Eli Lilly 2008 Annual Report Download - page 63

FINANCIALS
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contingent damages obligation should we be successful against Novopharm.
• In Germany, generic pharmaceutical manufacturers Egis-Gyogyszergyar and Neolab Ltd. challenged the validity
of our Zyprexa compound and method-of-use patent (expiring in 2011). In June 2007, the German 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 challenges to our Zyprexa patents on a country-by-country
basis. We cannot determine the outcome of this litigation. The availability of generic olanzapine in additional mar-
kets could have a material adverse impact on our consolidated results of operations.
Xigris and Evista: 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. Dis-
trict 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 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 Massachusetts was held in August 2006, on our contention that the patent is unenforceable
and impermissibly covers natural processes. In June 2005, the United States Patent and Trademark Offi ce (USPTO)
commenced 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 mil-
lion 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 Eastern District of Pennsylvania (EDPA) advised us that it had
commenced an investigation related to our U.S. marketing and promotional practices, including our communica-
tions 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 investigation 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 misde-
meanor 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 dementia,
between September 1999 and March 2001. We have also entered into a settlement agreement resolving the federal
civil claims, under which we will pay approximately $438.0 million, although we do not admit to the allegations. We
have also agreed to settle the civil investigations 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 of approximately $362.0
mil-
lion 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 agreement also provides for an independent third-party review