especially outside the U.S., and the size of rebate and discount adjustments.
• Medicare Bridge programme. It started July 1, and the call summary says more than half a million people had filled a Lilly prescription through it. It is expected to move into the Part D benefit for 2028.
• Foundayo. A U.S. type 2 diabetes regulatory decision expected in Q4 and sales above the $184M in Q3 (call summary).
• Pipeline. The Phase 3 start for eloralintide plus tirzepatide in Q4, and retatrutide data after the positive head-to-head result against Ozempic in type 2 diabetes.
• Acquired R&D. The accounting for Merida Biosciences and any further deals.
• Balance sheet. Inventory, the rebate liability and debt as new plants come online.

Sources And Data Notes

Financial statement figures come from Eli Lilly's Form 10-Q for the quarter ended September 30, 2026, and its Q3 2026 results release, which I read as published by BioSpace. I could not open the original 8-K on the SEC website, which returned an error. The 10-Q text I read cuts off in Note 8, so Note 9 and later, including litigation, are not covered. Prices are from Oct 28 and Oct 29 and will have moved.

Primary sources

• Eli Lilly Form 10-Q for the quarter ended Sept 30, 2026
• Lilly reports third-quarter 2026 financial results (BioSpace copy of the release)

Secondary sources

• Investing.com call transcript summary: consensus, prices, pricing, Medicare Bridge, Foundayo, capacity, 2027 and one-time items commentary

Marked, not independently confirmed

• The consensus figures of $5.60 EPS and $22.42B revenue, the price quotes, the $2B of non-recurring items, the U.S. price decline excluding rebate adjustments (10%), the Medicare Bridge figures, plant sizes and the 2027 commentary come from one call summary.
• That summary was unsure whether Foundayo is the product the call called orforglipron, and I used the name Foundayo only.

Where sources disagree

• The 10-Q cover shows 940.7M shares outstanding while weighted diluted shares are 893.4M and guidance assumes about 894M. I could not reconcile them.
• The release highlights say Merida Biosciences was completed after quarter end, while its news list says Lilly is to acquire it. The 10-Q calls it a subsequent event for up to $2.9B.

Left out

• Currency effects and Zepbound sales outside the U.S., which the extracts I read do not give.
• Any closing price after Oct 28, which I could not confirm.
• Litigation details, which are in notes I could not read.

Derived figures are my arithmetic from the filings and are marked (d), "derived" or "my arithmetic".