$23.0B and a 370bp Margin Inflection, But Foundayo Undershoots and $2.8B of Deal Charges Swallow the EPS Raise — Maintaining Outperform, FV to $1,150–1,300

Results vs. Consensus

Q2 2026 Scorecard

Lilly does not publish Street consensus in its release. The comparison below uses the estimates we tracked into the print. Revenue consensus was tight across sources; EPS consensus was not, for a reason set out in the note beneath the table.

Year-Over-Year Comparison

Quarter-Over-Quarter Comparison

The sequential view is where the margin story lives, and it is not visible in the year-over-year table.

Quality of the Beat

Revenue. The composition is close to ideal. Worldwide volume grew 60% against a 13% decline in realized prices, so essentially all of the growth is unit-driven. Geographically the mix broadened rather than concentrated: U.S. revenue rose 33% to $14.4B on 37% volume growth, while revenue outside the U.S. rose 80% to $8.6B on a 113% volume increase. Two items in the quarter are not repeatable and should be stripped before extrapolating. Europe carried a $250M Jardiance sales-based milestone from the Boehringer Ingelheim collaboration, and U.S. realized price of −3% was flattered by adjustments to rebate and discount estimates; underlying U.S. price was −9%. Together those explain a meaningful share of the beat against consensus, though not most of it. Even taxed for both, revenue growth would have been comfortably in the mid-40s.

Margins. This is the most important line in the print and the one least discussed. Non-GAAP gross margin of 86.3% is up 130bp against last year and up 370bp against Q1’s 82.6%, and the attribution changed: Q1’s decline was priced-driven, while Q2’s expansion is production-cost and mix driven. That combination matters because it implies the manufacturing build-out is now delivering unit-cost leverage rather than merely capacity. Operating leverage below the gross line is equally stark: R&D grew 14% and marketing and administrative costs grew 25% against 48% revenue growth, dropping the combined opex ratio 755bp to 31.6%. Non-GAAP performance margin of 54.8% against 45.9% is the arithmetic result. The one caveat is that Q2 gross margin benefited from the same favorable price adjustments that flattered revenue, so we would model 84–85% rather than 86% as the going-forward level.

EPS. The as-reported non-GAAP figure of $8.38 is the least informative number in the release. It grew 33% while revenue grew 48% and gross profit grew 50%, and the gap is entirely below the operating line: $2,776M of acquired IPR&D from the Orna and Ajax closings, $703M of charges tied to accelerated equity-award vesting on the Kelonia and Centessa deals, and a reported tax rate of 23.3% against 16.5% a year ago because acquired IPR&D is not deductible. Strip the IPR&D and EPS was $11.41 against $6.45, up 77%. Both numbers are true. The one that describes the business is the second; the one that describes the cash Lilly spent this quarter buying its next decade is the first.

Product and Geographic Performance

Key Products — Q2 2026

Revenue by Geography

Regional growth rates are given on a constant-currency basis as disclosed. Worldwide, U.S. and ex-U.S. figures are as-reported.

Mounjaro — the international engine took over

Mounjaro grew 91% to $9,943M, and the composition shifted decisively. U.S. revenue of $4.8B grew 45%; ex-U.S. revenue of $5.2B grew 172%, and for the first time the international book is larger than the domestic one. That is the structural change the Q3 2025 upgrade was built on, now visible in the split rather than in the trajectory. China was the standout at +93% in constant currency following the National Reimbursement Drug List addition, which is also the reason ex-U.S. realized price fell 36%. Management characterized the trade as favorable, and the volume math supports it.

Assessment: The international ramp has done what it needed to do. The forward question changes shape though: management flagged that with leadership share established in most major markets, growth from here is market-expansion-led rather than share-take-led. Expansion is slower and less controllable than share capture, and it is the main reason we take the FY27 revenue framework down at the top end.

Zepbound — steady, self-pay-heavy, and domestic

Zepbound grew 46% to $4,928M, with U.S. revenue of $4.9B up 44%, meaning the franchise remains almost entirely domestic. Self-pay stayed at roughly 45% of total prescriptions and roughly 55% of new prescriptions, unchanged from Q1, which is a useful signal that the cash-pay channel has stabilized rather than eroded after last year’s price reductions. Within the U.S. obesity incretin market, total prescriptions grew 78% and Lilly took roughly six of every ten total prescriptions and seven of every ten injectable prescriptions.

Assessment: Zepbound is now the stable, high-share, price-pressured core of the U.S. obesity business rather than the growth story. Its role in the model is to fund the launches around it. The 78% market growth against Zepbound’s 44% is worth watching: the category is expanding faster than the franchise, which is the arithmetic of oral entrants taking the incremental patient.

Foundayo — the quarter’s disappointment

The first oral GLP-1 approved for obesity in the U.S. booked $98M worldwide in its first full quarter against a compiled Street estimate near $103M. On the arithmetic surfaced during the call and not disputed by management, roughly $67M came from the U.S. and roughly $31M from the UAE, where the product launched in early May. A single Gulf state generating nearly half of a global launch quarter says two things at once: the U.S. ramp is slow, and latent ex-U.S. demand for an oral is real.

Management did not hide from it. The launch was described as progressing on three fronts, physician education, payer access and consumer awareness, with the third only beginning in the quarter. Access across all three major pharmacy benefit managers was completed in June, broad direct-to-consumer marketing started after that, and the prescriber base expanded from 8,000 at the Q1 call to 36,000.

"And what we’ve seen in terms of overall growth and inflection is that the last week of July, we’re seeing an inflection. So the -- we’re almost doubling the volume that we had just a month ago. And we’re starting to see new starts coming in nearly around 1 out of 4 starting on Foundayo." — Ilya Yuffa, President, Lilly USA & Global Customer Capabilities

Assessment: The late-July inflection is the single most important forward datapoint in the release, and it is also unauditable from outside until Q3 prints. One in four new starts going to the oral would be a healthy mix if it holds. Our concern is not the shape of the ramp but the competitive context: a rival oral is launching into the same ex-U.S. markets on a similar timeline, and Lilly’s answer to a claimed 50% competitor share in the UAE was that combined Lilly incretin share "held steady," which is a defensible answer about the franchise and not an answer about the product. We move this pillar from on-track to at-risk.

Oncology, Immunology and Neuroscience — the 121% quarter

The five non-cardiometabolic Key Products generated $737M against $334M a year ago, growth of 121%, and this is now a genuine second engine rather than a rounding item. Ebglyss more than doubled to $201M and gained roughly 4 points of new-prescription share in specialty dermatology over the year, helped by FDA approval of an every-eight-week maintenance dose that cuts the injection burden to as few as six per year. Jaypirca grew 56% to $192M with EU approval in CLL across all lines of therapy, on top of the BRUIN CLL-322 Phase III result that reduced risk of progression or death by 45% when added to a time-limited venetoclax and rituximab regimen, and by 68% in patients who had progressed after a prior covalent BTK inhibitor. Kisunla grew to $167M from $49M. Inluriyo, in only its second full quarter, is the U.S. leader in new prescriptions in the oral SERD market with more than 50% share.

Assessment: This is the diversification the bull case has promised for six quarters, and it is now measurable. At $737M the group is still only 3.2% of revenue, so it does not move the model yet. What it does is change the terminal-value conversation: a company whose oncology, immunology and neuroscience Key Products compound at triple digits is not a single-mechanism story, and the CSO’s framing that "if you eliminated kind of the incretin stuff, this would be a really strong and large pipeline to be proud of" is, for the first time, supported by revenue rather than by pipeline slides.

Key Performance Indicators

Key Topics & Management Commentary

Overall Management Tone: Confident on the numbers and unusually candid on the two soft spots. Where prior calls answered launch questions with leading indicators only, this one conceded the U.S. oral ramp had run behind plan before pivoting to the late-July inflection, and it disclosed an unresolved regulatory dispute over retatrutide’s filing pathway without being pushed hard to do so. The posture on business development shifted from justifying individual deals to defending a rising cadence, which is the first time the capital-allocation question has needed defending at all.

1. Gross margin inflected, and the attribution changed

Q1’s 82.6% non-GAAP gross margin was the quarter’s open question, down 90bp year-over-year on lower realized prices, and we flagged it as a watch item. Q2 answered it in the other direction: 86.3%, up 130bp against last year and up 370bp sequentially. More important than the level is the reason, which reversed from price to cost.

"Gross margin as a percentage of revenue was 86.3% in Q2, an increase of approximately 1.3 percentage points versus the same quarter last year. The change was driven primarily by favorable product mix and improved cost of production." — Lucas Montarce, Chief Financial Officer

Assessment: "Improved cost of production" is the phrase that matters. It says the manufacturing build-out has moved from adding capacity to lowering unit cost, which is what turns a capital-intensity story into a margin story. We would not extrapolate 86.3% because the same rebate adjustments that flattered price flattered this line, but the structural direction has changed and this pillar moves from watching to on-track.

2. Foundayo’s U.S. launch ran behind plan

The oral GLP-1 was the centerpiece of our Q1 note, launched into pharmacies in April with two of the three largest pharmacy benefit managers on formulary by mid-May. One quarter later the third is on, direct-to-consumer marketing has started, prescribers have gone from 8,000 to 36,000, and revenue is $98M against a Street estimate near $103M. The gap between an impressive prescriber count and a modest revenue line is the story: breadth arrived before depth.

Sampling is part of the explanation and part of the measurement problem. Management confirmed it is covering the first 30 days of therapy with samples in the manner of a typical retail small molecule, which suppresses the prescription panels the Street tracks weekly while building the trial base that converts later.

Assessment: A launch that is deliberately sampled, sequenced behind physician education, and only now getting consumer advertising should not be judged on its first full quarter. But the estimate it missed already accounted for those things. The reason to keep this pillar at risk rather than to write it off is the prescriber curve and the late-July doubling; the reason not to dismiss the miss is that a competitor is running the same play in the same markets with a product patients may find equally acceptable.

3. Retatrutide’s package is complete, and the filing route is contested

Three Phase III readouts landed since the last call. TRIUMPH-1 in obesity or overweight, TRIUMPH-2 in type 2 diabetes with obesity or overweight, and TRIUMPH-3 in severe obesity with established cardiovascular disease. Together with the prior data they give Lilly a complete registrational package across obesity, obstructive sleep apnea and knee osteoarthritis pain.

"In TRIUMPH-1, we saw weight loss approaching bariatric surgery levels at the highest doses, and clinically meaningful efficacy at low doses with only 1 titration step. In patients with diabetes and obesity who typically struggle to lose weight, retatrutide delivered a magnitude of weight loss not previously seen with incretin therapy." — Dr. Daniel Skovronsky, Chief Scientific and Product Officer

The complication is procedural. Lilly intends to file a Biologics License Application in Q1 2027, and whether the FDA agrees that retatrutide qualifies as a biologic is unresolved and being litigated.

"As you mentioned, we’ve been pursuing this for a little while because we believe retatrutide is a biologic application, both in terms of amino acid count rule as well as analogous to a protein. So that’s our position. There was a mixed decision in the -- first decision in the court. Obviously, it’s an active litigation, but we would hope to come to a conclusion with the FDA to support a BLA application." — David Ricks, Chair and CEO

Assessment: The efficacy question is answered and the classification question is not. A BLA pathway carries twelve years of reference-product exclusivity against five for a small molecule, so this is a fight about the back half of the asset’s life, not about approval. Management also noted chemistry, manufacturing and controls work still to finish. Neither item threatens the Q1 2027 target on its face, but a litigated classification is a genuine source of timing variance and it belongs in the risk column at a size the Street has not sized.

4. The Medicare GLP-1 Bridge went live and is pulling new patients

The bridge program we tracked through the last two quarters started on July 1, one month inside the commitment made at Q1.

"the Medicare GLP-1 Bridge program launched on July 1, granting 20 million eligible Americans insurance coverage for GLP-1s for obesity at the low out-of-pocket price of $50 per month. With this expansion, 35% more people now have coverage for our obesity medicines in the United States." — David Ricks, Chair and CEO

Early mix is informative. Roughly 80% of patients starting through the program are choosing an injectable, and roughly 60% to 70% are new to treatment rather than switching.

Assessment: Two things follow. The program is expanding the market rather than shifting existing patients, which is the outcome that matters for aggregate volume. And it is disproportionately feeding Zepbound rather than Foundayo, which undercuts the argument that the Bridge is the catalyst that fixes the oral’s ramp. The access pillar is confirmed; the assumption that access automatically pulls the oral is not.

5. Pricing: the reported number and the real one

U.S. realized price declined 3% in the quarter, which reads as a marked improvement on the 7% decline in Q1 and the low-to-mid-teens full-year framework. It is not.

"U.S. price declined by 3%, driven by Zepbound and Mounjaro. In Q2, U.S. price benefited from a change to estimates for rebates and discounts. Excluding these adjustments, U.S. price declined by 9%." — Lucas Montarce, Chief Financial Officer

Worldwide, realized prices fell 13% against 60% volume growth, with the ex-U.S. decline of 36% driven principally by the China NRDL listing. Management also signalled that U.S. commercial price has further to fall as the CVS formulary restoration converts medical-exception scripts, at undiscounted prices, back to contracted ones.

Assessment: The credit due here is for disclosure, not for the headline. Lilly told investors the real number was 9% when it could have let the 3% stand. The forward signal is that price gets worse before it stabilises, and management said so, adding that volume is expected to more than offset. That is the same trade the thesis has been underwriting for four quarters and it has been right every time. It becomes a problem only if volume growth decelerates faster than price erodes, which is precisely what the H2 guide implies.

6. Generic semaglutide has not eroded Mounjaro where it has launched

The bear case that generic semaglutide entering unprotected markets would compress the category has not yet shown up in the data. Lilly has now observed launches in India, Brazil and Canada.

"if we look specifically at India and even Brazil, we continue to see TRx growth for Mounjaro even after the launch of generic semaglutide." — Patrik Jonsson, President, Lilly International

Management attributed the resilience to head-to-head superiority data and noted that generic suppliers have themselves hit supply constraints, an advantage that is real but explicitly temporary.

Assessment: Three markets and a few quarters is a thin sample, and the honest reading is that the differentiation defence is holding while the supply-constraint defence is borrowed time. The datapoint that carries weight is Canada, where tirzepatide prescriptions grew at the same pace as the total market after generic entry, meaning no share loss in a developed market. We treat this as confirming rather than closing the debate.

7. Business development stopped being incremental

Q2 closed the Orna, Ajax, Centessa and Kelonia acquisitions. After quarter end Lilly completed three more to build an infectious-disease portfolio, Curevo, LimmaTech Biologics and Vaccine Company, and agreed to acquire AtaiBeckley in psychiatry. The accounting consequence is $2,776M of acquired IPR&D in the quarter against $154M a year ago, plus $703M of charges for accelerated equity vesting and integration, and a reported tax rate 680bp higher because acquired IPR&D is not deductible.

Management was explicit that the cadence is rising, describing the pace and average deal size as having continued to increase. The defence offered was price discipline rather than restraint.

"we saw an opportunity to acquire technology and medicines that we think have the potential to be really impactful and at prices that allow us to remain disciplined and create value long term for Lilly shareholders." — Jacob Van Naarden, President, Lilly Oncology and Head of Business Development

Assessment: Two of these deals took Lilly into therapeutic areas it does not currently operate in, vaccines and psychiatry, which is a different proposition from bolting assets onto oncology or cardiometabolic health. The strategic logic around unmet need is coherent, and the shingles-to-dementia and Epstein-Barr-to-multiple-sclerosis theses are genuinely interesting science. The investor issue is that $3.4B of first-half IPR&D plus a rising run-rate is now large enough to move reported earnings materially, and Lilly gave no aggregate consideration figure and no framework for the annual envelope. We move this from watching to an emerging risk, not because any single deal looks bad but because the cadence has outgrown the disclosure.

8. Guidance was raised on revenue and margin, and cut on headline EPS

The three guidance lines moved in different directions and the release explains why in a single sentence that most of the coverage skipped.

"We now expect non-GAAP earnings per share of $35.50 to $36.50, an increase of $2.78 per share at the midpoint of our range before updating our guidance for the $3.03 impact of Q2 acquired IPR&D charges." — Lucas Montarce, Chief Financial Officer

The arithmetic is exact: a $2.78 operating raise less a $3.03 charge equals the $0.25 reduction in the midpoint, from $36.25 to $36.00. Revenue guidance rose to $85–87B from $82–85B, with the low end up $3B and the high end up $2B, and the performance-margin band rose two points at both ends to 49.0–50.5%.

Assessment: A company that raises revenue by $2.5B at the midpoint and margin by two points at both ends has raised earnings power. The headline EPS range fell because Lilly spent the increase on assets rather than banking it. That is a capital-allocation choice to evaluate on its merits, not an operating deterioration, and any model that treats the $0.25 as a guidance cut is mis-specified.

9. The second-half guide implies quarterly revenue below Q2

This is the least comfortable number in the release and it is entirely derivable. First-half revenue was $42,773M. The full-year range of $85–87B implies second-half revenue of $42.2B to $44.2B, a midpoint of roughly $43.2B against a first half of $42.8B. Averaged across two quarters that is roughly $21.6B, which is about 6% below the $22,974M Lilly just printed.

Against the prior year the implied second-half growth is roughly 14% to 20%, versus 51% in the first half. Management offered three reasons: first-half one-offs that do not repeat, a second-half 2025 comparison base inflated by the wave of Mounjaro country launches, and normal seasonality.

"there were a few one-offs that we called out in the calls as well as prior period adjustments that we had on our estimates for rebates and discounts in the U.S., including this quarter. Those, of course, we don’t expect that will continue into the second part of the year." — Lucas Montarce, Chief Financial Officer

Assessment: All three reasons are legitimate and two are quantifiable from the release, the $250M milestone and the six-point gap between reported and underlying U.S. price. Together they do not obviously bridge a 6% sequential step-down at the midpoint, particularly with the Bridge program adding 20 million covered lives from July 1 and the third pharmacy benefit manager now live for Foundayo. Our read is that this is conservatism with a real component, and the honest position is that we cannot fully distinguish the two from outside. It is the number we would most want to be wrong about, and Q3 settles it.

10. Manufacturing capital keeps compounding

Lilly committed an additional $4.5B across its Indiana sites, opened its first dedicated genetic-medicine manufacturing facility in Lebanon, Indiana, and produced first commercial material at the new Limerick, Ireland site. Management stated it is well positioned on supply for the international Foundayo rollout, saying there will be no gating of launches.

Assessment: The capital intensity is the price of the volume-led model and it is now visibly converting into the unit-cost improvement showing up in gross margin. The supply assurance matters more than usual this quarter: with more than 40 markets under regulatory review and the major ex-U.S. rollout scheduled for 2027, a supply-constrained launch would compound the Foundayo problem. Management removed that specific worry.

Guidance & Outlook

Implied second-half ramp. First-half revenue of $42,773M against the guide implies $42.2–44.2B in the second half, a midpoint of roughly $43.2B or about $21.6B per quarter. That is roughly 6% below Q2’s actual. On EPS, first-half non-GAAP of $16.94 against the range implies $18.56–19.56 in the second half, growth of 10% to 15% over the first half. The second-half EPS figure carries no acquired IPR&D by construction, since guidance excludes charges incurred after June 30, while the first half carried $3.55 across the two quarters.

Where the Street sits. The revenue guide’s low end of $85.0B landed roughly where consensus already was, near $85.4B, and the midpoint of $86.0B sits about $0.6B above it. The performance-margin raise was the genuine surprise; nothing we tracked into the print anticipated a two-point increase at both ends.

Guidance style. Lilly has raised revenue guidance at every reporting date across the four quarters we have covered, and has consistently framed price conservatively and let volume beat it. The pattern argues that the implied second-half step-down is at least partly the same conservatism. The pattern also argues that management raises when it can see the quarter, and the second half contains two launches whose curves it cannot yet see.

Analyst Q&A Highlights

The pace of the U.S. oral launch and when it inflects

The first substantive challenge of the call went straight at the soft spot, pairing the domestic ramp with the competitive picture in the one international market where both orals are now selling. The question also carried a same-morning competitor claim of 50% share within three weeks of launch in the UAE. Management answered the U.S. half with process and a late-July inflection, and answered the international half by shifting the frame from product share to combined franchise share.

Q: "Maybe just on the Foundayo launch. In the U.S., the launch curve has been somewhat slower than anticipated. Just curious as to what you think the contributing factors are there and when you think we could expect an inflection?"
— Asad Haider, Goldman Sachs

A: "So we’re seeing the leading indicators being pretty positive overall. We’re seeing week-to-week growth in overall prescriptions and uptake for Foundayo."
— Ilya Yuffa, President, Lilly USA & Global Customer Capabilities

Assessment: The premise of the question, that the curve has been slower than anticipated, went unchallenged, which is itself the answer. The response leaned on leading indicators, and the substantive number came later in the same reply with the late-July doubling. On the competitive datapoint, the reply that combined Lilly incretin share held steady is true and evasive at the same time: it is a statement about the franchise defending itself, not about the oral winning. The most useful disclosure was the caution that early launch numbers are often sell-in rather than demand, which cuts against the competitor’s claim and against Lilly’s own UAE figure equally.

Why guidance implies a second-half deceleration

The sharpest analytical question on the call put the guidance arithmetic on the table directly and asked whether conservatism or a real headwind explained it. The answer was the most detailed passage of the call, naming three separate bridges.

Q: "So it seems like your guidance is almost implying a deceleration in revs versus Q2 for the back half of the year, and that seems unlikely given the Medicare Bridge programs ramping up along with Foundayo commercial access getting online. Is there anything we’re missing here maybe on price? Or is your team generally trying to be conservative here?"
— Akash Tewari, Jefferies

A: "When you look at actually the growth that we expect to see in dollars, not in percentage of growth, we expect to continue to drive significant growth in the second part of the year as well."
— Lucas Montarce, Chief Financial Officer

Assessment: The reframing from percentage growth to dollar growth is fair on the year-over-year comparison and does not address the sequential one, which is the part that implies quarterly revenue below Q2. The three bridges offered, non-recurring rebate adjustments and milestones, a second-half 2025 base inflated by country launches, and European third-quarter plus U.S. fourth-quarter seasonality, are all real. Whether they sum to the gap is not demonstrable from the disclosure. Management did not claim conservatism and did not deny it.

The regulatory pathway for retatrutide

An analyst pressed on a procedural matter that had been visible in filings but not discussed on a call: whether the next-generation obesity asset will be reviewed as a biologic or as a small molecule, and what remains before a submission can be made. The answer was more forthcoming than the question required.

Q: "I did just want to probe on the retatrutide regulatory pathway. Dan, I noticed you mentioned kind of the BLA pathway. And I know that you’ve been negotiating perhaps challenging the FDA over the last couple of years in terms of that determination as to whether retatrutide is -- meets the criteria for a BLA."
— Courtney Breen, Bernstein

A: "As you may know, we have announced at the end of our clinical program that we have all the clinical data we need to submit, but we do need to gather a little bit more on the CMC side."
— David Ricks, Chair and CEO

Assessment: Management volunteered that a court has issued a mixed first decision and that the matter is in active litigation. Disclosing an unresolved dispute with a regulator over the exclusivity classification of the most valuable pipeline asset, on an earnings call, is the opposite of managing the message. It also means the Q1 2027 submission target carries two independent sources of slippage, chemistry and manufacturing work and the classification itself, neither of which is currently in Street models as a probability-weighted risk.

Early learnings from the Medicare obesity rollout

With the bridge program only five weeks old at the time of the call, the questioning focused on what the first patient cohort looks like and whether orals or injectables are capturing it. The answer contained the quarter’s clearest evidence that the access expansion is growing the market rather than reshuffling it.

Q: "I know it’s early, but can you just elaborate a bit more on the Medicare obesity rollout and any learnings and surprises there thus far? Maybe as part of that, can you just touch on maybe the ramp curve we’ve seen initially, what you’re seeing in orals versus injectables, et cetera?"
— Christopher Schott, JPMorgan

A: "We’re seeing a significant preference towards injectable, probably around 80% of people that are getting treatment are injectable, but we’re seeing new patients for both. And we approximate around 60% to 70% being new people that are coming in that have not had access before."
— Ilya Yuffa, President, Lilly USA & Global Customer Capabilities

Assessment: Two-thirds of bridge patients being new to treatment is a strong result for the volume thesis and for the category. The 80% injectable preference is a weak result for the oral thesis specifically, and it complicates the argument that the bridge program is the catalyst that rescues the Foundayo ramp. Seniors starting on an injectable at a $50 monthly out-of-pocket cost is good for Zepbound and neutral at best for the pill.

The gap between Zepbound’s net price and the cash-pay benchmark

A recurring line of questioning across the last two calls returned to whether the realized U.S. price per prescription is structurally supported or propped up by a temporary channel. The response was the most direct forward statement on pricing management has made.

Q: "So as you know, Zepbound’s net price is about $580 per prescription, which is meaningfully higher than the cash pay price, but also higher than Wegovy net price of about $380 per prescription. So Dave, last quarter, you mentioned there’s a lot of medical exception that might be driving some of this delta. And my question is, how sustainable is that, especially given CVS is back on formulary?"
— Umer Raffat, Evercore

A: "expect that price will actually go down for sure because of this, but it’s very much embedded in our guide and it’s basically reset on, again, our expectations. And of course, we are going to more than offset that with volume growth."
— Lucas Montarce, Chief Financial Officer

Assessment: A clean answer to a question designed to expose an unsustainable price. Management conceded the direction without hedging, asserted it is already in the guide, and restated the volume-offset framework. The concession has substance: medical-exception prescriptions carry no contracted discount, so restoring formulary access mechanically lowers realized price while raising volume. This is the pricing thesis working as designed, and it is also a reminder that the reported price line will keep understating the underlying decline as adjustments cycle through.

What one Gulf market says about the international oral opportunity

The final question of the call did the arithmetic nobody else had done in public, splitting the oral’s global revenue between a single small market and the entire United States, and asked what that implies for the 2027 rollout.

Q: "So sales in the quarter in a single country, albeit a wealthy one, the UAE were $31 million, which was close to half of the $67 million that Foundayo generated in the U.S. So although the pricing is probably relatively high in the UAE, the results would seem to suggest explosive potential for Foundayo once it’s launched throughout the world."
— David Risinger, Leerink

A: "What we have learned so far is that there is a need for an oral in treating both obesity and type 2 diabetes. And I think we have seen that the majority of the patients are naive to incretin patients -- sorry, incretin treatment."
— Patrik Jonsson, President, Lilly International

Assessment: The most valuable exchange of the call, and the only place the $67M/$31M split was disclosed. Management neither confirmed nor disputed the figures and pivoted to the inventory-build caveat, which is the correct caution for a three-month-old launch. The bull reading is that a country of roughly 11 million people generated a third of a global launch quarter. The bear reading is that the U.S., with 30 times the population and full formulary access, generated only twice as much. Both are true and the second one is the more actionable.

Moving into vaccines and psychiatry

The business-development cadence drew a direct question about whether two new therapeutic areas represent a platform commitment or opportunism, which is the capital-allocation question underneath the quarter’s IPR&D charge.

Q: "You guys surprised investors, I think, getting back into psychiatry and with some vaccine deals. And so I’m wondering if you think these 2 areas, psych and vaccines are areas that Lilly can scale? And is this high priority? Or do you see some of the assets as more one-off where you were just intrigued by the science?"
— Jason Gerberry, Bank of America

A: "Whether we continue to build more around infectious diseases and psychiatry specifically to your question, I don’t want to forward-look too much on that because we’ll be opportunistic based on what we see that’s available for acquisition and partnering"
— Jacob Van Naarden, President, Lilly Oncology and Head of Business Development

Assessment: "Opportunistic" is an honest answer and an unsatisfying one for anyone modelling the earnings line. It confirms there is no stated annual envelope and no commitment to bound the cadence, at a point when first-half acquired IPR&D reached $3.4B and moved reported guidance. The unmet-need framing is consistent and credible on the science. The absence of any capital-allocation guardrail is the gap.

What They’re NOT Saying

1. No aggregate consideration for the business-development wave. Eight transactions closed or agreed across Q2 and the weeks after it, and the release quantifies only the accounting charge, not what Lilly paid. With management stating that average deal size is rising, the absence of a total is the most conspicuous omission in the quarter.
2. No annual framework for acquired IPR&D. Guidance explicitly excludes charges incurred after June 30, which means the published EPS range is knowingly incomplete and will be revised downward by an unknown amount at each remaining reporting date. Investors are being asked to model an expense the company will not bound.
3. No Foundayo revenue expectation for the second half. Prescriber counts, share of new starts and an inflection week were all disclosed. A dollar figure, a run-rate, or a contribution to the raised guide was not, in the first quarter where the launch visibly missed.
4. No dollar quantification of the rebate and discount adjustments. Management disclosed that U.S. price would have been 9% lower rather than 3% absent the adjustments, which is genuinely useful. It did not disclose the revenue amount, so the size of the one-off inside the beat cannot be computed from outside.
5. No eloralintide update at all. The selective amylin agonist was a Q1 highlight, with three additional Phase III programs initiated in that quarter. It was not mentioned in the release or on the call. In a portfolio where the next-generation obesity story is now carrying more of the valuation, silence on one of its three legs is notable.
6. No refreshed multi-year framework. With the FY26 performance-margin band raised two points and retatrutide's package complete, there is still no updated FY27 or FY28 revenue or margin architecture. The next scheduled opportunity is the R&D day, which leaves the market to build the out-years unaided.
7. No timeline risk quantified around the retatrutide classification. Management disclosed the litigation and the outstanding chemistry and manufacturing work, then reaffirmed a Q1 2027 submission without addressing what either could cost in time.
8. No commentary on Zepbound outside the U.S. The franchise remains almost entirely domestic while Mounjaro's international book has grown past its U.S. one. Whether that is a labelling artefact, a supply-allocation choice, or a deliberate sequencing decision went unaddressed.

Market Reaction

• Pre-print setup: the stock closed at $1,115.68 on August 4, up 3.8% year-to-date against the S&P 500’s 13.0%, up 45.7% over the trailing twelve months, and down 7.0% over the prior 30 days. The 52-week closing range entering the print was $625.65 to $1,235.56, so the print was taken with the stock roughly 10% below its 52-week closing high and in a visible drawdown.
• Reaction session (August 5, before the open): opened at $1,174.00, a gap of +5.2%, traded a range of $1,138.43 to $1,216.94, and closed at $1,169.86, up 4.9% or $54.18.
• Volume: 6.4M shares against a 2.8M 30-day average, 2.3 times normal.
• Benchmark: the S&P 500 fell 0.2% on the session, so the entire move was idiosyncratic.

The shape of the day is more informative than the close. A 5.2% opening gap that reached +9.1% intraday and finished at +4.9% describes a market that priced the revenue beat and the guidance raise immediately, then gave back roughly half the gain as the Foundayo line and the second-half implied step-down were worked through. That is not a rejection of the quarter; it is the market separating the operating result from the two items it could not verify.

The pre-print positioning explains why the reaction was as large as it was. Entering the print at +3.8% year-to-date against a benchmark at +13.0%, and down 7.0% over the preceding month, the stock had already de-rated while first-half revenue compounded 51%. The session recovered roughly two-thirds of that month-long drawdown rather than extending a run. At 2.3 times average volume this was genuine repositioning, not drift.

What the tape got wrong is worth recording. The headline EPS range moved down at the midpoint, and coverage that quoted only the range change read the quarter as a guidance cut. The release itself decomposes that move into an underlying operating raise and a larger one-time deal charge, as set out in the guidance section above. The stock’s recovery through the morning suggests the decomposition was read eventually, though not before the intraday high had come and gone.

Street Perspective

Debate: Is Foundayo a slow start or a structurally weaker oral?

Bull view: the launch was deliberately sequenced, with physician education first, full formulary access only completed in June, and consumer advertising starting after that. A 30-day sampling program suppresses the very prescription panels the Street is grading it on. Prescribers went from 8,000 to 36,000 in one quarter, roughly one in four new starts is now the oral, and volume nearly doubled in the last week of July.

Bear view: the Street’s estimate already knew all of that and the product still missed. A competitor claims half the share in the one market where both compete after three weeks. In the U.S. Medicare cohort, where access is now equal and the out-of-pocket cost is identical, 80% of patients are choosing the injection. If patients with a genuine choice keep choosing the needle, the oral’s addressable market is smaller than the model assumes.

Our take: the bear has the better of it on evidence available today and the bull has the better structural argument. The single most diagnostic datapoint is the 80% injectable preference inside the bridge cohort, because that is the cleanest natural experiment available: equal access, equal cost, free choice. One quarter of it is not enough to conclude, but it is enough to move this pillar to at-risk and to make Q3 the quarter that decides. We would not underwrite the 2027 ex-U.S. rollout at the multiple the market was assigning it in May.

Debate: Does the second-half guide signal deceleration or conservatism?

Bull view: Lilly has raised revenue guidance at every reporting date across the past four quarters and has consistently guided price conservatively while volume beat it. The first half genuinely contained a $250M milestone and favorable rebate adjustments that will not repeat, and the second half of 2025 genuinely contained a bolus of international country launches that inflates the comparison. Seasonality in European third quarters and U.S. fourth-quarter diabetes is a real annual pattern.

Bear view: the implied midpoint puts quarterly revenue about 6% below what the company just printed, in a half-year that adds 20 million newly covered lives from July 1, a third pharmacy benefit manager for the oral, and the beginning of consumer advertising. The named one-offs are not obviously large enough to bridge that. If they are not, the guide is telling you volume growth is decelerating faster than the volume-offsets-price framework can absorb.

Our take: partly conservatism, partly real, and not separable from outside. The two quantifiable one-offs, the milestone and the six-point gap between reported and underlying U.S. price, do not close the gap on their own. We model the upper half of the revenue range on the strength of the guidance-raise pattern, while flagging that this is the assumption most likely to be wrong and the one Q3 tests directly. Management notably declined to characterise the guide as conservative when handed the chance.

Debate: Is the business-development cadence creating value or consuming earnings?

Bull view: $2.8B of quarterly acquired IPR&D is a non-cash-flow-relevant accounting artefact of buying pre-revenue assets, and the assets acquired include a next-generation shingles vaccine with better tolerability than the standard of care, an Epstein-Barr programme with a plausible multiple-sclerosis read-through, an in-vivo CAR-T for myeloma, and a best-in-class orexin agonist. Lilly is deploying a fraction of its cash generation into optionality it can develop at a scale almost nobody else has.

Bear view: the charge is real cash out the door, it lifted the reported tax rate 680bp because it is not deductible, and it took the headline EPS guide down. Management says the pace and average deal size keep increasing, gives no annual envelope, and has now entered two therapeutic areas where Lilly has no current commercial presence. Guidance that explicitly excludes future charges will be revised down again at every remaining reporting date.

Our take: the individual deals look defensible and the aggregate disclosure does not. Our objection is procedural rather than strategic: at $3.4B in a half year with a rising run-rate, this line is now material enough to require a framework, and there isn't one. We move business-development discipline from a watch item to an emerging risk, which is a governance judgment rather than a view on the science.

Debate: How much of retatrutide is already in the price?

Bull view: the registrational package is complete across three indications, the efficacy at high doses approaches bariatric-surgery territory, and there is no competing triple agonist near this stage. Knee osteoarthritis pain reduction of the magnitude described opens indications that tirzepatide could not reach, and a chronic lower-back-pain study reads out next year.

Bear view: the first commercial revenue is a 2027 event at the earliest, the filing route is being litigated with the FDA, chemistry and manufacturing work is unfinished, and an unauthorised supply is reportedly already circulating. Twelve years of exclusivity versus five is a large swing in terminal value that is currently unresolved in court.

Our take: the clinical risk has collapsed and the procedural risk has not, and the market is treating the second as immaterial. We carry retatrutide in the fair-value range at a probability-weighted contribution rather than at a clean launch case, and we regard the classification dispute as the most underpriced identifiable risk in the story. It does not change the rating; it does cap how much credit we extend to the out-years.

Model Update & Valuation Framework

Valuation math. At the August 5 close of $1,169.86 the stock trades at 32.5x the guided FY26 midpoint of $36.00, 29.6x our ex-IPR&D FY26 estimate of roughly $39.50, and 23.9x our FY27 point estimate of roughly $49. The fair-value range of $1,150–1,300 implies about 5% upside to the midpoint and about 11% to the high end from that close, with the low end roughly 2% below it.

Why the range moved up while the headline guide moved down. Revenue guidance rose $2.5B at the midpoint and the performance-margin band rose two points at both ends. Those are increases to durable earnings power. The $3.03 that took the reported EPS midpoint lower is a one-time, non-deductible charge that bought pre-revenue assets, and a valuation framework that capitalises earnings power should look through it while acknowledging the cash left the building.

Why Outperform survives a thin upside to our own midpoint. Three reasons. The stock entered the print at +3.8% year-to-date against a benchmark at +13.0%, so the de-rating has already happened. A twelve-month horizon rolls the valuation base toward FY28, where mid-to-high-teens earnings growth off a $49 FY27 base supports a materially higher anchor than the FY27-based range implies. And the FY27 estimate carries retatrutide at a probability weight rather than at a launch case, leaving genuine upside if the classification dispute resolves cleanly. The rating is not a call on the next quarter, and we would be transparent that the next quarter is where the risk sits.

Thesis Scorecard Post-Earnings

Scored against the standing pillars carried since the Q1 2026 note, not against a fresh set.

Overall: the standing thesis is strengthened on the operating pillars and narrowed on optionality. Six of eight bull pillars were confirmed and one, gross margin, upgraded out of the risk column. The single pillar that weakened is the one we leaned on most heavily in May. The composition of the bull case has changed more than its strength: what was a two-legged next-generation story resting on the oral and the triple agonist is now resting mainly on the triple agonist, which itself carries a newly disclosed procedural risk.

Action: Hold existing positions and maintain Outperform. We would add on weakness toward the low end of the $1,150–1,300 range rather than chase strength through it. The two events that would change the rating are a Q3 that fails to show the oral’s late-July inflection carrying through, which would take us to Hold, and a clean resolution of the retatrutide classification alongside a second-half that beats the implied step-down, which would take the fair-value range higher.