Eli Lilly 2005 Annual Report Download - page 29

FI NA NCI A L S
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LEGAL AND REGULATORY MATTERS
Three generic pharmaceutical manufacturers, Zenith
Goldline Pharmaceuticals, Inc. (Zenith), Dr. Reddy’s
Laboratories, Ltd. (Reddy), and Teva Pharmaceuticals
(Teva), submitted abbreviated new drug applications
(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. The
generic companies alleged that our patents are invalid,
unenforceable, or not infringed. We filed 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 were consolidated, and on
April 14, 2005, the district court upheld our 2011 U.S.
patent on Zyprexa. In the case of Eli Lilly and Company v.
Zenith Goldline Pharmaceuticals et al., the court ruled
in our favor on all counts, including the patent doctrines
of obviousness, double patenting, inequitable conduct,
novelty, and public use. The decision has been appealed.
We are confident, and the trial court confirmed, 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 on appeal. An unfavorable outcome
would have a material adverse impact on our consolidat-
ed results of operations, liquidity, and financial position.
In 2002, Barr Laboratories, Inc. (Barr), submitted
an ANDA with the FDA seeking permission to market a
generic version of Evista (raloxifene) several years prior
to the expiration of our U.S. patents covering the prod-
uct, alleging that the patents are invalid or not infringed.
In November 2002, we filed 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. Barr
has also asserted that the method of use patents are
unenforceable. The U.S. Patent and Trademark Office
issued to us two new patents (expiring in 2017) directed
to pharmaceutical compositions containing raloxifene
and a method for preventing postmenopausal osteopo-
rosis and a third (expiring in 2012) directed to methods
of inhibiting postmenopausal bone loss by administering
a single daily oral dose of raloxifene. These patents have
been listed in the FDA’s Orange Book. Barr has chal-
lenged these patents, alleging that each is invalid, un-
enforceable, or will not be infringed. These patents have
been added to the pending suit. The suit is in discovery.
No trial date has been set at this time. 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 consolidat-
ed results of operations, liquidity, and financial position.
In January 2006, we were notified that Sicor Phar-
maceuticals, Inc. (Sicor), a subsidiary of Teva, submitted
an ANDA with the FDA seeking permission to market
a generic version of Gemzar several years prior to the
expiration of two U.S. patents covering the product. Sicor
alleged that both U.S. patents are invalid. In February, we
filed suit against Sicor in the U.S. District Court for the
Southern District of Indiana, seeking a ruling that Sicor’s
challenges to our patents claiming the compound (expir-
ing in 2010) and the methods of use (expiring in 2012) are
without merit. While we believe that Sicor’s claims are
without merit and we expect to prevail, it is not possible to
predict or determine the outcome of the litigation. There-
fore, we can provide no assurance that we will prevail.
An unfavorable outcome could have a material adverse
impact on our consolidated results of operations.
In July 2002, we received the first of several grand
jury subpoenas for documents from the Office of Con-
sumer Litigation, U.S. Department of Justice, related to
our marketing and promotional practices and physician
communications with respect to Evista. We reached a
settlement with the U.S. Department of Justice in the
fourth quarter of 2005, which was subsequently approved
by the U.S. District Court for the Southern District of
Indiana in February 2006. As part of the settlement, Lilly
pleaded guilty to one misdemeanor violation of the Food,
Drug, and Cosmetic Act. The plea is for the off-label
promotion of Evista during 1998. The government did not,
however, charge the company with any unlawful intent,
nor do we acknowledge any such intent. In connection
with the overall settlement, we have agreed to pay a total
of $36 million. As previously reported, Lilly took a charge
in the fourth quarter of 2004 in connection with this in-
vestigation. The 2004 charge was sufficient to cover this
settlement payment; consequently, no further charge will
be necessary.
In March 2004, the office 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, including our com-
munications with physicians and remuneration of physi-
cian consultants and advisors, with respect to Zyprexa,
Prozac®, and Prozac Weekly™. In October 2005, the U.S.
Attorney’s office advised that it is also conducting an
inquiry regarding certain rebate agreements we entered
into with a pharmacy benefit manager covering Axid®,
Evista, Humalog, Humulin, Prozac, and Zyprexa. The
inquiry includes a review of Lilly’s Medicaid best price re-
porting related to the product sales covered by the rebate
agreements. We are cooperating with the U.S. Attorney in
these investigations, including providing a broad range of
documents and information relating to the investigations.
In June 2005, we received a subpoena from the office of
the Attorney General, Medicaid Fraud Control Unit, of the
State of Florida, seeking production of documents relat-
ing to sales of Zyprexa and our marketing and promotional
practices with respect to Zyprexa. It is possible that other
Lilly products could become subject to investigation and