Anat Ashkenazi
Senior Vice President and Chief Financial Officer at Eli Lilly and Company
Okay. [Technical Issues] I'll continue and hopefully everyone can hear us. [Technical Issues] When excluding revenue from Alimta, the sales of Cialis rights in China in Q2 of last year and COVID antibodies... [Technical Issues] Okay. Hopefully, you heard. I will repeat my last sentence. So when excluding revenue from Alimta, the sales of Cialis rights in China in Q2 of last year and COVID antibodies, total revenue grew 6%, highlighting the solid momentum for our core business in the second quarter. We expect that this growth rate will accelerate in the second half of the year. Moving on to gross margin as a percent of revenue, increased 50 basis points to 79.8% in Q2 of 2022.
This increase in gross margin was primarily driven by product mix and the favorable effect of foreign exchange rates on international inventory sold, partially offset by lower realized prices. Increase in logistics and manufacturing costs due to inflation had a modest negative impact on gross margin in Q2. Total operating expenses increased 14% this quarter which, as discussed on our Q1 earnings call, are now inclusive of acquired in-process R&D and development milestone charges following guidance from the SEC. Acquired IPR&D and development milestone charges represented nearly 1,200 basis points of the Q2 OpEx growth.
Marketing, selling and administrative expenses decreased 4% driven mostly by the favorable impact of foreign exchange rates. R&D expenses increased 8% driven by higher development expenses for late-stage assets, partially offset by lower development expenses for COVID-19 antibodies. This quarter, we recognized acquired IPR&D and development milestone charges of $440 million or $0.46 of EPS primarily related to a charge associated with the buyout of substantially all future obligations that were contingent upon the development, regulatory and commercial success of our mutant-selective PI3K alpha inhibitor.
In Q2 2021, acquired IPR&D and development milestone charges were $43 million or $0.04 of EPS. Operating income decreased 32% in Q2 primarily due to higher acquired IPR&D and development milestone charges. Operating income as a percent of revenue was 20.5%, which includes the negative impact of approximately 680 basis points attributed to these charges. Other income and expense was expense of approximately $13 million this quarter compared with income of $5 million in Q2 of 2021. Our Q2 effective tax rate was 14.2%, a decrease of 10 basis points compared to the same period in 2021. This decrease was driven by favorable tax impacts related to the implementation of a provision of the 2017 Tax Act related to the capitalization of R&D expenses, offset by the tax impact of nondeductible development milestone.
At the bottom line, earnings per share declined 32% this quarter, to $1.25 per share. The most significant driver of the year-over-year decline was the impact of acquired IPR&D and development milestone charges, which had $0.46 negative impact in Q2 of this year compared to $0.04 in Q2 of last year. On Slide 8, we quantify the effect of price, rate and volume on revenue growth. This quarter, U.S. revenue grew 6%. Excluding revenue from Alimta, which declined significantly due to broad generic entry in May and COVID-19 antibodies, revenue grew 11% in the U.S. This volume-driven growth was led by Trulicity, Verzenio and Jardiance.
We experienced a net price decline of 8% for Q2 driven by lower realized prices for Humalog, Alimta and Forteo due to higher rebated segments making slightly larger portion of the business, higher contracted rates and the list price reduction for Insulin Lispro injection this year. Lower realized prices for Taltz were also a driver due to the impact of changes to estimates for rebates and discounts, largely driven by favorable adjustment in the base period and to a lesser extent, continued pull-through of existing access. For the first half of 2022, net price decline in the U.S. was 4%, and we continue to expect mid-single-digit net price decline for the full year.
Moving to Europe. Revenue in Q2 grew 1% in constant currency. Excluding revenue from Alimta, which lost exclusivity in June of 2021, revenue grew 12% in constant currency driven primarily by volume growth for Trulicity, Jardiance, Taltz and Verzenio. For Japan, Q2 revenue decreased 22% in constant currency as our business there continues to be negatively affected by significant declines in off-patent products, primarily Cymbalta and Alimta, which both faced generic entry beginning June 2021. Key growth products represented 69% of total revenue in Japan and grew 11% in Q2 on a constant currency basis. We continue to expect a return to growth in Japan beginning in 2023.
In China, revenue declined 32% in constant currency driven by the impact of the NRDL formulary access, resulting in lower realized prices, partially offset by increased volume for certain newer products, including Verzenio, Tyvyt, Trulicity and Taltz. We also experienced a price decline for Humalog due to the impact of volume-based procurement. We expect improved access to continue to drive future volume growth, more than offsetting the price decline over time. With the latest COVID-19 outbreaks in China and to subsequent protective measures intended to control the spread of the virus, we have seen lower volume than we otherwise would have expected in Q2, particularly for infused products. For Tyvyt, we are also seeing the impact of increased competitive pressures.
Revenue in the rest of the world increased 3% in constant currency primarily driven by increased sales of key growth products. For the full year, we continue to expect mid-single-digit net price decline in each of the U.S., EU and Japan and a double-digit price decline in China, resulting in a worldwide net price decline in the high single digits. As shown on Slide 9, our key growth products continue to drive robust worldwide volume growth. These products drove 18 percentage point of volume growth this quarter and continue to underpin our overall performance and outlook. Slide 10 further highlights the contribution of our key growth products.
This quarter, these brands grew 20% or nearly 24% in constant currency, generating $4.3 billion in sales and making up 67% of our core business revenue. We continue to see further growth opportunities for these products. For example, we're extremely pleased to see the strong trajectory of Verzenio driven by the edge of an indication, including recent acceleration in new-to-brand share of market. In the injectable incretin market, we see significant opportunity for further class growth as these medicines currently make up only 25% of total prescription in the U.S. branded diabetes market and have the prospect of expanding the market through the earlier usage for glucose control and weight loss in the treatment of type two diabetes.
Trulicity is experiencing accelerated demand in many international markets due to market growth and the limited availability of competitor GLP in select markets. We are working to meet this increased demand, while also implementing actions in select countries to manage growth and minimize patient impact. This outlook for Trulicity is included in our guidance. Lilly is thrilled to have both Trulicity, which has the longest length of therapy of any GLP-1, and Mounjaro, which could offer a step-change in innovation for the treatment of type two diabetes and other metabolic indications as options in this class of medicine. Given the excitement and significant interest with the FDA approval of Mounjaro for type two diabetes, I would like to briefly provide an update on what we're seeing and hearing in terms of early launch.
After U.S. approval in mid-May, our full-scale launch began in mid-June. Our commercial team is prepared, energized and observing a high level of engagement across channels as we roll out a patient-centric approach to launching Mounjaro for patients with type two diabetes. The financial results you see from Mounjaro today reflect significant utilization of samples, where accepted, and co-pay assistance program to get patients off to a strong start. Peer negotiations are progressing as expected, and we're taking a disciplined approach to establish Mounjaro's access and are focused on delivering the same broad open access which we achieved for Trulicity.
As we remain focused on strong execution, we're encouraged by the prescription trends from Mounjaro, including the most recent IQVIA data, showing over 20% share of market for new-to-brand prescriptions in the type two diabetes injectable incretin class. We are also pleased to see that total Lilly new-to-brand share in the type two diabetes injectable incretin class has grown nearly 12 percentage points since the launch of Mounjaro. Given the heavy utilization of co-pay cards as we build out access for Mounjaro, prescription trends will likely provide a more accurate measure of launch uptake than net sales over the next few quarters.
We are pleased with the initial uptake of Mounjaro, which is at the high end of our contemplated scenarios. We do not anticipate supply constraint for the U.S. launch of Mounjaro, and we will monitor U.S. uptake to determine the appropriate timing for OUS launches. As a reminder, over the last several years, we have made significant investments to grow global manufacturing capacity to support Mounjaro volume, including our new RTP site in North Carolina, which will come online in 2023. On Slide 12, we provide an update on capital allocation. For the first half of the year, we invested $4.5 billion to drive our future growth through a combination of R&D expenditures, business development outlays and capital investments.
In addition, we returned approximately $1.8 billion to shareholders in dividends and repurchased $1.5 billion in stock. Our capital allocation priorities remain consistent 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 13 is our updated 2022 financial guidance. Our full year revenue outlook is unchanged. It now includes an additional $400 million of headwind from foreign exchange rates, since our previous guidance update, for a total impact of roughly $700 million of FX headwind for the full year compared with our original guidance.
This incremental headwind is offset by additional forecasted revenue from our COVID-19 antibody, bebtelovimab, which includes $275 million from the U.S. government agreement announced in June of this year as well as estimated revenue from the inception of non-U.S. government distribution that Dave mentioned earlier. As we look ahead, Q3 will mark the first full quarter impact of Alimta U.S. [Indecipherable]. In addition, Q3 of 2021 revenue benefited from Olumiant COVID-19 sales that will provide roughly two and a half percentage points of headwind to our top line growth in the quarter. Our outlook for gross margin, SG&A and research and development remains unchanged.
While the range is unchanged, SG&A does include additional commercial investments for selected key growth products in the second half of the year. Our guidance now include acquired IPR&D and development milestone charges of approximately $610 million, reflecting total charges in the first half of the year. We have had no material acquired IPR&D or development milestone charges at this point in Q3, and this guidance does not include any impact from potential or pending business development transactions in the second half of the year. GAAP and non-GAAP operating margin decreased 100 basis points to approximately 27% and 29%, respectively, primarily due to the negative impact attributable to foreign exchange rates and acquired IPR&D and development milestone charges to date.
Our non-GAAP range for other income and expense remains unchanged. On a reported basis, other income and expense is now expected to be expense in the range of $500 million to $600 million, reflecting the impact of net losses on investments in equity securities during the second quarter. Our tax rate and EPS in the first half of the year still includes the favorable impact of 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 assumes 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 a reported and non-GAAP tax rate to be approximately 10% to 11%.
Based on these changes, we have lowered our reported EPS guidance by $0.34, to now be in the range of $6.96 to $7.11 per share and lowered our non-GAAP EPS guidance by $0.25, to be in the range of $7.90 to $8.05. The $0.25 reduction in our non-GAAP EPS range is driven entirely by the impact of foreign exchange rates as the impact of EPS of acquired IPR&D and development milestone charges for selected -- and selected products are offset by the impact of additional sales of bebtelovimab. Now I will turn the call over to Dan to highlight our progress in R&D.
