Eli Lilly & Co.

Strategic execution · Strategic transformation and turnaround risks

We engage in various forms of business development activities to enhance or refine our product pipeline and development capabilities. Business development transactions may not be completed in a timely manner (if at all), may not result in successful development outcomes or successful commercialization of any product, may require additional unanticipated investments to achieve potential benefits.

Strategic execution · Merger acquisition and divestiture risks

We engage in various forms of business development activities to enhance or refine our product pipeline and development capabilities, including licensing arrangements, co-development agreements, co-promotion arrangements, distribution and promotion agreements, joint ventures, acquisitions, equity investments, and divestitures. Failures or difficulties in integrating or retaining new personnel or the operations of the businesses, products, or assets we acquire may affect our ability to realize the potential benefits of business development transactions.

Innovation and product development · Clinical trial and regulatory approval risks

We regularly submit new product candidates and indications to regulatory agencies for approval, including highly anticipated candidates such as orforglipron. Regulatory agencies establish high hurdles for the efficacy and safety of new products and indications. Delay, uncertainty, unpredictability, and inconsistency in drug approval processes across markets and agencies can result in delays in product launches, lost market opportunities, impairment of inventories, and other negative impacts.

Market position and competition · Patent expiration and generic competition

In the ordinary course of their lifecycles, our products lose significant patent protection and/or data protection after a specified period of time. For example, Trulicity will lose significant patent and remaining data protections in the next few years. For non-biologic products, loss of exclusivity typically results in the entry of one or more generic competitors, leading to a rapid and severe decline in revenues, especially in the U.S.

Customer and revenue · Customer concentration and key customer dependence

In addition, in the U.S., most of our products are distributed through a limited number of wholesalers. If one of these significant wholesalers encounters financial or other difficulties or otherwise is unable or unwilling to support distribution of our products, it could cause disruption to our supply chain or we might be unable to timely collect the amounts that the wholesaler owes us.

Data and privacy · Regulatory investigations and penalties

Like many companies in our industry, from time to time investigations into aspects of our business include inquiries, subpoenas, and other types of information demands from government and regulatory authorities. There continues to be a significant volume of government and regulatory investigations and litigation against companies operating in our industry.

Data and privacy · Data protection and privacy laws

We are subject to a variety of evolving and developing laws and regulations around the world related to privacy, data protection, and data security. Maintaining the security, confidentiality, integrity, and availability of our IT systems and confidential information is vital to our business. Failure to comply with current and future laws and regulations could result in significant penalties and reputational harm and could have a material adverse effect on our business and results of operations.

Legal and litigation · Employment and labor law compliance

We face intense competition for qualified individuals from numerous multinational companies, academic and other research institutions, as well as employers near our manufacturing and other facilities, which has increased and may continue to increase our labor costs. Our failure to compete effectively for talent could negatively affect our ability to discover, develop, manufacture, and sell our medicines.

Core operations · Capacity utilization and efficiency

Despite our ongoing efforts to meet projected worldwide demand for our products by obtaining additional internal and contracted manufacturing capacity, there can be no assurances that such capacity increases that we expect will be needed to meet future demand will be realized as expected or that we will meet demand in launched markets in the future.

Supply chain and procurement · Raw material availability and cost volatility

Difficulties in predicting or variability in demand and supply for our products and those of our competitors and the very long lead times necessary for the expansion and regulatory qualification of pharmaceutical manufacturing capacity have resulted, and in the future may result, in difficulty meeting demand, causing disruptions, shortages, or higher costs in the supply of our products.

Supply chain and procurement · Supplier operation and dependance

We are continuing the significant expansion of our manufacturing capabilities and substantial investment in long-term supply agreements to fortify our supply and support our ability to meet anticipated demand for our products. Supply chain difficulties, disruptions or shortages may arise from our or contracted supply chain activity as well as from external environmental factors.

International and currency · International operations and emerging markets

Significant portions of our business are conducted in Europe, Asia, and other international geographies. Our global operations and complex supply chain expose us to legislation and regulatory action in or regarding foreign jurisdictions as well as geopolitical and other cross-border risks.

Economic and market conditions · Economic recession and downturns

Economic slowdowns could lead to decreased utilization of our products globally or in specific markets, affecting our sales. Declining tax revenues and increased government spending on other programs attributable to uneven economic growth or downturns may increase the pressure on governments to reduce healthcare spending, leading to increased control of drug prices or lower utilization.

Geopolitical and trade · Trade policies tariffs and sanctions

Trade and other global disputes, interruptions, and developments, including those related to tariffs, trade protection measures, import or export licensing requirements or disagreements with authorities regarding tariff classifications, transfer pricing, or valuations, the imposition of trade sanctions or similar restrictions by the U.S. or other governments, international tension and conflicts affect our ability to do business.

Economic and market conditions · Inflation and deflation pressures

Inflationary pressures in recent periods have negatively impacted us and may continue to negatively impact us in various ways, including cost inflation, higher labor costs, and other higher expenses.

Reputation and brand · Corporate social responsibility

Moreover, from time to time we voluntarily establish and publicly announce goals, initiatives, and commitments, including on climate (including greenhouse gas emission reduction goals), social, and other sustainability matters. If we fail to achieve, are perceived to have failed or been delayed in achieving, or improperly report our progress toward achieving these goals, initiatives, and commitments, it could negatively affect our reputation, brand, or investor confidence.

Reputation and brand · Esg environmental social governance performance

Furthermore, there is a sustained focus by foreign, federal, state, and local regulatory and legislative bodies on legislation and policies relating to climate change, greenhouse gas emissions, carbon taxes, emissions trading schemes, sustainability, human rights and related due diligence, workforce matters, and disclosures regarding the foregoing.

Digital transformation and innovation · Technology obsolescence and evolution

The emergence and continued expansion of AI and other technologies may exacerbate other risks, including those related to competition, regulation, litigation, compliance issues, ethical concerns, confidentiality, and data privacy or security. AI may enable new competitors in drug discovery and enhance the capabilities of existing competitors, thereby broadening and intensifying competitive dynamics.

Technology infrastructure · Technology systems and infrastructure failure

The failure, inadequacy, or breach of our IT systems or business processes or controls or procedures could impair our ability to secure and maintain intellectual property rights; result in a product manufacturing interruption or failure, or in the interruption or failure of products or services that rely on IT systems or business processes.

Cybersecurity and data protection · Third party data security and vendors

Our third-party partners, including third-party providers of data hosting or cloud services, as well as suppliers, distributors, alliances, and other third parties with whom we may share data, face similar risks, which could affect us directly or indirectly. Third-party access to our proprietary data may also enable such party's development of competing products or enhancement of services sold to competitors, thereby eroding our competitive advantage.