Eli Lilly 2007 Annual Report Download - page 55

FINANCIALS
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challenger, Apotex Inc. (Apotex), and Apotex has appealed that ruling. In June 2007, the Canadian Federal Court
held that the invalidity allegations of a second challenger, Novopharm Ltd. (Novopharm), were justifi ed and denied
our request that Novopharm be prohibited from receiving marketing approval for generic olanzapine in Canada.
Novopharm began selling generic olanzapine in Canada in the third quarter of 2007. We have appealed that
decision and sued Novopharm for patent infringement. The appeal was dismissed. In November 2007, Apotex fi led
an action seeking a declaration of the invalidity of our Zyprexa compound and method-of-use patents (expiring in
2011). The trial court ruled in our favor in February 2007. Apotex will likely appeal.
• In Germany, generic pharmaceutical manufacturers Egis-Gyogyszergyar and Neolabs Ltd. challenged the validity
of our Zyprexa compound and method-of-use patents (expiring in 2011). In June 2007, the German Federal
Patent Court held that our patent is invalid. We are appealing the decision. Generic olanzapine was launched by
competitors in Germany in the fourth quarter of 2007.
• We have received challenges in a number of other countries, including Spain, the United Kingdom (U.K.), and
several smaller European countries. In Spain, we have been successful at both the trial and appellate court
levels in defeating the generic manufacturers’ challenge, but we anticipate further legal challenges from generic
manufacturers. In the U.K., a trial date has tentatively been set for July 2008.
We are vigorously contesting the various legal challenges to our Zyprexa patents on a country-by-country
basis. We cannot determine the outcome of this litigation. The availability of generic olanzapine in Canada and
Germany will have a material adverse impact on our consolidated results of operations. The availability of generic
olanzapine in additional markets could have a material adverse impact on our consolidated results of operations.
In June 2002, Ariad Pharmaceuticals, Inc., the Massachusetts Institute of Technology, the Whitehead Insti-
tute for Biomedical Research, and the President and Fellows of Harvard College in the U.S. District Court for the
District of Massachusetts sued us, alleging that sales of two of our products, Xigris and Evista, were inducing the
infringement of a patent related to the discovery of a natural cell signaling phenomenon in the human body, and
seeking royalties on past and future sales of these products. On May 4, 2006, a jury in Boston issued an initial deci-
sion in the case that Xigris and Evista sales infringe the patent. The jury awarded the plaintiffs approximately
$65 million in damages, calculated by applying a 2.3 percent royalty to all U.S. sales of Xigris and Evista from the
date of issuance of the patent through the date of trial. In addition, a separate bench trial with the U.S. District
Court of Massachusetts was held in August 2006, on our contention that the patent is unenforceable and impermis-
sibly covers natural processes. In June 2005, the United States Patent and Trademark Offi ce (USPTO) commenced
a reexamination of the patent, and in August 2007 took the position that the Ariad claims at issue are unpatent-
able, a position that Ariad continues to contest. In September 2007, the Court entered a fi nal judgment indicating
that Ariad’s claims are patentable, valid, and enforceable, and fi nding damages in the amount of $65 million plus
a 2.3 percent royalty on net U.S. sales of Xigris and Evista since the time of the jury decision. However, the Court
deferred the requirement to pay any damages until after all rights to appeal have been exhausted. We plan to ap-
peal this judment. 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 and Related Litigation
In March 2004, the Offi ce of the U.S. Attorney for the Eastern District of Pennsylvania (EDPA) advised us that it had
commenced an 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 November 2007, we received a grand jury subpoena from the EDPA for a broad range of docu-
ments related to Zyprexa. A number of State Medicaid Fraud Control Units are coordinating with the EDPA in its
investigation of any Medicaid-related claims relating to our marketing and promotion of Zyprexa. In October 2005,
the EDPA advised that it is also conducting an inquiry regarding certain 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 our Medicaid best price reporting related to the product sales covered by the rebate agreements.
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 promo-
tional practices with respect to Zyprexa.
In September 2006, we received a subpoena from the California Attorney General’s Offi ce seeking production
of documents related to our efforts to obtain and maintain Zyprexa’s status on California’s formulary, marketing
and promotional practices with respect to Zyprexa, and remuneration of health care providers.
In February 2007, we received a subpoena from the Offi ce of the Attorney General of the State of Illinois,
seeking production of documents and information relating to sales of Zyprexa and our marketing and promotional