Gross margin increased 9 percent, in-line with total revenue growth. Gross margin as a percent of total revenue was 82.2 percent, which was essentially flat compared to the second quarter of 2009.
Marketing, selling and administrative expenses increased 3 percent compared with the second quarter of 2009, to $1.755 billion. The increase was driven by higher marketing and selling expenses outside the U.S., partially offset by lower administrative expenses and company-wide cost containment efforts. Research and development expenses were $1.187 billion, or 21 percent of total revenue. Compared with the second quarter of 2009, research and development expenses grew 14 percent due primarily to increased costs of late-stage clinical trials and associated development milestones. Total operating expense, defined as the sum of research and development, marketing, selling and administrative expenses, increased 7 percent compared with the second quarter of 2009.
In the second quarter of 2010, the company recognized a charge of $27.3 million for restructuring primarily related to severance and other related costs from previously announced strategic actions that the company is taking to reduce its cost structure and global workforce. In the second quarter of 2009, the company incurred a special pretax charge of $105.0 million in connection with the settlement of several states' litigation claims involving Zyprexa.
Operating income in the second quarter of 2010 increased 18 percent to $1.755 billion, compared to the second quarter of 2009 due to revenue growing at a faster rate than cost of sales and operating expense, as well as lower asset impairments, restructuring and other special charges.
Other income (expense) improved $5.7 million, to a net expense of $18.4 million, primarily due to lower net interest expense.
The effective tax rate was 22.3 percent in the second quarter of 2010, compared with an effective tax rate of 21.1 percent in the second quarter of 2009, due to the expiration of the R&D tax credit in the U.S. at the end of 2009.
Net income and earnings per share increased to $1.349 billion and $1.22, respectively, compared with second-quarter 2009 net income of $1.159 billion and earnings per share of $1.06.
"Lilly continued to deliver solid financial results in the second quarter, driven by volume-based revenue gains and ongoing cost-containment efforts that resulted in double-digit earnings growth," said John C. Lechleiter Ph.D., Lilly's chairman and chief executive officer. "We're pleased with these results and the opportunities they create. This strong financial performance enables us to fund our R&D pipeline of nearly 70 clinical stage assets and make strategic acquisitions in order to deliver an increased number of innovative medicines to patients in the future."
About Eli Lilly and Company
Lilly, a leading innovation-driven corporation, is developing a growing portfolio of pharmaceutical products by applying the latest research from its own worldwide laboratories and from collaborations with eminent scientific organizations. Headquartered in Indianapolis, Ind., Lilly provides answers - through medicines and information - for some of the world's most urgent medical needs. Additional information about Lilly is available at www.lilly.com.