Eli Lilly 2007 Annual Report Download - page 29

FINANCIALS
27
tion. The availability of generic olanzapine in Canada
and Germany will have a material adverse impact on
our consolidated results of operations. The availability
of generic olanzapine in additional markets could have a
material adverse impact on our consolidated results of
operations.
In June 2002, Ariad Pharmaceuticals, Inc., the
Massachusetts Institute of Technology, the Whitehead
Institute for Biomedical Research, and the President
and Fellows of Harvard College in the U.S. District
Court for the District of Massachusetts sued us, alleg-
ing that sales of two of our products, Xigris® and Evista,
were inducing the infringement of a patent related to
the discovery of a natural cell signaling phenomenon
in the human body, and seeking royalties on past and
future sales of these products. On May 4, 2006, a jury in
Boston issued an initial decision in the case that Xigris
and Evista sales infringe the patent. The jury awarded
the plaintiffs approximately $65 million in damages,
calculated by applying a 2.3 percent royalty to all U.S.
sales of Xigris and Evista from the date of issuance
of the patent through the date of trial. In addition, a
separate bench trial with the U.S. District Court of Mas-
sachusetts was held in August 2006, on our contention
that the patent is unenforceable and impermissibly cov-
ers natural processes. In June 2005, the United States
Patent and Trademark Offi ce (USPTO) commenced a re-
examination of the patent, and in August 2007 took the
position that the Ariad claims at issue are unpatentable,
a position that Ariad continues to contest. In September
2007, the Court entered a fi nal judgment indicating that
Ariad’s claims are patentable, valid, and enforceable,
and fi nding damages in the amount of $65 million plus a
2.3 percent royalty on net U.S. sales of Xigris and Evista
since the time of the jury decision. However, the Court
deferred the requirement to pay any damages until after
all rights to appeal have been exhausted. We plan to
appeal this judgment. We believe that these allegations
are without legal merit, that we will ultimately prevail
on these issues, and therefore that the likelihood of any
monetary damages is remote.
Government Investigations and Related Litigation
In March 2004, the Offi ce of the U.S. Attorney for the
Eastern District of Pennsylvania (EDPA) advised us
that it had commenced an investigation related to our
U.S. marketing and promotional practices, including
our communications with physicians and remuneration
of physician consultants and advisors, with respect to
Zyprexa, Prozac, and Prozac Weekly. In November 2007,
we received a grand jury subpoena from the EDPA for a
broad range of documents related to Zyprexa. A number
of State Medicaid Fraud Control Units are coordinat-
ing with the EDPA in its investigation of any Medicaid-
related claims relating to our marketing and promotion
of Zyprexa. In October 2005, the EDPA advised that it
is also conducting an inquiry regarding certain rebate
agreements we entered into with a pharmacy benefi t
manager covering Axid®, Evista, Humalog, Humulin,
Prozac, and Zyprexa. The inquiry includes a review of
our Medicaid best price reporting related to the product
sales covered by the rebate agreements.
In June 2005, we received a subpoena from the
Offi ce of the Attorney General, Medicaid Fraud Control
Unit, of the State of Florida, seeking production of docu-
ments relating to sales of Zyprexa and our marketing
and promotional practices with respect to Zyprexa.
In September 2006, we received a subpoena from
the California Attorney General’s Offi ce seeking pro-
duction of documents related to our efforts to obtain
and maintain Zyprexa’s status on California’s formulary,
marketing and promotional practices with respect to
Zyprexa, and remuneration of health care providers.
In February 2007, we received a subpoena from the
Offi ce of the Attorney General of the State of Illinois,
seeking production of documents and information relat-
ing to sales of Zyprexa and our marketing and promo-
tional practices, including our communications with
physicians and remuneration of physician consultants
and advisors, with respect to Zyprexa.
Beginning in August 2006, we have received civil
investigative demands or subpoenas from the attorneys
general of a number of states under various state
con-
sumer protection laws. Most of these requests are now
part of a multistate investigative effort being coordinat-
ed by an executive committee of a
ttorneys general. We
are aware that approximately 30 states are participating
in this joint effort, and it is possible that additional states
will join the investigation.
These attorneys general are
seeking a broad range of Zyprexa documents, including
documents relating to sales, marketing and promotion-
al practices, and remuneration of health care providers.
In addition, we have been named as a defendant in a pri-
vate suit in California State Court, which was removed
to federal court, alleging violations of the California
False Claims Act with respect to certain Zyprexa mar-
keting and promotional practices. This suit was brought
by an individual on behalf of the government, under the
qui tam provision of the California False Claims Act.
We are cooperating in each of these investigations,
including providing a broad range of documents and
information relating to the investigations. It is pos-
sible that other Lilly products could become subject
to investigation and that the outcome of these matters
could include criminal charges and fi nes, penalties, or
other monetary or nonmonetary remedies. We cannot
determine the outcome of these matters 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 adverse impact on our consolidated re-
sults of operations, liquidity, and fi nancial position. We