Anat Ashkenazi
Executive Vice President and Chief Financial Officer at Eli Lilly and Company
Thanks, Dave. Slide 6 summarizes financial performance in the fourth quarter of 2023, and I'll focus my comments on non-GAAP performance. We are pleased with the strong financial performance in the fourth quarter and for the full year. Our performance was highlighted by continued acceleration of revenue growth, driven by our new products and growth products. Q4 revenue increased 28% compared to Q4 2022. Excluding divestiture, this represents a quarter-over-quarter acceleration revenue growth driven by Mounjaro, Verzenio, Jardiance, and the recent launch of Zepbound. For the full year, revenue increased 20% driven by robust volume growth of 16%. Gross margin as a percent of revenue increased to 82.3%. Gross margin in the quarter benefited from higher realized prices, partially offset by higher manufacturing expenses. Marketing, selling, and administrative expenses increased 17%, primarily driven by higher expenses associated with launches of new products and additional indications as well as higher incentive compensation costs. R&D expenses increased 28%, primarily driven by higher development expenses for late-stage assets and additional investments in early-stage research as well as higher incentive compensation costs.
In Q4, we recognized acquired IPR&D charges of $623 million, which negatively impacted EPS by $0.62. In Q4 2022, acquired IPR&D charges totaled $240 million or $0.23 negative impact to EPS. Operating income increased 29% in Q4, driven by higher revenue from new launches, partially offset by operating expense growth. Operating income as a percent of revenue was approximately 28% for the quarter and included a negative impact of approximately seven percentage points attributable to acquired IPR&D charges. Our Q4 effective tax rate was 13.1% compared to 7.3% in Q4 2022. The higher effective tax rate for Q4 2023 was primarily driven by a lower net discrete tax benefit compared to the same period in 2022 and the new Puerto Rico tax regime. At the bottom line, we delivered earnings per share of $2.49 in Q4, a 19% increase compared to Q4 2022, inclusive of the negative impact of $0.62 from acquired IPR&D charges compared to $0.23 in Q4 2022.
On Slide 8, we quantify the effect of price, rate, and volume on revenue growth. US revenue increased 39% in Q4, driven by robust growth of Mounjaro, Verzenio, and Zepbound. Net price in the US increased 27% for the quarter, driven by Mounjaro access and savings cards dynamic as well as the one-time favorable change in estimates for rebates and discounts. Excluding Mounjaro, net price in the US decreased by high single digits. Europe continued its trend of strong growth in Q4. Excluding $65 million in revenue associated with milestones received for the EU approval and launch of Ebglyss. Revenue was up 11% in constant currency, driven primarily by volume growth of Verzenio, Jardiance, and Taltz. For Japan, we are pleased to see robust growth in Q4 as revenue increased 15% in constant currency, driven primarily by volume growth of Verzenio and Mounjaro.
Moving to China, Q4 revenue increased 7% in constant currency with volume growth of 10% partially offset by price declines. Volume growth in Q4 was primarily driven by Tyvyt. We are pleased to see China return to growth in 2023. Revenue in the rest of the world decreased 10% in constant currency. However, when you exclude the impact of the Q4 2022 sales of rights for Alimta in Korea and Taiwan, sales grew 9% in constant currency, driven primarily by the volume growth of Mounjaro and Verzenio.
Slide 9 shows the contribution to worldwide volume growth by product category. As you can see, the new products and growth product categories combined contributed approximately 15 percentage points of volume growth for the quarter.
Slide 10 provides additional perspective across our product categories. First, I would like to highlight Verzenio, which saw worldwide sales growth of 42% in Q4 driven by robust demand growth and, to a lesser extent higher realized prices. The continued positive momentum is driven by early breast cancer indication with steady performance in the metastatic indication. Jardiance continued its strong 2023 performance with worldwide revenue growth of 30% for the quarter. In the US, Jardiance revenue increased 29%, driven by increased demand.
In Q4, worldwide Trulicity revenue declined 14%. US revenue decreased 18% driven by lower volume and lower realized prices. We experienced intermittent delays for filling orders of Trulicity. Starting in early December and going through January, all dose strengths of Trulicity were indicated as having limited availability on the FDA drug shortage site. We expect to experience intermittent delays in fulfilling orders of certain doses in the coming months. In international markets, Trulicity volume continued to be affected by measures we have taken to minimize potential disruption to existing patients, including communications to healthcare professionals not to start new patients on Trulicity.
Moving to Slide 11, Mounjaro continued its robust growth as more type 2 diabetes patients benefited from the medicine. Q4 revenue grew to over $2.2 billion globally, up from $1.4 billion in Q3 2023. In the US, Mounjaro revenue of $2.1 billion in Q4, up from $1.3 billion in Q3 2023, benefited from a one-time change in estimates for rebates and discounts
Adjusted for this one-time change, sequential net sales in the US would have grown approximately 30% in Q4. Since our last call, we further expanded patient access to Mounjaro. As of February 1, access for patients with type 2 diabetes in the US was 90% in aggregate across commercial and Part D, including 92% access for commercial patients. This expanded access puts Mounjaro near parity with established injectable incretins and gives more patients the opportunity to start therapy on Mounjaro for type 2 diabetes.
Since the $25 non-covered co-pay part program expired on June 30, we now consider all prescriptions paid. Compared to Q4 2022, the Mounjaro net price in Q4 2023 benefited from this change to the co-pay part program in the US. Recall that after a change to the non-covered co-pay program in late 2022, patients already started on the $25 co-pay card could remain in the program until June 30. Today, commercially insured patients without coverage utilize the current non-covered co-pay program and pay roughly half the list price for Mounjaro prescription.
Turning to Slide 12. In November, we received FDA approval for Zepbound for adults with obesity or those who are overweight and have weight-related comorbidities. We then announced on December 5 that Zepbound available at US pharmacies, and we started building commercial formulary access before the end of the year. We are pleased with the early access of approximately one-third of commercial lives covered as of February 1. Access in this market will be more gradual as individual employers need to opt into coverage after the typical formulary contracting takes place. We are focused on building formulary access and employer opt-ins, but we expect that it will take some time before we reach broad open access in this market.
Meanwhile, the commercial savings for our program is available at US pharmacies for those who do not yet have coverage. In Medicare Part D, weight loss drugs are still prohibited from reimbursement. In Q4, we recognized $176 million in sales for Zepbound with approximately three-fourths of that coming from initial channel stocking. The initial prescription trends we have seen are encouraging.
On Slide 13, we provide an update on capital allocation. Looking forward to 2024 and beyond, we have confidence in our existing commercial portfolio, bolstered by the recent launches of Mounjaro, Jaypirca, Omvoh, and Zepbound and the potential launches of the donanemab and lebrikizumab, all of which we expect to serve as drivers for contained growth through the balance of the decade.
On Slide 14, you'll see a summary of our outlook, the outline of our capital deployment decisions in relation to the achievement of our strategic deliverables. We will invest in our current portfolio and in the future innovation through R&D, business development, and a comprehensive manufacturing expansion agenda designed to drive revenue growth and speed life-changing medicines to patients. We will continue to return capital to our shareholders through dividend increases in line with earnings growth over time and share repurchases with excess capital.
Moving to Slide 15, we highlight some of the dynamics that may impact our 2024 financial results. We expect continued robust revenue growth with revenue from our core business which excludes revenue from divestiture growing nearly 30% at the midpoint of our guidance range, driven by positive momentum [Indecipherable] launched products. In incretins, anticipated growth will be led by Mounjaro and Zepbound. In 2023, we made tremendous strides in expanding access from Mounjaro, and we entered 2024 with 90% of commercial and Part D lives covered. Zepbound coverage is off to a good start in its early December launch, and we expect both tirzepatide to contribute substantially to Lilly's revenue growth in 2024.
While we expect Mounjaro and Zepbound to be drivers of revenue growth, this will be partially offset by an expected continuation of the softer Trulicity sales trends that we saw in the second half of 2023. Recent revenue declines for Trulicity in the US has been driven by supply tightness. Volume has also been impacted by our actions outside the US. As for the supply outlook for incretin, our manufacturer organization continues to execute well on the most ambitious expansion agenda in our company's long history. Given the strong demand and time required to bring capacity fully online, we continue to expect demand to outpace supply in 2024. In late 2022, we showed our expectation that by year-end 2023, our capacity for incretin auto-injector pens would double. This goal was achieved through significant efforts from our manufacturing colleagues and partners around the globe.
In 2024, our capacity execution efforts will continue with equal urgency and will be accomplished not just through increased auto-injector capacity but also through alternative presentations like our multiuse quick pen, which received regulatory approval in the UK in late January. We expect our manufacturing site in Concord, North Carolina, will initiate production as early as the end of 2024 with product available to ship in 2025 and we are pursuing a host of the projects, internal and external, large and small, to further expand capacity.
Now I'll provide a bit more context on the timing and pace of our incretin supply plans in 2024. While we're continuing to expand supply every quarter, we expect the most significant production increases to come in the second half of the year. We expect our production of sellable doses in the second half of 2024 will be at least one and a half times the production in the second half of 2023. Note that while last year, our commentary focused on capacity of auto-injectors devices compared to 2022, we're now referring sellable doses produced, which is more relevant to patients and investors. Beyond incretin, we look forward to progressing our launch platform with two other medicines approved and launched in 2023, Jaypirca and Omvoh.
Jaypirca was initially approved by the FDA in January 2023 for adult patients with relapsed or refractory mantle cell lymphoma under the accelerated approval program, received FDA approval also on the Accelerated Approval Program in December 2023 for adult patients with CLL or SLL that have received at least two parallel lines of therapy. We look forward to the ongoing opportunity to help patients with this medicine as our besal Phase 3 program continues.
Omvoh was approved in October 2023 in the US and earlier that year in Japan, Europe, and other markets and represents a compelling new options for patients struggling with moderate to severe ulcerative colitis. And in 2024, we look forward to potential US launches of two more medicines, donanemab and lebrikizumab. We continue to expect FDA regulatory actions on donanemab in Q4 2024 and remain confident in the substantial potential for donanemab to benefit patients with Alzheimer's disease. With the current state of diagnostic and treatment readiness, initial uptake will be somewhat limited, and we expect donanemab to contribute only modestly to growth in 2024 once approved.
Lebrikizumab, which last year was approved and launched in Europe under the brand name Ebglyss by our partner, received regulatory approval in Japan in January. As for the US, we look forward to the potential proof of lebrikizumab by the end of the year. We believe the efficacy, safety, and dosing of lebrikizumab can make it a compelling option for patients and prescribers in a large and growing market for the treatment of moderate to severe atopic dermatitis. Given the expected timing of FDA regulatory action, we expect lebrikizumab to contribute only modestly to revenue growth in 2024.
Beyond our recently launched portfolio of medicine, we expect continued growth from Verzenio driven by the early breast cancer indication where the magnitude and maturity of our clinical data reinforces it as a standard of care treatment in node-positive high-risk early breast cancer. Jardiance has been another outstanding contributor to growth, and we expect revenue growth to continue in 2024 though at a slower price as strong growth may be dampened by pricing dynamics in the US.
Outside the US, we expect an acceleration of growth in every major geography led not only by the anticipated launches of tirzepatide but also continued strong growth of Verzenio, Jardiance, and Taltz. Lastly, we seek to create long-term value beyond this decade. We will continue to invest across our value chain, in our recent and upcoming potential launches, in our pipeline, and in our manufacturing footprint.
Slide 16 summarizes our initial 2024 financial guidance. Starting at the top line, revenue is expected to be between $40.4 billion and $41.6 billion. Using the midpoint of the 2024 range, this represents roughly 20% growth or 29% growth for our core business, which excludes the impact of divestitures that took place in 2023. In terms of phasing of our revenue growth throughout 2024, while we don't provide quarterly guidance, we expect revenue growth to accelerate in the second half of the year, consistent with the increased availability of incretin doses. In terms of pricing for our core business, which excludes divestitures, we expect a high single-digit percent price decline in 2024. The lingering base period impact of the Mounjaro non-covered co-pay card dynamics will dampen these price declines in the first half of 2024, with more significant price declines expected in the second half of the year.
During this year, we are taking a streamlined approach to our guidance line items related to expenses. Rather than provide three separate guidance line items for gross margin, research and development costs, and marketing and sale and administrative costs, we are presenting a single new ratio representing our margin after planned costs, calculated by subtracting R&D costs and marketing, selling and administrative costs from gross margin and dividing that figure by revenue. We express this ratio as a percentage, and for 2024, we expect it to be in the range of 31% to 33% on a non-GAAP basis. While we are not providing a specific guidance number for gross margin as a percent of sales, our expectations remain consistent that we will maintain a gross margin of approximately 80% on a non-GAAP basis with productivity gains and volumes are offset by pricing pressures and the cost of new manufacturing facilities.
As for our expense growth across key categories, we expect marketing, selling, and administrative expenses to again grow in 2024 though at a slower pace than revenues with growth driven by marketing investments in our recently launched and upcoming launch products. We also expect R&D expenses in 2024 to increase, driven by growing investments across all phases of our pipeline as we invest for the future with the majority of dollar growth driven by ongoing and new late-phase opportunities. We expect R&D expense to increase at a higher rate than marketing, selling, and administrative expenses. Other income and expenses is expected to be between $400 million and $500 million of expense, primarily driven by higher interest expenses.
Turning to taxes. We expect our 2024 non-GAAP effective tax rate to be approximately 14%. Note that this rate does not assume or repeal of the provision of the 2017 Tax Act, requiring capitalization, amortization of research and development expenses for tax purposes. Should such a change take effect, our effective tax rate for 2024 would be moderately higher. Earnings per share is expected to be in the range of $12.20 to $12.70 on a non-GAAP basis. Consistent with our prior practice, we are not including any potential or pending acquired IPR&D in development milestone charges in our 2024 guidance, and we will provide updates each quarter from the impact of IPR&D on earnings per share as acquired IPR&D and development milestone charges are incurred.
For guidance modeling purposes, we're currently estimating diluted weighted average share outstanding for 2024 to be approximately $903 million. We entered 2024 with strong momentum and a remarkable opportunity to help millions more patients with our medicines. For our investors, 2024 should be another exciting year, driven by expected revenue growth in our core business, We are [Phonetic] approaching 30%, and continued investments to drive future growth. Our outlook for top-tier revenue growth and operating margin expansion remains on track.
Now I'll turn the call over to Dan to highlight our continued progress in R&D.
