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Lilly Settles Alaska Suit Over Zyprexa
March 26, 2008

Eli Lilly has agreed to pay $15 million to the state of Alaska to settle a lawsuit claiming that the company’s schizophrenia drug Zyprexa caused patients to develop diabetes, Lilly and the state said Wednesday morning.

The settlement is something of a surprise, coming three weeks into a trial over the state’s claims in Anchorage. The state sued to recoup medical bills it said were generated by Medicaid patients who developed diabetes while taking Zyprexa. The case had not yet reached the jury, although closing arguments were expected this week.

Because Alaska is such a small state, with only 670,000 residents, the $15 million figure is a relatively large payment by Lilly. Many other states have sued Lilly with similar claims or are participating in settlement talks led by federal prosecutors in Pennsylvania.

While there is no way of knowing whether the $15 million payment to Alaska will represent a benchmark for the broader talks. But if it does, Lilly might need to pay billions of dollars to resolve the bigger cases. Lilly and the prosecutors have already discussed an overall settlement of the state and federal investigations and suits that would require Lilly to pay $1 billion to $2 billion in fines and restitution, according to people who have been briefed on the talks.

In addition, Lilly has already paid $1.2 billion to settle 30,000 individual lawsuits from people who say they developed diabetes after taking Zyprexa.

Alaska and Lilly discussed a settlement before the trial began, and mediation efforts resumed last week, according to the statement announcing the settlement.

State court judge Mark Rindner, who was overseeing the case, may have put new pressure on Lilly to settle last week, when he flatly rejected Lilly’s arguments that he should dismiss the case because the Food and Drug Administration is responsible for regulating drug makers. Judge Rindner said the F.D.A. had done an inadequate job of overseeing the industry.

Zyprexa helps calm the hallucinations and delusions associated with schizophrenia and bipolar disorder. The drug is widely used, with sales of $4.8 billion last year, about half in the United States. More than 23 million people have taken Zyprexa since it was approved in 1996.

But Zyprexa also can cause severe weight gain, blood sugar changes and cholesterol problems, and it has been linked to diabetes by the American Diabetes Association.

Internal Lilly documents show that Lilly played down Zyprexa’s risks to doctors and was concerned that any link between Zyprexa and diabetes would hurt the drug’s sales.

Documents also indicate that after Zyprexa’s approval the company encouraged doctors to prescribe Zyprexa to people who did not have schizophrenia or bipolar disorder. Drug companies are allowed to promote their medicines only for uses approved by the Food and Drug Administration, although doctors can prescribe drugs for any use.

In the statement Wednesday morning announcing the settlement, Lilly did not admit wrongdoing. The company said it believed the agreement would be in the best interests of the state, the company and patients.

“A settlement helps us get back to what we want to focus on as a company — developing important new medications through research and partnerships with doctors and patients,” Robert A. Armitage, Lilly’s general counsel, said in the statement.

In mid-afternoon stock trading Wednesday, Lilly shares were down 9 cents each, to $50.08.



 
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