Eli Lilly 2004 Annual Report Download - page 25

FINANCIALS
23
LEGAL AND REGULATORY MATTERS
Three generic pharmaceutical manufacturers, Zenith
Goldline Pharmaceuticals, Inc. (Zenith), Dr. Reddy’s
Laboratories, Ltd. (Reddy), and Teva Pharmaceuticals
(Teva), have submitted abbreviated new drug applica-
tions (ANDAs) seeking permission to market generic
versions of Zyprexa in various dosage forms several
years prior to the expiration of our U.S. patents for
the product, alleging that our patents are invalid,
unenforceable, or not infringed. We fi led suit against
the three companies in the U.S. District Court for the
Southern District of Indiana seeking a ruling that the
challenges to our compound patent (expiring in 2011)
are without merit. The cases have been consolidated.
A trial before a district court judge in Indianapolis
was held in January and February of 2004, and we are
awaiting the court’s decision. Regardless of the trial
court ruling, we anticipate that appeals will follow. If
we are unsuccessful at the trial court level, we cannot
predict whether any of the generic companies would
launch generic versions of Zyprexa prior to a fi nal
resolution of any appeals. We believe that the generic
manufacturers’ claims are without merit and we expect
to prevail in this litigation. However, it is not possible to
predict or determine the outcome of this litigation and,
accordingly, we can provide no assurance that we will
prevail. An unfavorable outcome would have a material
adverse impact on our consolidated results of opera-
tions, liquidity, and fi nancial position.
In October 2002, we were notifi ed that Barr Labo-
ratories, Inc. (Barr), had submitted an ANDA with the
FDA seeking permission to market a generic version of
Evista several years prior to the expiration of our U.S.
patents covering the product, alleging that the patents
are invalid or not infringed. In November 2002, we
fi led suit against Barr in the U.S. District Court for the
Southern District of Indiana seeking a ruling that Barr’s
challenges to our patents claiming the methods of use
and pharmaceutical form (expiring from 2012 to 2017)
are without merit. Recently, Barr has also asserted
that the method of use patents are unenforceable. On
September 28, 2004, the U.S. Patent and Trademark Of-
fi ce issued to us a new patent (expiring in 2017) directed
to pharmaceutical compositions containing raloxifene.
Barr has challenged this patent, alleging that the pat-
ent is invalid, unenforceable, or will not be infringed.
This patent has been added to the lawsuit. The suit is
in discovery and the trial is now scheduled to begin in
February 2006. While we believe that Barr’s claims are
without merit and we expect to prevail, it is not possible
to predict or determine the outcome of the litigation.
Therefore, we can provide no assurance that we will
prevail. An unfavorable outcome could have a material
adverse impact on our consolidated results of opera-
tions, liquidity, and fi nancial position.
In July 2002, we received a grand jury subpoena
for documents from the Offi ce of Consumer Litigation,
U.S. Department of Justice, related to our marketing
and promotional practices and physician communica-
tions with respect to Evista. We received subpoenas
seeking additional documents in July 2003, July 2004,
and August 2004. We continue to cooperate with the
government and have provided a broad range of infor-
mation concerning our U.S. marketing and promotional
practices, including documents relating to communica-
tions with physicians and the remuneration of physi-
cian consultants and advisers. Based upon advanced
discussions with the government to resolve this matter,
which commenced in the fourth quarter of 2004, we
have expensed $36.0 million, which we believe will be
suffi cient to resolve the matter.
In March 2004, the offi ce of the U.S. Attorney for
the Eastern District of Pennsylvania advised us that it
has commenced a civil investigation related to our U.S.
marketing and promotional practices with respect to
Zyprexa, Prozac, and Prozac Weekly. We are cooperat-
ing with the U.S. Attorney in this investigation and are
providing a broad range of documents and information
related to the investigation, including documents relat-
ing to communications with physicians and the remu-
neration of physician consultants and advisers. It is
possible that other Lilly products could become subject
to this investigation and that the outcome of this matter
could include criminal charges and fi nes and/or civil
penalties. We cannot predict or determine the outcome
of this matter or reasonably estimate the amount or
range of amounts of any fi nes or penalties that might
result from an adverse outcome. It is possible, however,
that an adverse outcome could have a material ad-
verse impact on our consolidated results of operations,
liquidity, and fi nancial position. We have implemented
and continue to review and enhance a broadly based
compliance program that includes comprehensive com-
pliance-related activities designed to ensure that our
marketing and promotional practices, physician com-
munications, and remuneration of health care profes-
sionals comply with promotional laws and regulations.
We have been named in approximately 140 prod-
uct liability cases in the United States involving ap-
proximately 360 claimants alleging a variety of injuries
from the use of Zyprexa. Most of the cases allege that
the product caused or contributed to diabetes or high
blood-glucose levels. The lawsuits seek substantial
compensatory and punitive damages and typically ac-
cuse us of inadequately testing for and warning about
side effects of Zyprexa. Many of the lawsuits also allege
that we improperly promoted the drug. We are vigor-
ously defending these suits. All the federal cases, in-
volving approximately 330 claimants, have been or will
be transferred to The Honorable Jack Weinstein in the
Federal District Court for the Eastern District of New