Eli Lilly 2006 Annual Report Download - page 53

FINANCIALS
51
quarter of 2007.
The U.S. Zyprexa product liability claims not subject to these agreements include approximately 340 lawsuits
in the U.S. covering approximately 900 claimants and an additional 400 claims of which we are aware. In addition,
we have been served with a lawsuit seeking class certifi cation in which the members of the purported class are
seeking refunds and medical monitoring. In early 2005, we were served with four lawsuits seeking class action
status in Canada on behalf of patients who took Zyprexa. One of these four lawsuits has been certifi ed for residents
of Quebec. The allegations in the Canadian actions are similar to those in the litigation pending in the U.S.
We are prepared to continue our vigorous defense of Zyprexa in all remaining cases. We currently anticipate
that trials in seven cases in the Eastern District of New York will begin in the second quarter of 2007.
We have insurance coverage for a portion of our Zyprexa product liability claims exposure. The third-party
insurance carriers have raised defenses to their liability under the policies and are seeking to rescind the policies.
The dispute is now the subject of litigation in the federal court in Indianapolis against certain of the carriers and in
arbitration in Bermuda against other carriers. While we believe our position has merit, there can be no assurance
that we will prevail.
In addition, we have been named as a defendant in numerous other product liability lawsuits involving pri-
marily diethylstilbestrol (DES) and thimerosal. The majority of these claims are covered by insurance, subject to
deductibles and coverage limits.
In the second quarter of 2005, we recorded a net pretax charge of $1.07 billion for product liability matters.
The charge took into account our estimated recoveries from our insurance coverage related to these matters. The
charge covered the following:
• The cost of the June 2005 Zyprexa settlements described above; and
• Reserves for product liability exposures and defense costs regarding the then-known and expected product liability
claims to the extent we could formulate a reasonable estimate of the probable number and cost of the claims. A
substantial majority of those exposures and costs were related to then-known and expected Zyprexa claims.
As a result of the January 2007 settlements discussed above, we incurred a pretax charge of $494.9 million in
the fourth quarter of 2006. The charge covered the following:
• The cost of the January 2007 Zyprexa settlements; and
•
Reserves for product liability exposures and defense costs regarding the then-known and expected Zyprexa product
liability claims to the extent we could formulate a reasonable estimate of the probable number and cost of the claims.
In December 2004, we were served with two lawsuits brought in state court in Louisiana on behalf of the
Louisiana Department of Health and Hospitals, alleging that Zyprexa caused or contributed to diabetes or high
blood-glucose levels, and that we improperly promoted the drug. These cases have been removed to federal court
and are now part of the MDL proceedings in the Eastern District of New York. In these actions, the Department
of Health and Hospitals seeks to recover the costs it paid for Zyprexa through Medicaid and other drug-benefi t
programs, as well as the costs the department alleges it has incurred and will incur to treat Zyprexa-related ill-
nesses. In 2006, we were served with similar lawsuits fi led by the states of Alaska, West Virginia, New Mexico, and
Mississippi in the courts of the respective states.
In 2005, two lawsuits were fi led 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 for their members or insured patients being prescribed Zyprexa. These actions have now been consoli-
dated into a single lawsuit, which is brought under certain state consumer protection statutes, the federal civil
RICO statute, and common law theories, seeking a refund of the cost of Zyprexa, treble damages, punitive dam-
ages, and attorneys’ fees. Two additional lawsuits were fi led in the Eastern District of New York in 2006 on similar
grounds. As with the product liability suits, these lawsuits allege that we inadequately tested for and warned about
side effects of Zyprexa and improperly promoted the drug.
We cannot predict with certainty the additional number of lawsuits and claims that may be asserted. In addition,
although we believe it is probable, there can be no assurance that the January 2007 Zyprexa product liability settle-
ments described above will be concluded. The ultimate resolution of Zyprexa product liability and related litigation
could have a material adverse impact on our consolidated results of operations, liquidity, and fi nancial position.
Because of the nature of pharmaceutical products, it is possible that we could become subject to large num-
bers of product liability and related claims for other products in the future. In the past few years, we have experi-
enced diffi culties in obtaining product liability insurance due to a very restrictive insurance market. Therefore, for
substantially all of our currently marketed products, we have been and expect that we will continue to be largely
self-insured for future product liability losses. In addition, as noted above, there is no assurance that we will be
able to fully collect from our insurance carriers on past claims.