Eli Lilly 2007 Annual Report Download - page 30

FINANCIALS
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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 practic-
es, 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 individu-
als who have not fi led suit. The lawsuits and unfi led
claims (together the “claims”) allege a variety of inju-
ries 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 ac-
cuse 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. Zyp
rexa
product liability litigation to settle a substantial majority
of the claims. The agreements cover a total of approxi-
mately 31,200 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 8,000 claims for $690.0 million plus
$10.0 million to cover administration of the
settlement.
• 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
paid during 2007.
We are prepared to continue our vigorous defense
of Zyprexa in all remaining claims. The U.S. Zyprexa
product liability claims not subject to these agreements
include approximately 325 lawsuits in the U.S. covering
approximately 1,235 plaintiffs. Trial dates have been set
for June 23, 2008, in the Eastern District of New York,
for several of the U.S. plaintiffs.
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, and a second
has been certifi ed in Ontario and includes all Canadian
residents, except for residents of Quebec and British
Columbia. The allegations in the Canadian actions are
similar to those in the litigation pending in the U.S.
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 was the subject of litigation in
the federal court in Indianapolis against certain of the
carriers and in arbitration in Bermuda against other
carriers. In the second half of 2007, we reached settle-
ments resolving the vast majority of the disputed insur-
ance claims, and a portion of the insurance proceeds
were paid to us prior to the end of 2007.
Since the beginning of 2005, we have recorded ag-
gregate net pretax charges of $1.61 billion for Zyprexa
product liability matters. The net charges, which take
into account our actual and expected insurance recov-
eries, covered the following:
• The cost of the Zyprexa product liability settlements
to date; and
• Reserves for product liability exposures and defense
costs regarding the known Zyprexa product liability
claims and expected future 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 de-
partment alleges it has incurred and will incur to treat
Zyprexa-related illnesses. We have been served with
similar lawsuits fi led by the states of Alaska, Mississip-
pi, Montana, New Mexico, Pennsylvania, South Carolina,
Utah, and West Virginia in the courts of the respective
states. The Mississippi, Montana, New Mexico, and West
Virginia cases have been removed to federal court and
are now part of the MDL proceedings in the Eastern
District of New York. The Alaska case is scheduled for
trial beginning March 3, 2008.
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 pay-
ors, excluding governmental entities, which have made
or will make payments for their members or insured
patients being prescribed Zyprexa. These actions have
now been consolidated into a single lawsuit, which is