Eli Lilly LLY

In addition, significant 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. Trade and other global disputes disputes, interruptions, and interruptions, developments, including those related to tariffs, trade protection measures, import or export licensing requirements, 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, as well as economic stagnation, cost inflation, strains on global transportation, manufacturing, and labor markets, and public health outbreaks, epidemics, or pandemics affect our ability to do business. business and, in some cases, result in financial, operational, legal, business, or reputational harm. Among other risks, the use of tariffs and other trade restrictions may increase costs and may costs, impact clinical trials or sales of our products, result in supply disruptions or delays, or otherwise complicate aspects of our business. In particular, tensions between 2025, the U.S. and China, which other countries imposed or reached alignment on new tariffs. In some cases, imposed tariffs have already led been paused but may come into effect quickly and unpredictably. While pharmaceuticals are exempt from certain of these tariffs, such exemptions may be terminated or may not apply to a series of tariffs and sanctions, as well as other business restrictions, could further escalate based on additional trade restrictions or retaliation thereto. In February 2025, the U.S. presidential administration imposed new tariffs on Chinese goods and China responded with tariffs on select U.S. goods. Additionally, tariffs were proposed or threatened with respect to other jurisdictions, including Mexico, Canada and Europe. If geopolitical tensions were to increase and disrupt our operations in, or related to, China or other major international geographies, such disruption would significantly impact our business. See Item 1A, "Risk Factors—Risks Related to Our Operations—Reliance on third-party relationships and outsourcing arrangements could adversely affect our business," for additional information. As a further example, the financial impact of higher energy prices, defense spending, and geopolitical and economic disruptions, has further exacerbated financial pressures on governments with single-payer or government funded healthcare systems, leading to increased impetus for increases in rebates, clawbacks, and other reforms to reimbursement systems, particularly in Europe. These and similar events have adversely affected, and may continue to adversely affect, us, our business partners, and our customers. For more details, see Item 1, "Business—Regulations and Private Payer Actions Affecting Pharmaceutical Pricing, Reimbursement, and Access." any future tariffs.

Global concern over access to, and affordability of, pharmaceutical products continues to drive regulatory and legislative debate and action, as well as cost containment efforts by governmental authorities. Such measures include the use of mandated discounts, price reporting requirements, mandated reference prices, restrictive formularies, changes to available intellectual property protections, as well as other efforts. In 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (IRA). Among other measures, the The IRA requires the U.S. Department of Health and Human Services (HHS) HHS to effectively set prices for certain single-source drugs and biologics reimbursed under Medicare Part B and Part D. Generally, Currently, these government prices generally apply beginning at nine years (for medicines approved under a New Drug Application) or thirteen years (for medicines approved under a Biologics License Application) following FDA approval or licensure for the molecule and are set at a price that generally represents a significant discount from existing prices to wholesalers and direct purchasers. While the law specifies a maximum price that HHS can set, it does not set a minimum price. The Medicare price HHS determines may impact the product's best price determination under the Medicaid Drug Rebate Program and the 340B Drug Pricing Program, potentially leading to a negative impact on both Medicaid and 340B prices. molecule. In August 2023, HHS selected Jardiance, which is part of our collaboration with Boehringer Ingelheim, as one of the first ten medicines subject to government-set prices effective in 2026. In August 2024, January 2026, HHS announced the selected Trulicity and Verzenio as additional medicines subject to government-set prices for these medicines with Jardiance subject to a 66% discount compared to the 2023 U.S. calendar year list price for a 30-day supply and discounts for the other nine medicines ranging from approximately 38% to 79% below list price. be effective in 2028. Given our product portfolio, we expect additional other significant products will be selected in future years, which would have the effect of accelerating revenue erosion prior to expiry of exclusivities. years. The effect of reducing prices IRA has, and reimbursement for certain will continue to, meaningfully influence our business strategies and those of our products competitors and could significantly impact our business and consolidated results of operations.

We are and may become involved in various lawsuits, claims, government investigations and other legal proceedings that arise from time to time in the ordinary course of business. These claims our business, including patent, environmental, commercial, contractual, licensing, employment, health and safety, consumer protection, pricing, access, consumer, sales and marketing, product liability, insurance, antitrust, securities, and regulatory compliance matters, among others. Such matters may involve inquiries from or proceedings can involve disputes with various types of parties, including governments, regulatory agencies, competitors, customers, suppliers, service providers, licensees, employees, or shareholders, among others. These matters may involve patent infringement, antitrust, securities, pricing, access, sales and marketing practices, environmental, commercial, contractual rights, licensing obligations, health and safety matters, consumer fraud, employment matters, product liability, insurance coverage, and regulatory compliance, among others. The resolution We cannot predict the final outcome of these matters proceedings, and while we intend to vigorously prosecute or defend our position as appropriate, there can be no assurance that we will be successful or obtain any requested relief. Matters often develops develop over a long period of time time, and expectations can change as a result of new findings, rulings, appeals appeals, settlements, legal or settlement arrangements. Legal proceedings that are significant regulatory changes, or that other factors. From time to time we believe could become significant may discontinue or material are described below. settle and compromise matters as appropriate in our best interest.

Effective January 1, 2024, 2025, we prospectively adopted Accounting Standards Update (ASU) 2023-07, Segment Reporting 2023-09, Income Taxes (Topic 280): 740): Improvements to Reportable Segment Income Tax Disclosures, which requires disclosures about significant segment expenses incremental disaggregation pertaining to the effective tax rate reconciliation and additional interim disclosure requirements. This standard also requires a single reportable segment company to provide all disclosures required by Topic 280. income taxes paid. See Note 19 14 for the segment income tax disclosures as required by Topic 280, 740, as amended by ASU 2023-07. 2023-09.