Eli Lilly 2015 Annual Report Download - page 30

F18
FINANCIAL REPORT
International operations also are generally subject to extensive price and market regulations. Cost-
containment measures exist in a number of countries, including additional price controls and mechanisms
to limit reimbursement for our products. Such policies are expected to increase in impact and reach, given
the pressures on health care budgets that come from a growing aging population and ongoing economic
challenges. In addition, governments in many emerging markets are becoming increasingly active in
expanding health care system offerings. Given the budget challenges of increasing health care coverage
for citizens, policies may be proposed that promote generics only and reduce current and future access to
human pharmaceutical products.
We expect pricing, reimbursement, and access pressures from both governments and private payers
inside and outside the U.S. to become more severe. For more details, see “Business—Regulations
Affecting Human Pharmaceutical Pricing, Reimbursement, and Access,” and “Management’s Discussion
and Analysis—Executive Overview—Other Matters.”
• We face intense competition from multinational pharmaceutical companies, biotechnology
companies, and lower-cost generic and biosimilar manufacturers, and such competition could
have a material adverse effect on our business.
We compete with a large number of multinational pharmaceutical companies, biotechnology companies,
and generic pharmaceutical companies. To compete successfully, we must continue to deliver to the
market innovative, cost-effective products that meet important medical needs. Our product revenues can
be adversely affected by the introduction by competitors of branded products that are perceived as
superior by the marketplace, by generic or biosimilar versions of our branded products, and by generic or
biosimilar versions of other products in the same therapeutic class as our branded products. Our
revenues can also be adversely affected by treatment innovations that eliminate or minimize the need for
treatment with drugs. See “Business—Competition,” for more details.
• Changes in foreign currency rates can materially affect our revenue, cost of sales, and operating
expenses.
As a global company with substantial operations outside the U.S., we face foreign currency risk exposure
from fluctuating currency exchange rates, primarily the U.S. dollar against the euro, Japanese yen, and
British pound, and the British pound against the euro. While we manage a portion of these exposures
through hedging and other risk management techniques, significant fluctuations in currency rates can
have a material impact, either positive or negative, on our revenue, cost of sales, and operating
expenses.
• Unanticipated changes in our tax rates or exposure to additional tax liabilities could increase our
income taxes and decrease our net income.
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Changes in the relevant
tax laws, regulations, administrative practices, principles, and interpretations could adversely affect our
future effective tax rates. The U.S. and a number of other countries are actively considering or enacting
changes in this regard. For example, the Obama administration proposed changes to the manner in
which the U.S. would tax the international income of U.S.-based companies, including unremitted
earnings of foreign subsidiaries. Other tax proposals under discussion or introduced in the U.S. Congress
could change the tax rate and manner in which U.S. companies would be taxed. Additionally, the
Organisation for Economic Co-operation and Development issued its final recommendations of
international tax reform proposals to influence international tax policy in major countries in which we
operate. While outcomes of these initiatives continue to develop and remain uncertain, changes to key
elements of the U.S. or international tax framework could have a material adverse effect on our
consolidated operating results and cash flows.
See "Financial Statements and Supplementary Data—Note 13, Income Taxes," for more details.