Eli Lilly 2015 Annual Report Download - page 24

F12
FINANCIAL REPORT
heavily regulated and therefore involves significant interaction with foreign officials. Additionally, in many
countries outside the U.S., the health care providers who prescribe human pharmaceuticals are employed by
the government and the purchasers of human pharmaceuticals are government entities; therefore, our
interactions with these prescribers and purchasers are subject to regulation under the FCPA.
In addition to the U.S. application and enforcement of the FCPA, the various jurisdictions in which we operate
and supply our products have laws and regulations aimed at preventing and penalizing corrupt and
anticompetitive behavior. In recent years, several jurisdictions, including China, Brazil, and the United
Kingdom (U.K.), have enhanced their laws and regulations in this area, increased their enforcement activities,
and/or increased the level of cross-border coordination and information sharing.
It is possible that we could become subject to additional administrative and legal proceedings and actions,
which could include claims for civil penalties (including treble damages under the False Claims Act), criminal
sanctions, and administrative remedies, including exclusion from U.S. federal and other health care programs.
It is possible that an adverse outcome in future actions could have a material adverse impact on our
consolidated results of operations, liquidity, and financial position.
Regulations Affecting Human Pharmaceutical Pricing, Reimbursement, and Access
In the U.S., we are required to provide rebates to the federal government and respective state governments
on their purchases of our human pharmaceuticals under state Medicaid and Medicaid Managed Care
programs (minimum of 23.1 percent plus adjustments for price increases over time) and rebates to private
payers who cover patients in certain types of health care facilities that serve low-income and uninsured
patients (known as 340B facilities). No rebates are required at this time in the Medicare Part B (physician and
hospital outpatient) program where reimbursement is set on an "average selling price plus 4.3 percent"
formula. Drug manufacturers are required to provide a discount of 50 percent of the cost of branded
prescription drugs for Medicare Part D participants who are in the “doughnut hole” (the coverage gap in
Medicare prescription drug coverage). Additionally, an annual fee is imposed on pharmaceutical
manufacturers and importers that sell branded prescription drugs to specified government programs.
Rebates are also negotiated in the private sector. We give rebates to private payers who provide prescription
drug benefits to seniors covered by Medicare and to private payers who provide prescription drug benefits to
their customers. These rebates are affected by the introduction of competitive products and generics in the
same class.
In most international markets, we operate in an environment of government-mandated cost-containment
programs, which may include price controls, international reference pricing (to other countries’ prices),
discounts and rebates, therapeutic reference pricing (to other, often generic, pharmaceutical choices),
restrictions on physician prescription levels, and mandatory generic substitution.
Globally, public and private payers are increasingly restricting access to human pharmaceuticals based on
assessments of comparative effectiveness and value, including through the establishment of formal health
technology assessment processes. In addition, third party organizations, including professional associations,
academic institutions, and non-profit entities associated with payers, are conducting and publishing
comparative effectiveness and cost/benefit analyses on medicines, the impact of which are uncertain at this
time.
We cannot predict the extent to which our business may be affected by these or other potential future
legislative or regulatory developments. However, in general we expect that state, federal, and international
legislative and regulatory developments could have further negative effects on pricing and reimbursement for
our human pharmaceutical products.
Research and Development
Our commitment to research and development dates back more than 100 years. We invest heavily in
research and development because we believe it is critical to our long-term competitiveness. At the end of
2015, we employed approximately 8,730 people in human 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
$4.80 billion in 2015, $4.73 billion in 2014, and $5.53 billion in 2013.