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This is the best article I have been able to find on the Zyprexa payout ...

June 11, 2005

Uncertainty was driver in Zyprexa deal

Seven months of talks led to proposed Lilly $690M payout


By Jeff Swiatek
jeff.swiatek@indystar.com

Trial lawyers say they agreed to an unusually early settlement with Eli Lilly and Co. on 8,000 claims of damages over the company's top-selling drug Zyprexa, as both sides saw the value of avoiding prolonged litigation that was full of uncertainties.

Other Lilly settlements

ProzacIn 2000, The Indianapolis Star estimated from court documents that Lilly had settled at least 30 Prozac lawsuits filed since 1990 for at least $50 million. Additional cases have been settled since then, but the number of outstanding Prozac lawsuits has remained low, numbering perhaps a dozen a year, according to trial attorneys who follow the litigation.GemzarThe Kansas City Star reported Lilly paid $48.55 million to settle the case involving Kansas City pharmacist Robert Courtney, who in 2002 was sentenced to 30 years in prison for diluting Lilly's Gemzar cancer drug.Price overchargesLilly agreed in 2000 to provide $11.9 million worth of free drugs and $2.3 million in cash to settle a class-action lawsuit by California drug consumers.

The $690 million settlement, announced Thursday, came after only five plaintiffs had given depositions in the mass litigation and before any substantive depositions had been taken from Lilly executives or scientists, said one trial attorney, Ramon Rossi Lopez, of Newport Beach, Calif. Also, the first trial from the hundreds of lawsuits was at least six months off.

"A lot of things came into play" to drive the seven months of talks that led to the proposed settlement, Lopez said. But both sides in the high-stakes litigation knew one thing: "There were too many variables out there that could have falsely driven the value of the case" to hurt either side, Lopez said.

Investors reacted indifferently Friday to the proposed settlement's impact on Lilly. The Indianapolis drug maker's stock price fell 8 cents a share, to $56.99.

The $690 million deal, which has yet to be officially signed by both sides and by judges who might intervene, appears to be the largest settlement Lilly has undertaken of product liability claims against any of its drugs.

Lilly's previous No. 1 drug, the antidepressant Prozac, has been the subject of hundreds of lawsuits since it came on the market in 1988. The company has secretly settled dozens of those lawsuits, with the collective payouts estimated to run in the tens of millions of dollars, according to an ongoing analysis of court documents by The Indianapolis Star.

In the litigation over its antipsychotic Zyprexa, Lilly said it agreed to the payout in large part to remove the "enormous distraction" from the litigation to the company and physicians and patients. "It was a decision we arrived at after a great deal of thought. We are very confident we made the right decision," said John C. Lechleiter, Lilly executive vice president of pharmaceutical operations. Zyprexa is Lilly's most important product, generating $4.4 billion, or one third, of Lilly's sales last year. It treats schizophrenia and bipolar disorder, but is also prescribed by doctors for a host of other ailments.

Plan for charge

Lilly said it expects to take a charge against earnings of at least $700 million in the current quarter to cover the cost of the Zyprexa settlement and other, unspecified product liability claims. That number is the net charge Lilly would take after its product liability insurance policies pay out, said Terra Fox, a Lilly spokeswoman.

Lilly won't estimate the amount of money it expects to collect on its insurance policies for the settlement, she said.

The special charge is expected to wipe out all or most of Lilly's second-quarter profits. In the first quarter, Lilly posted profits of $737 million.

Even so, "We don't have any liquidity concerns," Fox said. "We'll be OK on the cash side."
The product liability payouts come during a cash-rich time for the drug maker, which has in hand $8 billion in repatriated foreign profits that it plans to spend in the next three years. The foreign profits were brought back to the United States in late 2004 under a one-time offer by the U.S. government that extended tax breaks to companies that repatriate the money from abroad.

Foreign profits plan

None of the foreign profits will be expressly used for the product liability claims, Fox said. Lilly's board has directed the foreign profits be spent primarily on research and development, capital expenditures and compensation for new and existing employees, said Lilly spokesman Phil Belt.
He said the foreign profits will allow Lilly to redirect ongoing profits from its U.S. sales to reduce long-term debt, which at the end of last year totaled $4.5 billion.

Moody's Investors Service cited Lilly's strong cash position, bolstered by the foreign profits, as it reaffirmed the company's financial ratings Friday.

May run higher

"Eli Lilly's strong balance sheet can absorb payments of this magnitude," the investment ratings company said of the expected $690 million payout. But Moody's said in its rating report that the Zyprexa settlement could run higher than estimated.

"Other product safety cases in the pharmaceutical industry -- particularly Wyeth's diet drugs -- have proven to be difficult to estimate and to contain," Moody's said.

Lilly has estimated that 75 percent of the claims against Zyprexa that it knows of fall under the proposed settlement.

Trial lawyers said they expect more Zyprexa patients to file new claims against Lilly, which has vowed to fight in court any additional claims that aren't part of the proposed settlement, which 12 law firms signed.

Lilly's legal liability to claims from new patients is less now, compared to a few years ago, because the company in March 2004 sent a letter to doctors warning that Zyprexa could cause the diabetes-related problems that are at issue in the proposed settlement, said Michael A. London, a New York attorney who is vice chair of the plaintiff's steering committee.

"That is protection for Lilly," he said of the 2004 warning letter.

Under the settlement, the steering committee will appoint a panel to administer the claims payouts, using a formula that will award more money to those more seriously injured by the diabetes complications linked to the drug, said Lopez. He said retired judges might be selected for the panel, which might contain as few as three people.

Payout formula

Paying out the money could take up to a year-and-a-half, London said. Figuring that attorney's fees in mass-tort litigation typically run 30 percent of the award or settlement amount, that would leave about $500 million to distribute to claimants.

David Bell, of Oaks, Pa., said he read about the settlement offer and hopes to contact an attorney to join in the lawsuits against Lilly, in the hopes of collecting money for his 18-year-old daughter, Patricia. He said she gained 50 pounds while taking Zyprexa over the past 18 months for bipolar disorder. Reading about Lilly's willingness to pay money to Zyprexa patients "scared me to death," said Bell, who fears his daughter's weight gain increases her risk of becoming diabetic.

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