Eli Lilly 2010 Annual Report Download - page 25

FORM 10-K
•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 Byetta, Zyprexa, diethylstilbestrol (DES), and
thimerosal, and because of the nature of pharmaceutical products, it is possible that we could become subject
to large numbers of product liability claims for these or 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. Some provisions changing taxation of international income were enacted in August 2010, which
did not have a material effect on results of operations. While it is uncertain how the U.S. Congress may
address U.S. tax policy matters in the future, reform of U.S. taxation, including taxation of international
income, continues to be a topic of discussion for the U.S. Congress and the Administration. 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.
Item 2. Properties
Our principal domestic and international executive offices are located in Indianapolis. At December 31, 2010, we
owned 12 production and distribution sites in the United States and Puerto Rico. Together with the corporate
administrative offices, these facilities contain an aggregate of approximately 13.4 million square feet of floor area
dedicated to production, distribution, and administration. Major production sites include Indianapolis and Clinton,
Indiana; Carolina, Puerto Rico; and Branchburg, New Jersey.
We own production and distribution sites in 12 countries outside the United States and Puerto Rico, containing an
aggregate of approximately 3.4 million square feet of floor area. Major production sites include facilities in France,
United Kingdom, Spain, Ireland, Italy, Mexico, and Brazil.
Our research and development facilities in the United States consist of approximately 3.5 million square feet and are
located primarily in Indianapolis, with smaller sites in San Diego and New York City. We also have smaller research
and development facilities in the United Kingdom, Canada, and Spain.
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