Eli Lilly 2009 Annual Report Download - page 20

between the manufacturers and private payers. In addition, comprehensive health care reform was the
subject of recent intense debate in Congress, and we expect the health care reform debate to continue.
Although it is difficult to predict the direction of the debate, the ultimate outcome could have a material
adverse impact on our business. See Item 7, “Management’s Discussion and Analysis—Executive
Overview—Legal, Regulatory, and Other Matters,” for more discussion of MMA and U.S. health care
reform. At the state level, budget pressures are causing various states to impose cost-control measures
such as higher rebates and more restrictive formularies.
International operations are also generally subject to extensive price and market regulations, and there
are many proposals for additional cost-containment measures, including proposals that would directly or
indirectly impose additional price controls, limit access to or reimbursement for our products, or reduce
the value of our intellectual property protection.
We cannot predict the extent to which our business may be affected by these or other potential future
legislative or regulatory developments. However, we expect that pressures on pharmaceutical pricing will
become more severe.
Research and Development
Our commitment to research and development dates back more than 100 years. Our research and
development activities are responsible for the discovery and development of most of the products we offer
today. We invest heavily in research and development because we believe it is critical to our long-term
competitiveness. At the end of 2009, we employed approximately 7,600 people in pharmaceutical and
animal health research and development activities, including a substantial number of physicians, scientists
holding graduate or postgraduate degrees, and highly skilled technical personnel. Our research and
development expenses were $3.49 billion in 2007, $3.84 billion in 2008, and $4.33 billion in 2009.
Our pharmaceutical research and development focuses on four therapeutic categories: central nervous
system and related diseases; endocrine diseases, including diabetes, obesity, and musculoskeletal disor-
ders; cancer; and cardiovascular diseases. However, we remain opportunistic, selectively pursuing promising
leads in other therapeutic areas. We are actively engaged in a strong biotechnology research program,
including therapeutic proteins, antibodies, and antisense oligonucleotides as well as genomics (the develop-
ment of therapeutics through identification of disease-causing genes and their cellular function), biomarkers,
and targeted therapeutics. In addition to discovering and developing new chemical entities, we seek to
expand the value of existing products through new uses, formulations and therapeutic approaches that
provide additional value to patients. We also conduct research in animal health, including animal nutrition
and physiology, control of parasites, and veterinary medicine (both food and companion animal).
To supplement our internal efforts, we collaborate with others, including educational institutions and
research-based pharmaceutical and biotechnology companies, and we contract with others for the
performance of research in their facilities. We use the services of physicians, hospitals, medical schools,
and other research organizations worldwide to conduct clinical trials to establish the safety and
effectiveness of our pharmaceutical products. We actively seek out investments in external research and
technologies that hold the promise to complement and strengthen our own research efforts. These
investments can take many forms, including licensing arrangements, co-development and co-marketing
agreements, co-promotion arrangements, joint ventures, and acquisitions.
Drug development is time-consuming, expensive, and risky. On average, only one out of many thousands
of chemical compounds discovered by researchers proves to be both medically effective and safe enough
to become an approved medicine. The process from discovery to regulatory approval can take 12 to
15 years or longer. Drug candidates can fail at any stage of the process, and even late-stage drug
candidates sometimes fail to receive regulatory approval or achieve commercial success. Even after
approval and launch of a product, we expend considerable resources on post-marketing surveillance and
clinical studies. We believe our investments in research, both internally and in collaboration with others,
have been rewarded by the number of new compounds and new indications for existing compounds that
we have in all stages of development. At present we have over 60 drug candidates across all stages of
human testing. Among our new investigational compounds in the later stages of human testing are
potential therapies for diabetes, cancers, and Alzheimer’s disease. We are studying many other drug
candidates in the earlier stages of development, including compounds targeting cancers, diabetes,
schizophrenia, obesity, depression, sleep disorders, pain, alcohol dependence, musculoskeletal disorders,
atherosclerosis, and autoimmune disorders including rheumatoid arthritis. We are also developing new
uses, formulations, or delivery methods for many of these compounds as well as our currently marketed
products, such as Alimta, Byetta, Cialis, Cymbalta, Effient, Erbitux, Forteo, Gemzar, and Humalog.
Raw Materials and Product Supply
Most of the principal materials we use in our manufacturing operations are available from more than one
source. However, we obtain certain raw materials principally from only one source. In addition, Byetta is
manufactured by third-party suppliers to Amylin. In the event one of these suppliers was unable to provide
the materials or product, we generally have sufficient inventory to supply the market until an alternative
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FORM 10-K