Eli Lilly 2015 Annual Report Download - page 31

F19
FINANCIAL REPORT
• 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 us, 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, fines and penalties, interruption of production leading to product shortages,
and delays in the approvals of new products pending resolution of the issues. See “Business—Regulation
of our Operations,” for more details.
• The loss, theft, or inadvertent disclosure of our confidential data could impair our valuable
intellectual property, harm our competitive position, and/or expose us to regulatory penalties and
other costs.
A great deal of confidential information owned by both us and our alliances is stored in our information
systems, networks, and facilities or those of third parties. This includes valuable trade secrets and
intellectual property, corporate strategic plans, marketing plans, customer information, and personally
identifiable information (such as employee and patient information). Some of this information is created,
accessed, and/or maintained by third parties. The confidentiality of this information may be breached in a
variety of ways, including but not limited to negligent or wrongful conduct by employees or others with
permitted access to our systems and data, or wrongful conduct by certain governments, hackers,
unethical competitors, or former workforce members. The rapid growth of factors such as mobile
computing capacity, high-speed Internet access, and social media exacerbates the risk of information
security breaches.
The theft or unauthorized disclosure of confidential information could impair our ability to secure and
maintain intellectual property rights, cause damage to company operations and reputation, and cause us
to lose trade secrets or other competitive advantages. Unauthorized disclosure of personally identifiable
information could expose us to sanctions for violations of data privacy laws and regulations and could
damage the public trust in our company. Information security breaches may be very difficult to detect, and
once detected, their impact may be very difficult to assess. To date, the information security breaches of
which we have become aware have been infrequent in occurrence and, to the extent we have been able
to measure their financial impact on our consolidated results of operations, such impact has not been
material. We have invested and continue to invest to prevent, monitor, detect, and respond to information
security breaches by strengthening our employee awareness and training, information technology
systems, and business processes, and strengthening data protection requirements for third parties that
handle our confidential information. However, despite these efforts, we expect information security
breaches to continue, and there can be no assurance that these efforts will prevent information security
breaches that would have a material adverse effect on our business.
• Worsening economic conditions could adversely affect our business and operating results.
While human pharmaceuticals have not generally been sensitive to overall economic cycles, prolonged
economic slowdowns could lead to decreased utilization of drugs, affecting our sales volume. Declining
tax revenues attributable to economic downturns increase the pressure on governments to reduce health
care spending, leading to increasing government efforts to control drug prices and utilization. Additionally,
some customers, including governments or other entities reliant upon government funding, may be
unable to pay in a timely manner for our products. 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.