2 0 1 9 F I N A N C I A L R E P O R T
`N O T I C E O F 2 0 2 0 A N N U A L M E E T I N G
`P R O X Y S T A T E M E N T
`
`TWENTY
`NINETEEN
`ELI LILLY AND
`COMPANY
`FINANCIAL
`REPORT
`
`Novo Nordisk Exhibit 2524
`Mylan Pharms. Inc. v. Novo Nordisk A/S
`IPR2023-00724
`Page 00001
`
`

`

`2019 Financial Highlights
`
`E L I L I L L Y A N D C O M P A N Y A N D S U B S I D I A R I E S
`(Dollars in millions, except per-share data)
`
`2 0 1 9
`Year ended December 31
`
`2 0 1 8
`
`C H A N G E %
`
`REVENUE
`RESEARCH AND DEVELOPMENT
`RESEARCH AND DEVELOPMENT AS A PERCENT OF REVENUE
`NET INCOME (LOSS)
`EARNINGS (LOSS) PER SHARE—DILUTED
`RECONCILING ITEMS:
` Discontinued Operations from disposition of Elanco1
` Asset impairment, restructuring, and other special charges¹
` Gain on sale of China antibiotics business1
` Charge related to repurchase of debt¹
` Acquired in-process research and development¹
` Amortization of intangible assets
` Charges related to withdrawal of Lartruvo
` Impact of reduced shares outstanding for non-GAAP reporting²
` Income taxes³
` Other, net
`NON-GAAP EARNINGS PER SHARE—DILUTED3
`DIVIDENDS PAID PER SHARE
`CAPITAL EXPENDITURES
`EMPLOYEES
`
`$ 22,319.5
`5,595.0
`25.1%
`$ 8,318.4
`8.89
`
`$ 21,493.3
`5,051.2
`23.5%
`$ 3,232.0
`3.13
`
`(3.93)
`0.58
`(0.26)
`0.22
`0.21
`0.18
`0.14
`0.07
`(0.05)
`--
`6.04
`2.58
`1,033.9
`33,625
`
`(0.08)
`0.24
`--
`--
`1.96
`0.28
`--
`0.20
`(0.27)
`(0.02)
`5.44
`2.25
`1,210.6
`33,090
`
`4%
`11%
`
`NM
`NM
`
`
`
`11%
`15%
`(15%)
`2%
`
`1 For more information on these reconciling items, see the Financial Results section of the Executive Overview in Management’s Discussion and Analysis. 2 Non-GAAP earnings per share
`assume that the disposition of Elanco occurred at the beginning of all periods presented and, therefore, exclude the approximately 65.0 million shares of Lilly common stock retired in the
`Elanco exchange offer. 3 For 2019, amount relates to a tax benefit from a capital loss on the disposition of subsidiary stock. For 2018, amount relates to adjustments to the 2017 Toll Tax for
`U.S. tax reform proposed regulations and tax expenses associated with the separation of Elanco. 4 Numbers may not add due to rounding.
`
`REVENUE GROWTH ACROSS THERAPEUTIC AREAS
`($ millions, percent growth)
`
`OPERATING EXPENSES
`($ millions, percent of revenue)
`
`Revenue in Endocrinology increased 10 percent primarily
`driven by growth of Trulicity, Basaglar, and Jardiance.
`Taltz drove the 57 percent revenue increase in Immunology.
`Oncology revenue increased 8 percent due to Verzenio
`launch in the US. Neuroscience experienced a 5 percent
`decrease due to lower volume for Strattera as a result of
`loss of patent protection, offset in part by the launch of
`Emgality. Other Pharmaceutical revenue decreased
`47 percent driven by lower volumes for Cialis, due to
`patent losses.
`
`$12,814.4
`+10%
`
`$1,374.5
`-47%
`
`$1,793.3
`+57%
`
`$4,614.4
`+8%
`
`$1,722.9
`-5%
`
`Endocrinology
`Neuroscience
`Oncology
`Immunology
`Other
`
`Revenue
`
`R&D
`
`Marketing, Selling & Administrative
`
`Over the past five years, Lilly has
`maintained relatively flat operating
`expenses while growing revenue, resulting
`in steady improvement in operating
`expense as a percent of revenue.
`
`TOTAL SHAREHOLDER RETURN
`Value of $100 invested in Lilly,
`S&P 500 and Peer Group*
`
`Lilly
`
`S&P 500
`
`Peer Group
`
`$21,493.3
`
`$22,319.5
`
`$19,973.8
`
`$17,050.5
`
`$18,312.8
`
`33.6%
`
`26.5%
`
`31.9%
`
`27.5%
`
`30.0%
`
`25.5%
`
`2015
`
`2016
`
`2017
`
`27.8%
`
`23.5%
`
`2018
`
`27.8%
`
`25.1%
`
`2019
`
`$225
`
`$200
`
`$175
`
`$150
`
`Over the past five years, Lilly’s annualized
`total shareholder return has averaged
`16.7 percent, compared to 11.7 percent
`for the S&P benchmark, due to the
`increase in the stock price and increasing
`dividend stream.
`* The graph measures total shareholder return, which takes into account both stock price and dividends.
`It assumes that dividends paid by a company are reinvested in that company’s stock. See “Performance Graph”
`for those companies included in our peer group.
`
`2014
`
`2015
`
`2016
`
`2017
`
`$125
`
`$100
`
`$75
`
`2018
`
`2019
`
`Novo Nordisk Exhibit 2524
`Mylan Pharms. Inc. v. Novo Nordisk A/S
`IPR2023-00724
`Page 00002
`
`

`

`Table of Contents
`
`Y E A R I N R E V I E W
`2019 Financial Highlights ....................................................................................................................Inside front cover
`Corporate Information .........................................................................................................................Inside back cover
`
`F I N A N C I A L R E P O R T
`Forward-Looking Statements ..................................................................................................................................... F1
`Business....................................................................................................................................................................... F2
`Risk Factors ............................................................................................................................................................... F13
`Management’s Discussion and Analysis of Results of Operations and Financial Condition .................................... F18
`Consolidated Statements of Operations ................................................................................................................... F38
`Consolidated Statements of Comprehensive Income (Loss) .................................................................................... F39
`Consolidated Balance Sheets .................................................................................................................................... F40
`Consolidated Statements of Shareholders’ Equity.................................................................................................... F41
`Consolidated Statements of Cash Flows ................................................................................................................... F42
`Notes to Consolidated Financial Statements ............................................................................................................ F43
`Management’s Reports .............................................................................................................................................. F83
`Reports of Independent Registered Public Accounting Firm .................................................................................... F85
`Selected Financial Data ............................................................................................................................................. F89
`Performance Graph ................................................................................................................................................... F90
`Trademarks Used in this Report ................................................................................................................................ F91
`
`P R O X Y
`Notice of 2020 Annual Meeting of Shareholders .........................................................................................................P1
`Proxy Statement Summary ..........................................................................................................................................P2
`Governance ................................................................................................................................................................P10
`Shareholder Engagement on Governance Issues .....................................................................................................P31
`Ownership of Company Stock ....................................................................................................................................P33
`Compensation ............................................................................................................................................................P34
`Audit Matters .............................................................................................................................................................P62
`Management Proposals .............................................................................................................................................P64
`Shareholder Proposals ..............................................................................................................................................P67
`Other Information ......................................................................................................................................................P78
`Appendix A .................................................................................................................................................................P82
`Appendix B .................................................................................................................................................................P84
`Directions and Parking ..............................................................................................................................................P88
`
`Novo Nordisk Exhibit 2524
`Mylan Pharms. Inc. v. Novo Nordisk A/S
`IPR2023-00724
`Page 00003
`
`

`

`Forward-Looking Statements
`This Annual Report includes forward-looking statements within the meaning of Section 27A of the Securities Act of
`1933, Section 21E of the Securities Exchange Act of 1934 (Exchange Act), and the Private Securities Litigation
`Reform Act of 1995. Forward-looking statements include all statements that do not relate solely to historical or
`current facts, and can generally be identified by the use of words such as “may,” “believe,” “will,” “expect,”
`“project,” “estimate,” “intend,” “anticipate,” “plan,” “continue,” or similar expressions.
`
`FINANCIAL REPORT
`
`In particular, information appearing under “Business,” “Risk Factors,” and “Management's Discussion and Analysis
`of Results of Operations and Financial Condition” includes forward-looking statements. Forward-looking
`statements inherently involve many risks and uncertainties that could cause actual results to differ materially from
`those projected in these statements. Where, in any forward-looking statement, we express an expectation or belief
`as to future results or events, it is based on management's current plans and expectations, expressed in good faith
`and believed to have a reasonable basis. However, we can give no assurance that any such expectation or belief will
`result or will be achieved or accomplished. The following include some but not all of the factors that could cause
`actual results or events to differ materially from those anticipated:
`• uncertainties in the pharmaceutical research and development process, including with respect to the
`timing of anticipated regulatory approvals and launches of new products;
`• market uptake of recently launched products;
`•
`competitive developments affecting current products and our pipeline;
`•
`the expiration of intellectual property protection for certain of our products;
`•
`our ability to protect and enforce patents and other intellectual property;
`•
`the impact of actions of governmental and private payers affecting pricing of, reimbursement for, and
`access to pharmaceuticals;
`regulatory compliance problems or government investigations;
`•
`regulatory actions regarding currently marketed products;
`•
`• unexpected safety or efficacy concerns associated with our products;
`•
`issues with product supply stemming from manufacturing difficulties or disruptions;
`•
`regulatory changes or other developments;
`•
`changes in patent law or regulations related to data-package exclusivity;
`•
`litigation, investigations, or other similar proceedings involving past, current, or future products or
`commercial activities as we are largely self-insured;
`• unauthorized disclosure, misappropriation, or compromise of trade secrets or other confidential data
`stored in our information systems, networks, and facilities, or those of third parties with whom we share
`our data;
`changes in tax law, including the impact of United States tax reform legislation enacted in December 2017
`and related guidance, or events that differ from our assumptions related to tax positions;
`changes in foreign currency exchange rates, interest rates, and inflation;
`asset impairments and restructuring charges;
`changes in accounting and reporting standards promulgated by the Financial Accounting Standards Board
`and the Securities and Exchange Commission;
`acquisitions and business development transactions and related integration costs;
`information technology system inadequacies or operating failures;
`reliance on third-party relationships and outsourcing arrangements; and
`the impact of global macroeconomic conditions.
`
`•
`
`•
`•
`•
`
`•
`•
`•
`•
`
`Investors should not place undue reliance on forward-looking statements. You should carefully read the factors
`described in the “Risk Factors” section of this Annual Report for a description of certain risks that could, among
`other things, cause our actual results to differ from these forward-looking statements.
`
`All forward-looking statements speak only as of the date of this report and are expressly qualified in their entirety
`by the cautionary statements included in this report. Except as is required by law, we expressly disclaim any
`obligation to publicly release any revisions to forward-looking statements to reflect events after the date of this
`report.
`
`F1
`
`1
`
`Novo Nordisk Exhibit 2524
`Mylan Pharms. Inc. v. Novo Nordisk A/S
`IPR2023-00724
`Page 00004
`
`

`

`Business
`Eli Lilly and Company (the “company” or “registrant” or "Lilly") was incorporated in 1901 in Indiana to succeed to
`the drug manufacturing business founded in Indianapolis, Indiana, in 1876 by Colonel Eli Lilly. We discover, develop,
`manufacture, and market products in a single business segment—human pharmaceutical products.
`
`Our purpose is to unite caring with discovery to create medicines that make life better for people around the world.
`Most of the products we sell today were discovered or developed by our own scientists, and our success depends to
`a great extent on our ability to continue to discover or acquire, develop, and bring to market innovative new
`medicines.
`
`In September 2018 Elanco Animal Health Incorporated (Elanco), an animal health business previously wholly owned
`by the company, completed an initial public offering of its common stock, which trades on the New York Stock
`Exchange, and in March 2019, we completed the disposition of our remaining ownership of Elanco common stock.
`For more information on the exchange offer, see “Management’s Discussion and Analysis - Results of Operations -
`Executive Overview.”
`
`We manufacture and distribute our products through facilities in the United States (U.S.), Puerto Rico, and 8 other
`countries. Our products are sold in approximately 120 countries.
`
`Products
`Our products include:
`Diabetes and other endocrinology products, including:
`• Baqsimi® (glucagon), a nasal powder formulation for the treatment of severe hypoglycemia in patients with
`diabetes (approved in the U.S. and Europe in 2019)
`
`• Basaglar® (insulin glargine injection), a long-acting human insulin analog for the treatment of diabetes
`(launched in Japan and Europe under the trade name Abasaglar™)
`
`•
`
`Forteo®, for the treatment of osteoporosis in postmenopausal women and men at high risk for fracture and
`for glucocorticoid-induced osteoporosis in men and postmenopausal women
`
`• Humalog®, Humalog Mix 75/25, Humalog U-100, Humalog U-200, Humalog Mix 50/50, and insulin lispro, insulin
`analogs for the treatment of diabetes
`
`• Humatrope®, for the treatment of human growth hormone deficiency and certain pediatric growth
`conditions
`
`• Humulin®, Humulin 70/30, Humulin N, Humulin R, and Humulin U-500, human insulins of recombinant DNA
`origin for the treatment of diabetes
`
`•
`
`Jardiance®, for the treatment of type 2 diabetes and to reduce the risk of cardiovascular death in adult
`patients with type 2 diabetes and established cardiovascular disease
`
`•
`
`Trajenta®, for the treatment of type 2 diabetes
`
`Trulicity®, for the treatment of type 2 diabetes
`•
`Immunology products, including:
`• Olumiant®, for the treatment of adults with moderately-to-severely active rheumatoid arthritis (approved in
`Europe and Japan in 2017, and in the U.S. in 2018)
`
`•
`
`Taltz®, for the treatment of moderate-to-severe plaque psoriasis, active psoriatic arthritis (approved in the
`U.S. in 2017, and in Europe in 2018), and ankylosing spondylitis (approved in the U.S. in 2019)
`Neuroscience products, including:
`• Cymbalta®, for the treatment of major depressive disorder, diabetic peripheral neuropathic pain,
`generalized anxiety disorder, fibromyalgia, and chronic musculoskeletal pain due to chronic low back pain
`or chronic pain due to osteoarthritis
`
`• Emgality®, a once-monthly subcutaneously injected calcitonin gene-related peptide (CGRP) antibody for
`migraine prevention (approved in the U.S. and Europe in 2018) and the treatment of episodic cluster
`headache (approved in the U.S. in 2019)
`
`• Reyvow™, an oral medicine for the acute treatment of migraine (launched in the U.S. in 2020)
`
`2
`
`F2
`
`F I N A N C I A L R E P O R T
`
`Novo Nordisk Exhibit 2524
`Mylan Pharms. Inc. v. Novo Nordisk A/S
`IPR2023-00724
`Page 00005
`
`

`

`•
`
`Strattera®, for the treatment of attention-deficit hyperactivity disorder
`
`•
`
`Zyprexa®, for the treatment of schizophrenia, acute mixed or manic episodes associated with bipolar I
`disorder, and bipolar maintenance
`Oncology products, including:
`• Alimta®, for the first-line treatment, in combination with another agent, of advanced non-small cell lung
`cancer (NSCLC) for patients with non-squamous cell histology; for the second-line treatment of advanced
`non-squamous NSCLC; as monotherapy for the maintenance treatment of advanced non-squamous NSCLC
`in patients whose disease has not progressed immediately following chemotherapy treatment; and in
`combination with another agent, for the treatment of malignant pleural mesothelioma
`
`• Cyramza®, for use as a single agent or in combination with another agent as a second-line treatment of
`advanced or metastatic gastric cancer or gastro-esophageal junction adenocarcinoma; in combination with
`another agent as a second-line treatment of metastatic NSCLC; in combination with another agent as a
`second-line treatment of metastatic colorectal cancer; as a single agent as a second-line treatment of
`hepatocellular carcinoma (approved in the U.S. in 2019); and in combination with another agent as a first-
`line treatment of adult patients with metastatic NSCLC with activating epidermal growth factor receptor
`(EGFR) mutations (approved in Europe in 2020)
`
`• Erbitux®, indicated both as a single agent and in combination with another chemotherapy agent for the
`treatment of certain types of colorectal cancers; and as a single agent, in combination with chemotherapy,
`or in combination with radiation therapy for the treatment of certain types of head and neck cancers
`
`•
`
`Verzenio®, for use as a single agent and in combination with endocrine therapy for the treatment of a
`certain type of metastatic breast cancer (approved in the U.S. in 2017 and in Europe and Japan in 2018)
`Other products, including:
`• Cialis®, for the treatment of erectile dysfunction and benign prostatic hyperplasia
`
`Marketing
`We sell most of our products worldwide. We adapt our marketing methods and product emphasis in various
`countries to meet local customer needs.
`U.S.
`In the U.S., most of our products are distributed through wholesalers that serve pharmacies, physicians and other
`health care professionals, and hospitals. In 2019, 2018, and 2017, three wholesale distributors in the U.S. -
`McKesson Corporation, AmerisourceBergen Corporation, and Cardinal Health, Inc. - each accounted for between 14
`percent and 21 percent of our consolidated total revenue. No other distributor accounted for more than 10 percent
`of our consolidated total revenue in any of those years.
`
`We promote our major products in the U.S. through sales representatives who call upon physicians and other health
`care professionals. We also promote to healthcare providers in medical journals and on-line health care channels,
`distribute literature and samples of certain products to physicians, and exhibit at medical meetings. In addition, we
`advertise certain products directly to consumers in the U.S., and we maintain websites with information about our
`major products. We supplement our employee sales force with contract sales organizations to leverage our own
`resources.
`
`We maintain special business groups to service wholesalers, pharmacy benefit managers, managed care
`organizations, group purchasing organizations, government and long-term care institutions, hospitals, and certain
`retail pharmacies. We enter into arrangements with these organizations providing for discounts or rebates on our
`products.
`Outside the U.S.
`Outside the U.S., we promote our products to healthcare providers primarily through sales representatives and on-
`line health care channels. While the products marketed vary from country to country, diabetes and other
`endocrinology products constitute the largest single group in consolidated revenue. Distribution patterns vary from
`country to country. In most countries in which we operate, we maintain our own sales organizations, but in some
`smaller countries we market our products through independent distributors.
`
`F3
`
`3
`
`FINANCIAL REPORT
`
`Novo Nordisk Exhibit 2524
`Mylan Pharms. Inc. v. Novo Nordisk A/S
`IPR2023-00724
`Page 00006
`
`

`

`Marketing Collaborations
`Certain of our products are marketed in arrangements with other pharmaceutical companies, including the
`following:
`
`• We and Boehringer Ingelheim have a global agreement to develop and commercialize a portfolio of
`diabetes products, including Trajenta, Jentadueto®, Jardiance, Glyxambi®, Synjardy®, Trijardy® XR, and
`Basaglar.
`
`For additional information, see "Financial Statements and Supplementary Data - Note 4, Collaborations and Other
`Arrangements."
`
`Competition
`Our products compete globally with products of many other companies in highly competitive markets.
`
`Important competitive factors include effectiveness, safety, and ease of use; price and demonstrated cost-
`effectiveness; marketing effectiveness; and research and development of new products, processes, and uses. Most
`new products that we introduce must compete with other branded or generic products already on the market or
`products that are later developed by competitors. If competitors introduce new products or delivery systems with
`therapeutic or cost advantages, our products can be subject to decreased sales, progressive price reductions, or
`both.
`
`We believe our long-term competitive success depends upon discovering and developing (either alone or in
`collaboration with others) or acquiring innovative, cost-effective products that provide improved outcomes and
`deliver value to payers, and continuously improving the productivity of our operations in a highly competitive
`environment. There can be no assurance that our efforts will result in commercially successful products, and it is
`possible that our products will be, or become, uncompetitive from time to time as a result of products developed by
`our competitors.
`Generic Pharmaceuticals
`One of the biggest competitive challenges we face is from generic pharmaceuticals. In the U.S. and Europe, the
`regulatory approval process for pharmaceuticals (other than biological products (biologics)) exempts generics from
`costly and time-consuming clinical trials to demonstrate their safety and efficacy, allowing generic manufacturers
`to rely on the safety and efficacy of the innovator product. Therefore, generic manufacturers generally invest far less
`than we do in research and development and can price their products much lower than our branded products.
`Accordingly, when a branded non-biologic pharmaceutical loses its market exclusivity, it normally faces intense
`price competition from generic forms of the product. Public and private payers typically encourage the use of
`generics as alternatives to brand-name drugs in their healthcare programs. Laws in the U.S. generally allow, and in
`many cases require, pharmacists to substitute generic drugs that have been rated under government procedures to
`be essentially equivalent to a brand-name drug. Where substitution is mandatory, it must be made unless the
`prescribing physician expressly forbids it. In many countries outside the U.S., intellectual property protection is
`weak, and we must compete with generic or counterfeit versions of our products.
`Biosimilars
`Several of our current products, including Cyramza, Emgality, Erbitux, Taltz, and Trulicity and many of the new
`molecular entities (NMEs) in our research pipeline are biologics. Competition for Lilly’s biologics may be affected by
`the approval of follow-on biologics, also known as biosimilars. A biosimilar is a subsequent version of an approved
`innovator biologic that, due to its functional and structural similarity to the innovator biologic, is approved based on
`an abbreviated data package that relies in part on the full testing required of the innovator biologic. Globally, most
`governments have developed regulatory pathways to approve biosimilars as alternatives to innovator-developed
`biologics, but the patent and regulatory exclusivity for the existing innovator biologic must expire in a given market
`before biosimilars may enter that market. The extent to which a biosimilar, once approved, will be substituted for
`the innovator biologic in a way that is similar to traditional generic substitution for non-biologic products, is not yet
`entirely clear, and will depend on a number of regulatory and marketplace factors that are still developing.
`
`Biosimilars may present both competitive challenges and opportunities. For example, a competitor company has
`developed a version of insulin lispro which competes with our product Humalog. On the other hand, with our
`partner Boehringer Ingelheim, we developed Basaglar, a new insulin glargine product, which has the same amino
`acid sequence as a product currently marketed by a competitor and has launched as a follow-on biologic in the U.S.,
`and as a biosimilar in Europe and Japan. In March 2020, the U.S. regulatory status of all of our insulin products will
`transition to become regulated as “biologics” rather than “drugs.” Based on recent U.S. Food and Drug
`Administration (FDA) draft guidance, this change may lower the requirements for competitor biosimilar products to
`
`4
`
`F4
`
`F I N A N C I A L R E P O R T
`
`Novo Nordisk Exhibit 2524
`Mylan Pharms. Inc. v. Novo Nordisk A/S
`IPR2023-00724
`Page 00007
`
`

`

`enter the market, some of which could be designated as interchangeable and therefore substituted for our insulin
`products at U.S. pharmacies.
`U.S. Private Sector Dynamics
`In the U.S. private sector, consolidation and integration among healthcare providers is also a major factor in the
`competitive marketplace for pharmaceuticals. Health plans and pharmacy benefit managers have been
`consolidating into fewer, larger entities, thus enhancing their purchasing strength and importance. For example, in
`2018 CVS Health, a large pharmacy benefit manager and pharmacy chain, acquired Aetna, a large national insurer,
`and Cigna Corporation acquired Express Scripts in a similar transaction. More recently, in December 2019, Express
`Scripts signed a three-year partnership agreement with another pharmacy benefit manager, Prime Therapeutics.
`
`Payers typically maintain formularies which specify coverage (the conditions under which drugs are included on a
`plan's formulary) and reimbursement (the associated out-of-pocket cost to the consumer). Formulary placement
`can lead to reduced usage of a drug for the relevant patient population due to coverage restrictions, such as prior
`authorizations and formulary exclusions, or due to reimbursement limitations which result in higher consumer out-
`of-pocket cost, such as non-preferred co-pay tiers, increased co-insurance levels, and higher deductibles.
`Consequently, pharmaceutical companies compete for formulary placement not only on the basis of product
`attributes such as efficacy, safety profile, or patient ease of use, but also by providing rebates. Value-based
`agreements, where pricing is based on achievement, or not, of specified outcomes, are another tool which may be
`utilized between payers and pharmaceutical companies as formulary placement and pricing are negotiated. Price is
`an increasingly important factor in formulary decisions, particularly in treatment areas in which the payer has taken
`the position that multiple branded products are therapeutically comparable. These downward pricing pressures are
`expected to continue to negatively affect our future consolidated results of operations.
`
`Patents, Trademarks, and Other Intellectual Property Rights
`Overview
`Intellectual property protection is critical to our ability to successfully commercialize our life sciences innovations
`and invest in the search for new medicines. We own, have applied for, or are licensed under, a large number of
`patents in the U.S. and many other countries relating to products, product uses, formulations, and manufacturing
`processes. In addition, as discussed below, for some products we have effective intellectual property protection in
`the form of data protection under pharmaceutical regulatory laws.
`
`The patent protection anticipated to be of most relevance to pharmaceuticals is provided by national patents
`claiming the active ingredient (the compound patent), particularly those in major markets such as the U.S., various
`European countries, and Japan. These patents may be issued based upon the filing of international patent
`applications, usually filed under the Patent Cooperation Treaty (PCT). Patent applications covering compounds are
`generally filed during the Discovery Phase of the drug discovery process, which is described in the “Research and
`Development” section below. In general, national patents in each relevant country are available for a period of 20
`years from the filing date of the PCT application, which is often years prior to the launch of a commercial product.
`Further patent term adjustments and restorations may extend the original patent term:
`
`• Patent term adjustment is a statutory right available to all U.S. patent applicants to provide relief in the
`event that a patent grant is delayed during examination by the United States Patent and Trademark Office
`(USPTO).
`
`• Patent term restoration is a statutory right provided to U.S. patent holders that claim inventions subject to
`review by the FDA. To make up for a portion of the time invested in clinical trials and the FDA review
`process, a single patent for a pharmaceutical product may be eligible for patent term restoration. Patent
`term restoration is limited by a formula and cannot be calculated until product approval due to uncertainty
`about the duration of clinical trials and the time it takes the FDA to review an application. There is a five-
`year cap on any restoration, and no patent's expiration date may be extended beyond 14 years from FDA
`approval. Some countries outside the U.S. also offer forms of patent term restoration. For example,
`Supplementary Protection Certificates are available to extend the life of a European patent up to an
`additional five years (subject to a 15-year cap from European Medicines Agency (EMA) approval). Similarly,
`in Japan, South Korea, and Australia, patent terms can be extended up to five years, depending on the
`length of regulatory review and other factors.
`
`Loss of effective patent protection for pharmaceuticals, especially for non-biologic products, typically results in the
`loss of effective market exclusivity for the product, which often results in severe and rapid decline in revenues for
`the product. However, in some cases the innovator company may be protected from approval of generic, biosimilar,
`or other follow-on versions of a new medicine beyond the expiration of the compound patent through manufacturing
`
`F5
`
`5
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`FINANCIAL REPORT
`
`Novo Nordisk Exhibit 2524
`Mylan Pharms. Inc. v. Novo Nordisk A/S
`IPR2023-00724
`Page 00008
`
`

`

`trade secrets, later-expiring patents on manufacturing processes, methods of use or formulations, or data
`protection that may be available under pharmaceutical regulatory laws. Changes to the laws and regulations
`governing these protections could result in earlier loss of effective