Anat Ashkenazi
Senior Vice President and Chief Financial Officer at Eli Lilly and Company
Thanks, Dave. Before I review the financial results for Q1, it is important to note that beginning this quarter, following direction from the SEC, presentation of non-GAAP measures will not include upfront charges and development milestones related to acquired in-process R&D and development. While this has no bearing on how we conduct our business, it will have an impact on how we represent -- how we present our non-GAAP measures.
This change in presentation of financial results will have the effect of pulling into non-GAAP measures certain charges that were previously reported only in our GAAP financial results. We expect this change will increase non-GAAP operating expenses and decrease non-GAAP operating margins and earnings per share. To help with the year-on-year comparison of our non-GAAP measures, you can find a revised workbook in our investor website reflecting the updated presentation of our 2020 and 2021 results. Slide seven summarizes financial performance in the first quarter of 2022. I'll focus my comments on non-GAAP performance.
In Q1, revenue grew 15%. Excluding revenue from COVID-19 antibodies and ALIMTA, revenue increased 10%, highlighting solid momentum for our core business. Gross margin as a percent of revenue increased 70 basis points to 76.1% in Q1 2022. The increase in gross margin percent was primarily driven by the unfavorable effect of foreign exchange rates on international inventory sold in Q1 2021, partially offset by increased sales of COVID antibodies, which have lower gross margin profile than the rest of our portfolio and, to a lesser extent, lower realized prices.
Increase in manufacturing costs and logistics due to inflation had a modest impact on gross margin in Q1. Total operating expenses decreased 6% this quarter, which, as a reminder, is now inclusive of acquired IP R&D and development milestone charges. Marketing, selling and administrative expenses decreased 1% while R&D expenses decreased 4%, driven by lower development expenses for COVID-19 antibodies, partially offset by higher development expenses for late-stage assets. This quarter, we recognized acquired IP R&D and development milestone charges of $166 million or $0.15 of EPS, primarily related to a purchase of a priority review voucher.
In Q1, 2021 acquired IP R&D and development milestone charges were $312 million or $0.27 of EPS. Operating income increased 66% in Q1, driven by higher revenue, primarily due to higher sales of COVID antibodies, lower R&D expenses for COVID antibodies and, to a lesser extent, lower acquired IP R&D and development milestone charges. Operating income as a percent of revenue was 33.4% for the quarter and reflects a benefit from COVID-19 antibody revenue as well as the negative impact of approximately 210 basis points attributed to acquired IP R&D and development milestone charges.
Other income and expense was income of approximately $38 million this quarter compared with income of $35 million in Q1 2021. Our Q1 effective tax rate was 10.3%, an increase of 140 basis points compared to the same period in 2021. This increase was driven by a lower net discrete tax benefit this quarter, partially offset by decreased tax expenses related to the implementation of the provision in the 2017 Tax Act requiring to capitalize research and development expenses. At the bottom line, we delivered strong earnings per share growth of 63% in Q1, inclusive of approximately 1,500 basis points related to lower acquired IP R&D and development milestone charges.
On Slide eight, we quantify the effect of price, rate and volume on revenue growth. This quarter, U.S. revenue grew 31%. And when excluding revenue from COVID-19 antibodies and ALIMTA, revenue grew 14% in the U.S. This growth was driven by volume, led by Trulicity, Verzenio, Jardiance, Olumiant and Taltz. We experienced a net price decline of 1% for the quarter and continue to expect a mid-single-digit price decline in the U.S. for the full year. As a reminder, a single competitor to ALIMTA launched in the U.S. in February. And we expect broad generic entry in May, resulting in significant erosion of U.S. ALIMTA revenue.
Moving to Europe. Revenue in Q1 declined 13% in constant currency. And when excluding revenue from COVID-19 antibodies and ALIMTA, revenue grew 14% in constant currency, driven primarily by volume growth for Trulicity, Taltz, Jardiance, Verzenio and Olumiant. We expect continued growth in Europe, excluding ALIMTA. For Japan, Q1 revenue decreased 21% in constant currency as our business there continues to be negatively affected by significant declines in off-patent products, primarily Cymbalta and ALIMTA. Key growth products now represent 65% of total revenue in Japan.
And we expect a return to growth in Japan beginning in 2023. In China, revenue grew 10% in constant currency. The NRDL access has driven significant volume growth for newer products, like Tyvyt, Trulicity, Verzenio and Taltz, and has been partially offset by related price decreases. We expect this improved access to continue to drive future volume growth, more than offsetting the price decline. The recent COVID-19 outbreak in China and the subsequent protective measures that are currently being put in place to control the spread of the virus highlights the potential for commercial impacts in China in the near term, particularly for our infused products like Tyvyt.
Revenue in the rest of the world increased 29% in constant currency this quarter, driven primarily by $95 million in revenue from the sales of rights to Cialis in Taiwan and Saudi Arabia as well as by increased sales of key growth products. We continue to expect a mid-single-digit net price decline in 2022 for the U.S., Europe and Japan with a worldwide net price decline in the high single digits, driven by the expanded NRDL access for our products in China. As shown on Slide nine, our key growth products continued to drive robust worldwide volume growth.
These products drove nearly 15 percent points of volume growth this quarter and continued to bolster overall performance and outlook. Slide 10 further highlights contributions of our key growth products. This quarter, these brands generated $3.9 billion in revenue and made up 61% of our core business revenue, growing 24%. We're pleased with the continued market growth of both the GLP-1 and SGLT2 classes, where Trulicity and Jardiance are market leaders, as well as with the strong Taltz prescription growth.
We're also encouraged by the significant uptake of Verzenio in Q1, driven by the approval and launch of the adjuvant indication, which has led to an inflection in both new and total prescriptions. On Slide 11, we provide an update on capital allocation. In Q1 2022, we invested $2.4 billion to drive our future growth through a combination of R&D expenditures, business development outlays and capital investments. In addition, we returned approximately $900 million to shareholders in dividends and repurchased $1.5 billion in stock.
Our capital allocation priorities remain unchanged as we continue to fund our key marketed products and expected new launches, invest in our pipeline, pursue opportunities for external innovation to augment our future growth prospects and return excess capital to shareholders. Slide 12 is our updated 2022 financial guidance. As I previously noted, our presentation of non-GAAP financial measures will now include IP R&D and development milestone charges. For guidance, we will include charges that have been incurred or realized as of the date of the earnings release and will not include any impact from potential or pending business development.
We're providing information that should make this change as easy as possible to understand as well as incorporate into modeling. As always, please let us know if there's anything else we can do to be of assistance as you navigate through this transition. I do want to reiterate that margin expansion continues to be a priority for our team. Consistent with prior communication, excluding IP R&D and development milestone charges, we expect to drive further non-GAAP operating margin expansion over time. Getting into the numbers underlying our updated guidance. There are several items that benefited first quarter results which are not expected to recur.
These include: approximately $1.45 billion of COVID antibody sales; U.S. ALIMTA revenue of approximately $250 million that will be impacted by multi-sourced generic entrants in Q2 and beyond; a favorable effective tax rate; and a one-time benefit related to the resolution of cefaclor patent litigation in Canada. I would also remind you that as we look ahead to the second quarter that Q2 2021 revenue benefited from the sale of Cialis rights in China, which will provide roughly 2.5 percentage points of headwind to our top line growth in Q2.
Starting with revenue, we are increasing the guidance range by $1 billion to now be in the range of $28.8 billion to $29.3 billion, reflecting the additional revenue from bebtelovimab sales in Q1. While we project an unfavorable impact from foreign exchange rate, we are expecting to offset it with stronger core business performance. We anticipate that any additional revenue from sales of COVID-19 antibodies to be limited beginning Q2 2022. While the U.S. government has an option to purchase additional 500,000 doses of bebtelovimab no later than July 31 of this year, it is uncertain whether this option will be exercised.
And therefore, it is not included in our guidance. Moving down the income statement. GAAP gross margin percent is now expected to be approximately 76% while non-GAAP gross margin is now expected to be approximately 78%. The majority of this 200 basis point reduction is due to the impact of Q1 bebtelovimab sales, which has lower gross margin and, to a lesser extent, an increase of approximately $100 million in logistics and manufacturing costs due to inflation.
The range for R&D expenses has been increased by $100 million to be $7.1 billion to $7.3 billion, driven by investment in our late-stage pipeline, primarily Alzheimer's clinical development, and investment to advance the diagnostics ecosystem. Our guidance includes acquired IP R&D and development milestone charges of approximately $521 million, reflecting Q1 charges of $166 million, with the remainder primarily related to a charge associated with the buyout of future obligations that were contingent upon development, regulatory and commercial success of our mutant selective PI3K inhibitor.
This guidance does not include any impact from potential or pending business development transactions. GAAP and non-GAAP operating margin decreased 200 basis points to approximately 28% and 30%, respectively, primarily due to the negative impact associated with the acquired IP R&D and development milestone charges to date. Given the accounting change for acquired IP R&D and development milestone charges and the inherent variability associated with such charges, our non-GAAP operating margin figure will not measure efficiency in the same way it has done historically.
However, you can track our operating margin in the way you deem most appropriate, knowing that we aim to expand operating margin over time, excluding acquired IP R&D and development milestone charges. Our Q1 2022 tax rate and EPS include a favorable impact from the provision in the 2017 Tax Act that requires capitalization of research and development expenses for tax purposes. Our financial guidance for the full year is unchanged and assumed that this provision will be deferred or repealed by Congress, effective for 2022.
If this provision is not deferred or repealed effective this year, then we would expect our reported and non-GAAP tax rates to be approximately 10% to 11%. It is notable that while this provision favorably impacts certain tax items, which decrease our effective tax rate, we expect it will increase our 2022 cash payments of income taxes by approximately $1.5 million. Based on these changes, we have lowered our reported EPS guidance by $0.70 to now be in the range of $7.30 to $7.45 per share and lowered our non-GAAP EPS guidance to be in the range of $8.15 to $8.30.
That $0.35 reduction in our non-core -- in our non-GAAP EPS range includes a $0.55 decrease due to the year-to-date acquired IP R&D and development milestone charges, partially offset by improved business performance of $0.20 attributable to the net benefit of Q1 bebtelovimab sales and increased investments in R&D. Now I'll turn the call over to Dan to highlight our progress in R&D.
