Eli Lilly (NYSE: LLY) made the consensus estimate look like a rounding error. Revenue of $23.0 billion beat the $20.7 billion estimate by 11%. Non-GAAP EPS of $8.38 cleared the $6.01 estimate by nearly 40%. The headlines are eye-catching, but the story is in the drivers and the choices management made with the upside.
Revenue climbed 48% from $15.6 billion a year ago, all volume. Mounjaro, the diabetes GLP-1, surged 91% to $9.9 billion. U.S. revenue was up 45%; ex-U.S. revenue exploded 172% to $5.2 billion. Zepbound, the obesity brand, added $4.9 billion in U.S. revenue, a 44% jump. Together, the two tirzepatide franchises generated $14.8 billion, 64% of total company revenue. That concentration is a feature, not a bug, as long as demand outstrips supply.
Gross margin widened 150bps to 85.8% on a reported basis. The driver: better production costs and a more favorable product mix. This mix tailwind is structural. Higher-margin incretin products are taking up more of the revenue base. Marketing and selling expenses rose 25% to $3.4 billion, reflecting promotional spend for current and planned launches. R&D grew a more modest 14% to $3.8 billion, now 17% of revenue, down from 21% a year ago. That R&D leverage signals operating efficiency, even if the absolute spend remains enormous.
The quarter’s most consequential line item was $2.8 billion in acquired in-process R&D (IPR&D) charges, up from $154 million a year ago. Tied to acquisitions like Orna Therapeutics and Ajax Therapeutics, these charges shaved $3.03 from non-GAAP EPS. Reported EPS of $7.94 included the same hit, making the comparison to last year’s $6.29 less flattering than the non-GAAP beat suggests. This IPR&D charge is why full-year non-GAAP EPS guidance was lowered to $35.50-$36.50 from $35.50-$37.00. At the same time, management raised revenue guidance to $85-$87 billion from $82-$85 billion and performance margin guidance to 49.0%-50.5% from 47.0%-48.5%. The underlying business improved by $2.78 at the midpoint, more than erased by the $3.03 charge.
Management is signaling confidence in the core business while being transparent about the cost of building its future. The revenue guidance raise is substantial, implying second-half revenue of roughly $42-$44 billion. That would be continued growth from the first half’s $42.8 billion. The performance margin raise to a midpoint of 49.75% suggests operating leverage will improve further as volume scales. The IPR&D charges, however, are a reminder that Lilly’s pipeline expansion comes at a price. The company completed four acquisitions in Q2 alone and committed another $4.5 billion to Indiana manufacturing, including its first dedicated genetic medicine facility.
The retatrutide data package is now complete for obesity, obstructive sleep apnea, and knee osteoarthritis pain. A BLA submission is planned for Q1 2027. That timeline puts a potential next-generation obesity entrant on the market in 2028 or later, extending Lilly’s competitive moat in incretins. The oral GLP-1 Foundayo (orforglipron) has been submitted for type 2 diabetes in the U.S., adding another growth vector.
Watch the second half for whether Mounjaro and Zepbound volume growth can sustain its 60% pace as supply eases and competition from Novo Nordisk’s oral amycretin and others intensifies. The revenue guidance raise suggests management sees no near-term demand deceleration. IPR&D charges will keep distorting EPS comparisons, making non-GAAP operating income the cleaner metric for underlying performance. Lilly is spending aggressively to secure its next decade of growth. The Q2 print shows the current decade is still delivering.