Eli Lilly 2008 Annual Report Download - page 32

FINANCIALS
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Federal Patent Court held that our patent is invalid.
Generic olanzapine was launched by competitors in
Germany in the fourth quarter of 2007. We appealed
the decision to the German Federal Supreme Court
and following a hearing in December 2008, the
Supreme Court reversed the Federal Patent Court and
found the patent to be valid. Following the decision
of the Supreme Court, the generic companies either
agreed to withdraw from the market or were subject
to preliminary injunction. We are pursuing these
companies for damages arising from infringement.
• We have received challenges in a number of other
countries, including Spain, the United Kingdom (U.K.),
France, and several smaller European countries.
In Spain, we have been successful at both the trial
and appellate court levels in defeating the generic
manufacturers’ challenges, but further legal challenge
is now pending before the Commercial Court in Madrid.
In the U.K., the generic pharmaceutical manufacturer
Dr. Reddy’s Laboratories (UK) Limited has challenged
the validity of our Zyprexa compound and method-
of-use patent (expiring in 2011). In October 2008, the
Patents Court in the High Court, London ruled that our
patent was valid. Dr. Reddy’s appealed this decision,
and a hearing date for the appeal has not been set.
We are vigorously contesting the various legal chal-
lenges to our Zyprexa patents on a country-by-country
basis. We cannot determine the outcome of this litiga-
tion. The availability of generic olanzapine in additional
markets could have a material adverse impact on our
consolidated results of operations.
Xigris® and Evista: In June 2002, Ariad Pharmaceu-
ticals, 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, alleging 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 signal-
ing phenomenon in the human body, and seeking royal-
ties on past and future sales of these products. On
M ay 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 issu-
ance of the patent through the date of trial. In addition,
a separate bench trial with the U.S. District Court of
Massachusetts was held in August 2006, on our conten-
tion that the patent is unenforceable and impermissibly
covers natural processes. In June 2005, the United
States Patent and Trademark Offi ce (USPTO) com-
menced a reexamination 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 have appealed this judgment. The Court
of Appeals for the Federal Circuit heard oral arguments
on the appeal on February 6, 2009. 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
EDPA advised us that it had commenced an investigation
related to our U.S. marketing and promotional prac-
tices, including our communications with physicians and
remuneration of physician consultants and advisors,
with respect to Zyprexa, Prozac, and Prozac Weekly. In
addition, the State Medicaid Fraud Control Units of more
than 30 states coordinated with the EDPA in its inves-
tigation of any Medicaid-related claims relating to our
marketing and promotion of Zyprexa. In January 2009, we
announced that we reached resolution of this matter. As
part of the resolution, we pled guilty to one misdemeanor
violation of the Food, Drug, and Cosmetic Act and agreed
to pay $615.0 million. The misdemeanor plea is for the
off-label promotion of Zyprexa in elderly populations as
treatment for dementia, including Alzheimer’s demen-
tia, between September 1999 and March 2001. We have
also entered into a settlement agreement resolving the
federal civil claims, under which we will pay approxi-
mately $438.0 million, although we do not admit to the
allegations. We have also agreed to settle the civil inves-
tigations brought by the State Medicaid Fraud Control
Units of the states that have coordinated with the EDPA
in its investigation, and will make available a maximum
amount of approximately $362.0 million for payment to
those states that agree to settle. The charge we recorded
for this matter in the third quarter of $1.42 billion will be
suffi cient to cover these payments. Also, as part of the
settlement, we have entered into a corporate integrity
agreement with the Offi ce of Inspector General (OIG)
of the U.S. Department of Health and Human Services
(HHS). This agreement will require us to maintain our
compliance program and to undertake a set of defi ned
corporate integrity obligations for fi ve years. The agree-
ment also provides for an independent third-party review
organization to assess and report on the company’s sys-
tems, processes, policies, procedures and practices.
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