Eli Lilly (LLY) Q3 2026 earnings review
Eli Lilly raises its sales outlook, but deal charges cut profit
Eli Lilly, the maker of diabetes drug Mounjaro and weight-loss drug Zepbound, grew sales fast in the third quarter even as lower drug prices and acquisition charges weighed on reported profit. Revenue climbed 39% to $24.4 billion (36% excluding one-time milestone and rebate benefits by our math), well above what the company's own prior plan pointed to for the second half. Chief executive David Ricks lifted the full-year sales outlook by $5.5 billion, which by our math leaves fourth-quarter growth at 26%.
| Revenue | $24.4B +39% from a year ago (+36% excluding one-offs by our math) |
|---|---|
| Realized drug prices | -15% from a year ago (volume +53%) |
| Profit per share, excluding one-offs | $7.48 +7% from a year ago (includes $4.57 of deal research charges) |
| Full-year revenue outlook | Raised $5.5B middle of the range: $91.5B (+40% growth by our math) |
⚖️ Verdict: 🟢 Bullish
The story got better because prescription volume in the United States and abroad easily outran lower prices, and the new weight-loss pill Foundayo nearly doubled sales from last quarter to $184 million. Operating profit margins also beat the prior plan by a wide margin as research and marketing costs grew much slower than revenue. One caution: worldwide net prices fell 15%, deeper than in the first half, and $4.18 billion of research charges from biotech buyouts forced a $0.50 cut to the headline full-year profit-per-share outlook.
The question now is whether new patient volume from theFoundayo pill and U.S. Medicare coverage can keep outrunning 15% price declines once one-time milestone and rebate tailwinds disappear in the fourth quarter. If new coverage drives another step-up, fourth-quarter sales will beat the $24.3 billion implied by the outlook; if price cuts bite harder without rebate adjustments, sequential revenue will stall. Fourth-quarter U.S. net price and Foundayo sales will settle it.
🐂 Bull Case
Lilly's Old Second-Half Plan Was Too Cautious
“Lilly had another strong quarter, exceeding our prior expectations and allowing us to raise our full-year outlook,” chief executive David Ricks said. Three months ago, the drugmaker's full-year target pointed by our math to $21.1–22.1 billion of quarterly revenue in the second half. Third-quarter sales reached $24.4 billion, up 39% from a year ago, and management lifted the full-year midpoint by $5.5 billion.
- Mounjaro (type 2 diabetes injection): $10.7 billion, up 65% from a year ago
- Zepbound (obesity injection): $5.4 billion, up 49% from a year ago
- Sales excluding one-off milestones and rebate adjustments: up 36% by our math
- Fourth-quarter revenue implied by the new full-year outlook: $24.3 billion, up 26% from a year ago
The quarter included about $900 million of one-time benefits, led by a final $410 million milestone on diabetes pill Jardiance and changes to prior U.S. rebate estimates. Even stripping those out and $380 million of year-ago one-offs, underlying sales rose 36% by our math, because wider U.S. obesity coverage and international demand lifted volumes 53%. What to watch: fourth-quarter revenue against the implied $24.3 billion target. Another beat would show the new plan is still cautious as U.S. Medicare obesity coverage builds.
Slower Research and Marketing Spend Lifted Margins
Eli Lilly tracks profitability using performance margin, which is gross profit minus research and development and marketing and overhead costs, divided by revenue. By our math, performance margin excluding one-offs reached 54.2% this quarter, up from 48.3% a year ago, and the company raised its full-year target by 2.5 percentage points to 52.0–52.5%.
Reported operating margin fell 6.6 percentage points to 35.3% only because acquisition research charges jumped by 13.4 points of revenue. On the regular cost lines, cost of making the drugs fell 1.0 point of revenue (lifting gross margin to 83.9%), research spending fell 2.3 points to 17.4%, and marketing and overhead fell 2.8 points to 12.8% because sales grew much faster than headcount and launch promotions. What to watch: fourth-quarter performance margin against the 49.7% implied by the full-year outlook. Holding above 52% would show the fourth-quarter spending step-up is smaller than planned.
Foundayo and Newer Drugs Double Outside Weight Loss
Ricks pointed to “the global launches of Foundayo” and “a doubling in our newest products in oncology, immunology and neuroscience” alongside the flagship injections. Foundayo, the company's daily weight-loss and diabetes pill launched in the second quarter, brought in $184 million in its first full quarter on the market, up 88% from $98 million in the prior three months.
Outside diabetes and obesity, the five newest key medicines — eczema injection Ebglyss, blood-cancer pill Jaypirca, Alzheimer's infusion Kisunla, bowel-disease treatment Omvoh and breast-cancer pill Inluriyo — grew 100% from a year ago to $810 million in total. That growth matters because Mounjaro and Zepbound still make up two-thirds of total revenue, so a broader lineup reduces reliance on two injections. What to watch: Foundayo fourth-quarter sales and U.S. approval for type 2 diabetes. Continued sequential gains would show the pill is adding patients rather than stalling after initial stocking.
🐻 Bear Case
Lower Drug Prices Cut Deeper Into Volume Growth
Ricks credited “broad global consumer demand for Mounjaro and Zepbound” for the 39% revenue gain. Demand is rising, with total volume up 53%, but average net prices after rebates and discounts fell 15% worldwide — worse than the 13% decline in each of the first two quarters of 2026 and the 10% drop a year ago.
Outside the United States, net prices dropped 29% (after a 36% drop last quarter), which Lilly said was “primarily driven by the inclusion of Mounjaro on the National Reimbursement Drug List (NRDL) in China” in the first quarter. In the United States, net prices fell 7% even after favorable adjustments to prior rebate estimates helped the number, because Zepbound expanded into lower-priced channels. What to watch: fourth-quarter U.S. net price change once the one-time rebate adjustments stop helping. A steeper U.S. drop would show that government and self-pay discounts are taking a larger bite out of domestic revenue.
Deal Charges Cut the Profit Outlook and Raised Taxes
Eli Lilly has been buying smaller biotechs at a rapid pace to build its pipeline beyond weight loss, which supporters view as reinvestment for long-term growth. In the third quarter it closed the buyout of AtaiBeckley “to advance therapies for treatment-resistant depression and other mental health conditions” and Curevo, then bought Merida Biosciences after quarter-end “to advance treatments for serious autoimmune and allergic diseases”.
Because accounting rules expense acquired early-stage research immediately, those deals created $4.18 billion ($4.57 per share) of charges in the quarter, up from $656 million a year ago. Those charges are not tax-deductible, so they pushed the non-GAAP tax rate up 6.3 percentage points to 24.0% and forced the company to cut its full-year EPS outlook by $0.50 despite a $4.07 operational raise. What to watch: fourth-quarter acquisition research charges from Merida Biosciences. Because the outlook excludes charges after September 30, Merida will cut full-year EPS again in Q4.
Risks this quarter didn't answer
Five standing legal, regulatory and commercial concerns received no new quantitative read in the earnings release.
- Generic challenges to Mounjaro, Zepbound and Verzenio: no update in the release; the third-quarter 10-Q contingencies note will give the litigation status.
- Retatrutide regulatory pathway and government pricing clock: no update on the court dispute over biologic status (13 years before Medicare price setting vs 9 years); filing remains due in early 2027.
- Counterfeit and compounded weight-loss drugs: Lilly “calls on online platforms, payment companies and regulators to shut down the illegal retatrutide black market”, showing illicit supply now targets unapproved pipeline drugs.
- Employer obesity insurance opt-in: not quantified in the release; conference call commentary will show if commercial coverage moved off 50–55%.
- Product-liability lawsuits over stomach and vision side effects: not detailed in the release; the 10-Q legal note will update claim counts.
👓 Other Themes
New Approvals and Retatrutide Trial Results Broaden Pipeline
The U.S. regulator approved four expansions this quarter: weekly insulin Onswik for type 2 diabetes, Mounjaro to cut heart risk in diabetes, breast-cancer pill Inluriyo alongside Verzenio, and Jaypirca for untreated chronic lymphocytic leukemia. In late-stage trials, next-generation injection retatrutide “delivered greater A1C reduction and more than double the weight loss of Ozempic's highest approved dose in head-to-head trial”, while combination drug EloraTZP beat tirzepatide alone in Phase 2 and enters Phase 3 in the fourth quarter.
💲 Other KPIs
Net interest cost (interest paid on debt minus interest earned on cash) nearly tripled from $114 million a year ago and rose from $274 million last quarter. While the release omits a balance sheet, the rising interest bill reflects the $12.4 billion of debt Lilly added in the first half to fund acquisitions and new factories.
Average diluted shares fell 0.6% from 898.8 million a year ago and edged down from 893.7 million in the second quarter. The drugmaker keeps its full-year outlook assumption at roughly 894 million shares, so buybacks are only slightly reducing the share count alongside heavy spending on factories and deals.
The quarterly cash dividend rose 15.3% from $1.50 a year ago and held steady with the first two quarters of 2026. Over the first nine months of the year, the Indianapolis group paid $5.19 per share in dividends, up 15% from $4.50 in the same period last year.
🔮 Guidance
Raised. The middle of the range moved up $5.5 billion to 40.4% full-year growth by our math. It is the third raise this year, and each step has grown larger: +$2.0 billion in Q1, +$2.5 billion in Q2, and +$5.5 billion now. By our math, that leaves $24.3 billion for Q4, or 26.1% growth from a year ago and essentially even with Q3 as one-time Jardiance milestones end.
Raised. The middle of the range rose 2.5 percentage points to 52.25%, following earlier raises of 1.0 point in Q1 and 2.0 points in Q2. Because the first nine months already ran at 53.2% by our math (and Q3 hit 54.2%), the updated plan implies a fourth-quarter margin of about 49.7%, allowing for higher year-end launch and research spending.
Raised. Management lifted the full-year tax rate range by 1 percentage point after holding it at 18–19% for three quarters. The increase comes from Q3 acquisition research charges that cannot be deducted from taxes, which pushed the Q3 rate to 24.0% and the nine-month rate to 20.9%.
Cut. The headline range dropped $0.50 at the middle, to 46.6% full-year growth by our math, because $4.57 per share of Q3 acquisition research charges outweighed a $4.07 operational raise. By our math, the range leaves $11.09 per share for Q4 (up 47.1% from a year ago), before any fourth-quarter charge from the Merida Biosciences purchase.
❓ Key Questions
How many doctors prescribed Foundayo and what was its share?
In the first two quarters of the launch, management gave the number of prescribing doctors (36,000 in Q2) and Foundayo's share of new obesity prescriptions. The release omits both; the conference call will show whether the pill's prescription funnel kept widening.
How much did rebate re-estimates help third-quarter U.S. revenue?
Lilly said Q3 revenue included about $900 million of benefits from a $410 million Jardiance milestone and adjustments to prior rebate and discount estimates. That leaves roughly $490 million of rebate adjustments; investors need to know the exact U.S. price drop without them.
What will the Merida Biosciences acquisition cost in fourth-quarter charges?
Lilly closed the acquisition of Merida Biosciences after September 30, and its full-year EPS outlook of $35.00–36.00 excludes any acquisition research charges after that date. Knowing the size of the Merida payout will tell how much Q4 EPS will be adjusted down.
How many Medicare patients started obesity treatment in Q3?
The U.S. Medicare obesity program opened on July 1 to 20 million eligible Americans at $50 a month out of pocket. The release credits expanded U.S. coverage for volume growth but gives no patient count or split between injections and pills.