Eli Lilly 2007 Annual Report Download - page 57

FINANCIALS
55
Since the beginning of 2005, we have recorded aggregate net pretax charges of $1.61 billion for Zyprexa
product liability matters. The net charges, which take into account our actual and expected insurance recoveries,
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 department alleges it has incurred and will incur to treat Zyprexa-related ill-
nesses. We have been served with similar lawsuits fi led by the states of Alaska, Mississippi, 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 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. In 2007, The Pennsylvania Employees Trust Fund brought claims in state court in Pennsylvania as insurer
of Pennsylvania state employees, who were prescribed Zyprexa on similar grounds as described in the New York
cases. 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 determine with certainty the additional number of lawsuits and claims that may be asserted. 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.
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.
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.
Environmental Matters
Under the Comprehensive Environmental Response, Compensation, and Liability Act, commonly known as Super-
fund, we have been designated as one of several potentially responsible parties with respect to fewer than 10 sites.
Under Superfund, each responsible party may be jointly and severally liable for the entire amount of the cleanup.
We also continue remediation of certain of our own sites. We have accrued for estimated Superfund cleanup costs,
remediation, and certain other environmental matters. This takes into account, as applicable, available information
regarding site conditions, potential cleanup methods, estimated costs, and the extent to which other parties can be
expected to contribute to payment of those costs. We have limited liability insurance coverage for certain environ-
mental liabilities.