Eli Lilly 2005 Annual Report Download - page 30

FI NA NCI A L S
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that the outcome of these matters could include crimi-
nal charges and fines, penalties, or other monetary or
nonmonetary remedies. We cannot predict or determine
the outcome of these matters or reasonably estimate
the amount or range of amounts of any fines or penalties
that might result from an adverse outcome. It is possible,
however, that an adverse outcome could have a material
adverse impact on our consolidated results of opera-
tions, liquidity, and financial position. We have imple-
mented and continue to review and enhance a broadly
based compliance program that includes comprehensive
compliance-related activities designed to ensure that our
marketing and promotional practices, physician com-
munications, remuneration of health care professionals,
managed care arrangements, and Medicaid best price
reporting comply with applicable laws and regulations.
We have been named as a defendant in a large
number of Zyprexa product liability lawsuits in the United
States and have been notified of several thousand claims
of individuals who have not filed suit. The lawsuits and
unfiled claims (together the “claims”) allege a variety of
injuries from the use of Zyprexa, with the majority alleg-
ing that the product caused or contributed to diabetes or
high blood-glucose levels. The claims seek substantial
compensatory and punitive damages and typically accuse
us of inadequately testing for and warning about side
effects of Zyprexa. Many of the claims also allege that we
improperly promoted the drug. Almost all of the federal
lawsuits are part of a Multi-District Litigation (MDL)
proceeding before The Honorable Jack Weinstein in the
Federal District Court for the Eastern District of New
York (MDL No. 1596). The MDL includes three lawsuits
requesting certification of class actions on behalf of those
who allegedly suffered injuries from the administration of
Zyprexa. We have entered into agreements with various
plaintiffs’ counsel halting the running of the statutes of
limitation (tolling agreements) with respect to a large
number of claimants who do not have lawsuits on file.
In June 2005, we entered into an agreement in prin-
ciple (followed by a definitive master settlement agree-
ment in September 2005) with a group of plaintiffs’ attor-
neys involved in U.S. Zyprexa product liability litigation
to settle a majority of the claims. The agreement covers
more than 8,000 claimants, including a large number of
previously filed lawsuits (including the three purported
class actions), tolled claims, and other informally as-
serted claims. We established a fund of $690 million for
the claimants to settle their claims, and $10 million to
cover administration of the settlement. The settlement
fund is being overseen and distributed by claims ad-
ministrators appointed by the court. The agreement and
the distribution of funds to participating claimants are
conditioned upon, among other things, our obtaining full
releases from no fewer than 7,193 claimants.
Following this settlement, the remaining U.S.
Zyprexa product liability claims include approximately
150 lawsuits in the U.S. covering 465 claimants, and ap-
proximately 825 tolled claims. In addition, we have been
informally advised of a number of additional potential
U.S. claims, but to date have received no substantiation
of the claims. Also, in early 2005, we were served with
five lawsuits seeking class action status in Canada on
behalf of patients who took Zyprexa. The allegations in
the Canadian actions are similar to those in the litiga-
tion pending in the United States. We are prepared to
continue our vigorous defense of Zyprexa in all remain-
ing cases.
In 2005, two lawsuits were filed in the Eastern Dis-
trict of New York purporting to be nationwide class ac-
tions on behalf of all consumers and third party payors,
excluding governmental entities, which have made or
will make payments on account of their members or in-
sured patients being prescribed Zyprexa. These actions
have now been consolidated into a single lawsuit, which
is brought under certain state consumer protection
statutes, the federal civil RICO statute, and common law
theories, seeking a refund of the cost of Zyprexa, treble
damages, punitive damages, and attorneys’ fees. In ad-
dition, in 2006 a similar lawsuit was filed in the Eastern
District of New York on similar grounds. As with the
product liability suits, these lawsuits allege that we
inadequately tested for and warned about side effects of
Zyprexa and improperly promoted the drug.
In December 2004, we were served with two
lawsuits brought in state court in Louisiana on behalf
of the Louisiana Department of Health and Hospitals,
alleging that Zyprexa caused or contributed to diabetes
or high blood-glucose levels, and that we improperly
promoted the drug. These cases have been removed to
federal court and are now part of the MDL proceedings
in the Eastern District of New York. In these actions, the
Department of Health and Hospitals seeks to recover
the costs it paid for Zyprexa through Medicaid and other
drug-benefit programs, as well as the costs the de-
partment alleges it has incurred and will incur to treat
Zyprexa-related illnesses.
In connection with the Zyprexa product liability
claims, certain of our insurance carriers have raised
defenses to their liability under the policies and to date
have failed to reimburse us for claim-related costs
despite demand from the first-layer carriers for pay-
ment. However, in our opinion, the defenses identified
to date appear to lack substance. In March 2005, we
filed suit against several of the carriers in state court in
Indiana to obtain reimbursement of costs related to the
Zyprexa product liability litigation. The matter has been
removed to the federal court in Indianapolis. Several
carriers have asserted defenses to their liability, and
some carriers are seeking rescission of the coverage.
While we believe our position is meritorious, there can
be no assurance that we will prevail.
In addition, we have been named as a defendant
in numerous other product liability lawsuits involving
primarily diethylstilbestrol (DES) and thimerosal.
With respect to the product liability claims cur-
rently asserted against us, we have accrued for our