Eli Lilly 2009 Annual Report Download - page 25

companies, including Lilly, have been subject to claims related to these practices asserted by federal,
state and foreign governmental authorities and private payers and consumers. These claims have
resulted in substantial expense and other significant consequences to us. It is possible other products
could become subject to investigation and that the outcome of these matters could include criminal
charges and fines, penalties, or other monetary or nonmonetary remedies. In particular, See Item 7,
“Management’s Discussion and Analysis—Legal and Regulatory Matters,” for the discussions of the
U.S. sales and marketing practices investigations. In addition, regulatory issues concerning compli-
ance with current Good Manufacturing Practice (cGMP) regulations for pharmaceutical products can
lead to product recalls and seizures, interruption of production leading to product shortages, and
delays in the approvals of new products pending resolution of the cGMP issues. We are now operating
under a Corporate Integrity Agreement with the Office of Inspector General of the U.S. Department of
Health and Human Services that requires us to maintain comprehensive compliance programs
governing our research, manufacturing, and sales and marketing of pharmaceuticals. A material
failure to comply with the Agreement could result in severe sanctions to the company. See Item 1,
“Business—Regulation of our Operations,” for more details.
•We face many product liability claims today, and future claims will be largely self-insured. We are
subject to a substantial number of product liability claims involving primarily Zyprexa, diethylstil-
bestrol (“DES”), thimerosal, and Byetta, and because of the nature of pharmaceutical products, it is
possible that we could become subject to large numbers of product liability claims for other products
in the future. See Item 7, “Management’s Discussion and Analysis—Legal and Regulatory Matters,”
and Item 3, “Legal Proceedings,” for more information on our current product liability litigation. Due
to a very restrictive market for product liability insurance, we have been and will continue to be
largely self-insured for future product liability losses for substantially all our currently marketed
products. In addition, there is no assurance that we will be able to fully collect from our insurance
carriers on past claims.
•Manufacturing difficulties could lead to product supply problems. Pharmaceutical manufacturing is
complex and highly regulated. Manufacturing difficulties at our facilities or contracted facilities, or the
failure or refusal of a contract manufacturer to supply contracted quantities, could result in product
shortages, leading to lost sales. See Item 1, “Business—Raw Materials and Product Supply,” for more
details.
•A prolonged economic downturn could adversely affect our business and operating results. While
pharmaceuticals have not generally been sensitive to overall economic cycles, a prolonged economic
downturn coupled with rising unemployment (and a corresponding increase in the uninsured and
underinsured population) could lead to decreased utilization of drugs, affecting our sales volume.
Declining tax revenues attributable to the downturn are increasing the pressure on governments to
reduce health care spending, leading to increasing government efforts to control drug prices and
utilization. In addition, a prolonged economic downturn could adversely affect our investment
portfolio, which could lead to the recognition of losses on our corporate investments and increased
benefit expense related to our pension obligations. Also, if our customers, suppliers or collaboration
partners experience financial difficulties, we could experience slower customer collections, greater
bad debt expense, and performance defaults by suppliers or collaboration partners.
•We face other risks to our business and operating results. Our business is subject to a number of other
risks and uncertainties, including:
— Economic factors over which we have no control, including changes in inflation, interest rates, and
foreign currency exchange rates, can affect our results of operations.
— Changes in tax laws, including laws related to the remittance of foreign earnings or investments in
foreign countries with favorable tax rates, and settlements of federal, state, and foreign tax audits, can
affect our results of operations. In its budget submission to Congress in February 2010, the Obama
administration proposed changes to the manner in which the U.S. would tax the international income of
U.S.-based companies. While it is uncertain how the U.S. Congress may address this issue, reform of
U.S. taxation, including taxation of international income, continues to be a topic of discussion for the
U.S. Congress. A significant change to the U.S. tax system, including changes to the taxation of
international income, could have a material adverse effect on our results of operations.
— Changes in accounting standards promulgated by the Financial Accounting Standards Board and the
Securities and Exchange Commission can affect our financial statements.
— Our financial statements can also be affected by internal factors, such as changes in business strategies
and the impact of restructurings, asset impairments, technology acquisition and disposition transactions,
and business combinations.
We undertake no duty to update forward-looking statements.
Item 1B. Unresolved Staff Comments
None.
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FORM 10-K