Eli Lilly 2005 Annual Report Download - page 54

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cations 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 settle-
ment, 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 investigation. 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 communi-
cations with physicians and remuneration of physician 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 regard-
ing 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 reporting 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 relating 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 that the
outcome of these matters could include criminal 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 operations, liquidity, and
financial position. We have implemented 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 communications, 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 alleging that
the product caused or contributed to diabetes or high blood-glucose levels. The claims seek substantial compen-
satory 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 certifica-
tion 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 principle (followed by a definitive master settlement agreement
in September 2005) with a group of plaintiffs’ attorneys 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 asserted claims.
We established a fund of $690 million for the claimants to settle their claims, and $10 million to cover administra-
tion of the settlement. The settlement fund is being overseen and distributed by claims administrators 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 law-
suits in the U.S. covering 465 claimants, and approximately 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 litigation pending in the United
States. We are prepared to continue our vigorous defense of Zyprexa in all remaining cases.
In 2005, two lawsuits were filed in the Eastern District of New York purporting to be nationwide class actions
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 insured 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