Lilly to Pay Biggest Fine Ever to End Zyprexa Probe (Update5)
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By [bn:PRSN=1] Margaret Cronin Fisk  and [bn:PRSN=1] Cary O’Reilly 
Jan. 15 (Bloomberg) -- Eli Lilly & Co. will plead guilty to a charge of promoting its antipsychotic drug Zyprexa for unapproved uses and pay $1.42 billion, including the largest criminal fine ever imposed by the U.S. on an individual company.
The company admitted its marketing of Zyprexa was illegal in a civil and criminal settlement announced jointly today in a statement by Acting U.S. Attorney Laurie Magid and Attorney General Michael Mukasey. Lilly will also submit to U.S. monitoring against future lawbreaking.
Lilly resolved federal and state probes into how it marketed the drug and will make its guilty plea in U.S. District Court in Philadelphia in the next few weeks, the Indianapolis-based drugmaker said in a statement. Lilly said it promoted Zyprexa in elderly people to treat dementia, a use not approved by the Food and Drug Administration, between September 1999 and March 2001, a criminal violation of the Food, Drug and Cosmetic Act.
“Eli Lilly completely ignored the law” and made “hundred of millions of dollars” from its illegal promotion of Zyprexa, Magid said at a press conference in Philadelphia today. “We’re holding a company responsible for putting thousands and thousands of patients at risk.”
The company hasn’t entered a guilty plea to the misdemeanor criminal charge yet. No court date has been set.
The settlement is a record in a false-claims case, said Patrick Burns of Taxpayers Against Fraud in Washington, which tracks such litigation. The agreement includes a $615 million penalty for the criminal charge and payments of $800 million to end civil probes by the U.S. Attorney’s Office for the Eastern District of Pennsylvania and Medicaid fraud units in more than 30 states, Lilly said.
“We deeply regret the past actions covered by the misdemeanor plea,” said Chief Executive Officer John Lechleiter in the statement.
The criminal penalty includes a fine of $515 million and asset forfeiture of $100 million. The fine exceeds the $500 million paid by Roche Holding AG in 1999 for conspiring to raise the price of vitamins, Justice Department spokesman Charles Miller said.
Lilly booked a $1.42 billion charge, or $1.29 a share, to pay for the settlement in last year’s third quarter. The company will state the tax consequences when it announces fourth quarter earnings Jan. 29.
As part of the settlement, Lilly agrees to operate under a federal monitor’s review for five years. The “independent third- party review organization” will “assess and report on the company’s systems, processes, policies, procedures and practices,” Lilly said.
“The settlement is a game changer because it breaks the $1 billion barrier,” said Burns of Taxpayers Against Fraud. “Smaller settlements weren’t getting the job done.”
Zyprexa, used to treat schizophrenia and bipolar disorder, had sales of $4.76 billion in 2007, accounting for about a quarter of Lilly’s revenue. The drug, part of a class of medications called atypical antipsychotics, has been linked to excessive weight gain and diabetes.
The U.S. and state investigations involved claims that Lilly improperly marketed the drug to doctors for unapproved uses. Doctors can prescribe medicines for any use. Drugmakers can’t promote those medicines for any use not approved by the FDA.
Beginning in 1999 and continuing through at least November 2003 Lilly management created marketing materials promoting Zyprexa for off-label uses, trained its sales force to disregard the law and directed its sales personnel to promote Zyprexa for off-label uses, prosecutors said in their statement today.
Several Lilly sales representatives brought complaints against Lilly under terms of the federal False Claims Act, starting in 2003, said attorney Joel Androphy, who filed one of these suits. The whistleblowers who brought these actions will receive 18 percent of the federal share of the civil settlement, more than $78 million, he said. They will also receive shares from state settlements, depending on whether the state has a whistleblower law, he said.
“Most companies do off-label marketing,” Androphy said in an interview today. “The government won’t go after the borderline ones. This case was particularly egregious.”
The settlement period was negotiated to “capture” most of the illegal activity, Magid said at the press conference.
The settlement adds to Lilly’s earlier settlement of more than 31,000 Zyprexa lawsuits filed by individuals for $1.2 billion. About 139 suits are still pending, said Marni Lemons, a Lilly spokeswoman, in a telephone interview yesterday.
The company also still faces lawsuits by 12 states, including Pennsylvania and Connecticut, alleging the company improperly marketed the drug for unapproved uses and withheld information about side effects. These lawsuits aren’t part of the settlement, said attorney Blair Hahn, who represents West Virginia.
The company paid the state of Alaska $15 million in March to settle one of these suits. Lilly also agreed in October to pay a total of $62 million to 32 states and the District of Columbia to settle consumer protection claims over improper marketing.
Lilly was unchanged at $37.47 in composite trading on the New York Stock Exchange as of 3:22 p.m.
The criminal case is U.S. v. Eli Lilly, 09-20, U.S. District Court, Eastern District of Pennsylvania (Philadelphia).
To contact the reporters on this story: Margaret Cronin Fisk in Southfield, Michigan, at email@example.com; Cary O’Reilly in Washington at firstname.lastname@example.org. Last Updated: January 15, 2009 15:33 EST