Episode Details

Eli Lilly and Company (LLY) Q2 2026 — Revenue $22,974M vs ~$20,490M expected, up 48% YoY - a $2.5B beat. Non-GAAP EPS $8.38 vs a REAL consensus near $8.81, not the $6.01 on the wires. But $8.38 is struck AFTER $3.03/share of acquired IPR&D. Like-for-like: $11.41 vs $8.81, a 30% beat. Eli Lilly grew revenue 48% to $23.0 billion and the wires called it a 39% beat against a $6.01 estimate. That estimate never existed - Lilly earned $8.55 the prior quarter. The real bar was ~$8.81, making the reported $8.38 look like a 43-cent MISS. Both are wrong: $8.38 is struck after $3.03/share of acquired IPR&D. Like-for-like, Lilly earned $11.41. THE CALL: HOLD (3/5, A MUCH BIGGER BEAT THAN THE TAPE SAID - AND THE PRICE ALREADY KNEW) — base-case value ~$1140.0 vs ~$1163.84 today. KEY METRICS: - CALL: HOLD 3/5, fair value ~$1,140 vs the $1,163.84 intraday price (-2%), and 14% below the Street's $1,322 average. We build 2027 from Lilly's own guide: revenue $102B (+19%), 51% performance margin = $52.0B, less $1.4B net interest, plus $1.2B other income = $51.8B pre-tax; tax 18.5% = $42.2B; over 885M shares = $47.70 underlying EPS. At 27x, discounted back at 9%, that is $1,142. Bear $819 (EPS $42.00 at 22x), bull $1,429 (EPS $52.00 at 31x). The model reproduces Lilly's own 2026 guidance to within 40 cents. - WHAT THE $8.38 ACTUALLY WAS. The 8-K states it twice: Q2 2026 reported AND non-GAAP EPS both include $3.03 of acquired IPR&D, against $0.14 in Q2 2025. Acquired IPR&D charges were $2,776M versus $154M, from four completed acquisitions - Orna, Ajax, Centessa and Kelonia. Sell-side models carry no unannounced M&A, so the ~$8.81 consensus is an ex-IPR&D number. Like-for-like: $8.38 + $3.03 = $11.41 against $8.81, a beat of $2.60 or 30%. Versus $6.45 a year ago (the $6.31 plus $0.14), underlying EPS grew 77%. - THREE ARITHMETIC CHECKS OFF THE FILING. One: non-GAAP net income $7,493M over 893.671M diluted shares = $8.385, ties to the reported $8.38. Two: the $2,776M IPR&D charge over that share count is $3.107 pre-tax against $3.03 reported after tax - only ~2.5% tax relief, confirming the charges were largely non-deductible. Three: add the charge back and pre-tax income is $12,023M against $2,152M of tax, a 17.9% rate - right on the 18-19% guided range, versus the 23.3% reported. The tax blowout IS the acquisitions. - THE GUIDANCE BRIDGE - A RAISE THAT READS LIKE A CUT. Revenue guidance rose from $82-85B to $85-87B (+$2.5B at the midpoint) and performance margin from 47.0-48.5% to 49.0-50.5% (+200bp). But headline EPS guidance went from $35.50-$37.00 to $35.50-$36.50. The bridge: old midpoint $36.25, plus $2.78 of underlying improvement, minus $3.03 of Q2 acquired IPR&D = $36.00, exactly the new midpoint. A 25-cent decline containing a $2.78 improvement. That is the spike to $1,216.94 and the fade back, in one paragraph. - THE TRAP BUILT INTO THE GUIDE. Footnote 3 states guidance does not include acquired IPR&D incurred after June 30, 2026 - and the same release discloses three completed infectious-disease acquisitions plus an agreement to buy AtaiBeckley, all after quarter end. Lilly booked $3,360M of acquired IPR&D in H1 2026 and $1,726M in H1 2025; it is the business model, not an event. So the $35.50-$36.50 range is by construction a number Lilly is unlikely to report, and a Q3 headline 'miss and cut' is the most likely route to our $980-$1,040 buy zone. What to watch: Changes our mind UP: Foundayo (orforglipron) clearing ~$1.5B in a quarter, or realised price stabilising better than -5%. Confirms the bear: volume growth under +25% while price keeps falling double digits. We would buy $980-$1,040. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.