Eli Lilly 2015 Annual Report Download - page 18

F6
FINANCIAL REPORT
Animal Health Products
Our Elanco animal health business unit employs field salespeople throughout the U.S. and has an extensive
sales force outside the U.S. Elanco sells its products primarily to wholesale distributors. Elanco promotes its
products primarily to producers and veterinarians for food animal products and to veterinarians for companion
animal products. Elanco also advertises certain companion animal products directly to pet owners in markets
where it is consistent with allowable promotional practices.
Competition
Our human pharmaceutical products compete globally with products of many other companies in highly
competitive markets. Our animal health products compete globally with products of animal health care
companies as well as pharmaceutical, chemical, and other companies that operate animal health businesses.
Important competitive factors for both human pharmaceutical and animal health products include
effectiveness, safety, and ease of use; price and demonstrated cost-effectiveness; marketing effectiveness;
and research and development of new products, processes, and uses. Most new products that we introduce
must compete with other branded or generic products already on the market or products that are later
developed by competitors. If competitors introduce new products or delivery systems with therapeutic or cost
advantages, our products can be subject to decreased sales, progressive price reductions, or both.
We believe our long-term competitive success depends upon discovering and developing (either alone or in
collaboration with others) or acquiring innovative, cost-effective human pharmaceutical and animal health
products that provide improved outcomes and deliver value to payers, and continuously improving the
productivity of our operations in a highly competitive environment. There can be no assurance that our
research and development efforts will result in commercially successful products, and it is possible that our
products will become uncompetitive from time to time as a result of products developed by our competitors.
Generic Pharmaceuticals
One of the biggest competitive challenges we face is from generic pharmaceuticals. In the U.S. and the EU,
the regulatory approval process for human pharmaceuticals (other than biological products (biologics))
exempts generics from costly and time-consuming clinical trials to demonstrate their safety and efficacy,
allowing generic manufacturers to rely on the safety and efficacy of the innovator product. Therefore, generic
manufacturers generally invest far less than we do in research and development and can price their products
much lower than our branded products. Accordingly, when a branded non-biologic human pharmaceutical
loses its market exclusivity, it normally faces intense price competition from generic forms of the product.
Public and private payers typically encourage the use of generics as alternatives to brand-name drugs in their
healthcare programs. Laws in the U.S. generally allow, and in many cases require, pharmacists to substitute
generic drugs that have been rated under government procedures to be essentially equivalent to a brand-
name drug. Where substitution is mandatory, it must be made unless the prescribing physician expressly
forbids it. In many countries outside the U.S., intellectual property protection is weak, and we must compete
with generic or counterfeit versions of our products. Many of our animal health products also compete with
generics.
Biosimilars
Several of our current products, including Cyramza, Erbitux, Trulicity, and Portrazza, and many of the new
molecular entities (NMEs) in our research pipeline are biologics. Competition for Lilly’s biologics may be
affected by the approval of follow-on biologics, also known as biosimilars. A biosimilar is a subsequent version
of an an approved innovator biologic that, due to its physical/structural similarity to the original product, is
approved based on an abbreviated data package that relies in part on the full testing required of the originator
product. Globally, governments have or are developing regulatory pathways to approve biosimilars as
alternatives to innovator-developed biologics, but the patent for the existing, branded product must expire in a
given market before biosimilars may enter that market. The extent to which a biosimilar, once approved, will
be substituted for the innovator biologic in a way that is similar to traditional generic substitution for non-
biologic products, is not yet entirely clear, and will depend on a number of regulatory and marketplace factors
that are still developing.