Eli Lilly 2013 Annual Report Download - page 30

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generic manufacturer challenges to our patents outside the U.S. as well. The entry of generic competitors
typically results in rapid and severe declines in sales. In addition, competitors or other third parties may
claim that our activities infringe patents or other intellectual property rights held by them. If successful,
such claims could result in our being unable to market a product in a particular territory or being required
to pay damages for past infringement or royalties on future sales. See “Business—Patents, Trademarks,
and Other Intellectual Property Rights,” and "Financial Statements and Supplementary Data—Note 16,
Contingencies," for more details.
• Our human pharmaceutical business is subject to increasing government price controls and other
restrictions on pricing, reimbursement, and access for our drugs.
The continuing prominence of U.S. budget deficits as both a policy and political issue increases the risk
that taxes, fees, rebates, or other federal measures that would further reduce pharmaceutical companies’
revenue or increase expenses may be enacted. Certain federal and state health care proposals, including
state price controls, continue to be debated, and could place downward pressure on pharmaceutical
industry sales or prices. The Medicare Independent Payment Advisory Board established under the
Affordable Care and Patient Protection Act is empowered to recommend cost reduction policies under
certain circumstances. These proposals, if implemented, could negatively affect revenues.
International operations also are generally subject to extensive price and market regulations. Proposals
for cost-containment measures are pending in a number of countries, 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. Such proposals are expected to increase in both
frequency and impact, given the pressures on national and regional health care budgets as a result of
continued austerity measures being pursued in a number of countries and the desire to manage health
expenses carefully even as economies recover. In addition, governments in many emerging markets are
becoming increasingly active in expanding the country’s health care system offerings. Some governments
may adopt a generics-only policy which reduces current and future access to our human pharmaceutical
products. Others may use some of the approaches to restrict pricing, reimbursement and access outlined
above.
We expect pricing, reimbursement, and access pressures from both governments and private payers
inside and outside the U.S. to become more severe. See “Business—Regulations Affecting Human
Pharmaceutical Pricing, Reimbursement, and Access,” for more details.
• Regulatory compliance problems could be damaging to the company.
The marketing, promotional, and pricing practices of human pharmaceutical manufacturers, as well as the
manner in which manufacturers interact with purchasers, prescribers, and patients, are subject to
extensive regulation. Many companies, including Lilly, have been subject to claims related to these
practices asserted by federal, state and foreign governmental authorities, private payers, and consumers.
These claims have resulted in substantial expense and other significant consequences to us. It is
possible that we could become subject to such investigations and that the outcome could include criminal
charges and fines, penalties, or other monetary or non-monetary remedies, including exclusion from U.S.
federal and other health care programs. In addition, regulatory issues concerning compliance with cGMP
regulations (and comparable foreign 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 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 “Business—Regulation of our Operations,” for more details.
• Pharmaceutical products can develop unexpected safety or efficacy concerns, which could have a
material adverse effect on revenues.
Human pharmaceutical products receive regulatory approval based on data obtained in controlled clinical
trials of limited duration. After approval, the products are used for longer periods of time by much larger
numbers of patients; we and others (including regulatory agencies and private payers) collect extensive
information on the efficacy and safety of our marketed products. In addition, we or others may conduct