Eli Lilly 2006 Annual Report Download - page 52

FINANCIALS
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royalty to all U.S. sales of Xigris and Evista from the date of issuance of the patent through the date of trial. We are
seeking to have the jury verdict overturned by the trial court judge, and if unsuccessful, will appeal the decision to
the Court of Appeals for the Federal Circuit. In addition, a separate bench trial with the U.S. District Court of Massa-
chusetts was held the week of August 7, 2006, on our contention that the patent is unenforceable and impermissibly
covers natural processes. No decision has been rendered. 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
In March 2004, the offi ce of the U.S. Attorney for the Eastern District of Pennsylvania advised us that it had com-
menced a civil 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 October 2005, the U.S. Attorney’s offi ce advised that it is also conducting an inquiry regarding cer-
tain 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 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, includ-
ing providing a broad range of documents and information relating to the investigations. 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 documents 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 produc-
tion of documents related to our efforts to obtain and maintain Zyprexa’s status on California’s formulary, market
ing and promotional practices with respect to Zyprexa, and remuneration of health care providers.
Beginning in
August 2006, we have received civil investigative demands or subpoenas from the attorneys general of a number of
states. Most of these requests are now part of a multistate investigative effort being coordinated by an executive
committee of attorneys general. We are aware that 23 states are participating in this joint effort, and we anticipate
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 promotional practices, and remuneration of
health care providers. It is possible 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 predict or 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 results of operations, liquidity, and
fi nancial 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.
Product Liability and Related Litigation
We have been named as a defendant in a large number of Zyprexa product liability lawsuits in the United States
and have been notifi ed of many other claims of individuals who have not fi led suit. The lawsuits and unfi led 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 compensatory
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).
Since June 2005, we have entered into agreements with various claimants’ attorneys involved in U.S. Zyprexa
product liability litigation to settle a substantial majority of the claims. The agreements cover a total of approxi-
mately 28,500 claimants, including a large number of previously fi led lawsuits and other asserted claims. The two
primary settlements were as follows:
• In June 2005, we reached an agreement in principle (and in September 2005 a fi nal agreement) to settle more than
• In January 2007, we reached agreements with a number of plaintiffs’ attorneys to settle more than 18,000 claims
for approximately $500 million.
The 2005 settlement totaling $700.0 million was paid during 2005. The January 2007 settlements were re-
corded in other current liabilities in our December 31, 2006 consolidated balance sheet and will be paid in the fi rst
8,000 claims for $690.0 million plus $10.0 million to cover administration of the settlement. That settlement is
being administered by special settlement masters appointed by Judge Weinstein.