Thursday, January 15, 2009

Lilly to Pay Biggest Fine Ever to End Zyprexa Probe

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.

Settlement Record

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.

Game Changer
“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.
State Lawsuits
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; Cary O’Reilly in Washington at Last Updated: January 15, 2009 15:33 EST


  1. Here is the Lilly/Zyprexa story as linked in Harpy's comment on the thread below.

    Of particualar note to me is that the company _may_ plead guilty to a misdemeanor charge. This is critical re: the settlemet deal. Had they pleaded guilty to felony - which entails intent (and who actually doubts there was intent in their Zyprexa marketing) - that could open the door to further civil liability in states like mine and, potentiallly, in any national preemption ruling.

    In that regard, and despite the big number, Lilly made a good deal for itself.

  2. Agree Justice,

    This is chicken feed compared to the total profits over the past 12 years or so.

    I wonder what would occur if someone could show certain actions by FDA officials effecting various drugs.


  3. FDA officials are 'immune,' yes? Unless directly involved in bribery or similar.

    Of course, there is always being run out of town on a rail....(never quite sure what that meant - very thin train?)

  4. p.s. BTW, great to see you here, Salmon!

  5. Here we have the the number 1.4 Billion (which I can't comprehend in terms of money, or much else for that matter) being rightly defined as "chicken feed" by Salmon. If $1.4 Billion dollars can be chicken feed then what will it take to make poorly managed companies change their ways?

    The FDA is basically owned by the pharma industry as testified to in Congress, product liability claims are part of the business plan, there are more pharma lobbyist than members of Congress and the media works on balance more for pharma than for the consumer.
    What's left to take pharma behind the wood shed?

    Maybe the only thing that will work is to lock Lilly's CEO up in a pillory on Time Square for a week. Of course I jest, but somehow poorly managed companies have to be exposed to the public. Each similar offense must require that a back mark be place next to the manufacturer's name for all to see. This is the *only* way to clean up the industry. THE - ONLY - WAY.

  6. It's an interesting thought. In this settlement - like virtually all of them - there was Lilly's misdemeanor bit, the money, and a "corporate integrity agreement" (I understand there are no shortage of those floating around).

    The usual argument against criminal proceedings is that the execs you'd throw in the clink are needed for "new drug development," etc. So the beat goes on.

    Additionally, criminal proceedings work when there are particular perps who can be nailed on particular delinquencies. But patterns of conduct - that belong to all but can be often not be clearly attributed to anyone specifically - don't fit the usual crime/punishment model. You pretty much have to bust the company, and senior management of Lilly is unlikely to be handcuffed together and marched collectively to jail.

    In the rare case when anyone is busted, Braithwaite reports (in _Corporate Crime in the Pharmaceutical Industry") that one of his interviewees actually had the title (informal) of "Vice President in Charge of Going to Jail."

  7. Justice, Like you I don't think that the prosecution of management is the answer. I guess I just pose the question - what kind of public pronouncement of a particular offense could make a difference in the future management of the company towards a safer product or away from fraudulent practices?
    I come back to my oft expressed declaration that a publicly controlled product and corporation grading system is the only way. Each offense produces a black mark and enough black marks produce a publicly declared "thumbs down" for the product and the corporation. It sets up a kind of death spiral that a corporation must do anything they can to avoid. It would produce instant good business practices and would cost us comparatively nothing.

  8. Well, there is another sanction physicians can apply – denial of access to their professional organizations. When a corporation pleads guilty to criminal behavior it can be banned from access to professional meetings. So, no more Lilly presence at the annual meeting of the American Psychiatric Association for the duration of its 5-year probation under a federal monitor’s review. Likewise, no more Lilly sponsorship of any APA-related CME programs. And while we are at it, how about a 5-year suspension of Lilly’s corporate membership in the American College of Neuropsychopharmacology? That will get their attention.

    Bernard Carroll

  9. Welcome, Bernard (Bernie?) - Do you foresee any realistic possibility the APA and related would take such actions?

  10. The leaders of these professional organizations tend to be risk-avoidant. So we should not expect any action without pressure from the bottom up. But there is no good reason for the APA to give multi-billion corporations an ethical pass when at the same time they don't hesitate to lower the boom on individual members for criminal activity.

    As for the American Psychiatric Association, don't hold your breath. The incoming president Alan Schatzberg, who has been one of the high profile academic entrepreneurs investigated by Senator Grassley, is a long time consultant to Lilly and his corporation receives research funding from Lilly.

    One can hope that the APA will take up the matter of sanctioning Lilly for criminal behavior and that Dr. Schatzberg will be recused from the discussion. But nothing will happen unless APA members phone home.

    Bernard (Barney) Carroll.

  11. Thanks for the clarification. As I think you're suggesting, I wonder if a motion can be introduced, even though certain to be defeated, that would get the issue on the table and on the record. If nothing more was accomplished than some version of discussion - _especially_ given who is Pres. - that might be "newsworthy" in its own right, and send a few relevant signals to relevant companies.

    i.e., It might not happen this time, but today's minority view could become the majority down the road.

  12. As Barnard Carroll said in a previous post, medical professional organizations have processes for the expulsion of members, including corporate members, who are considered to have acted in a manner that brings discredit upon the organization. We read examples of such infractions in the daily news reports and in medical journals. Surely someone other than the investigative journalist or the scientific colleague not directly involved in the incident has knowledge of these infractions. How many individuals report infractions to professional organizations and to other relevant regulatory bodies? Given the recent rash of incidents, it is reasonable to assume that professional organizations are inundated with complaints. Yet has anyone heard of any recent disciplinary sanctions being imposed on a corporate member by a medical professional organization? If so, please post the news here.

    As suggested, applying pressure from the bottom up is essential to the advancement of science untainted by commercial enticements. Pressure is being applied from the top down by the World Psychiatric Association. Look here:

  13. Nancy writes: "Yet has anyone heard of any recent disciplinary sanctions being imposed on a corporate member by a medical professional organization? If so, please post the news here."

    Ditto. This would obviously be a critially important precedent. Even to have such a motion seriously introduced and debated would set an important precedent.

  14. A professional action like this against a major corporation would set a precedent. Encourage the APA members you know to phone home.

    Here is a longer discussion of the issue written a few years ago.

    Bernard Carroll

  15. Doug Bremner, do you read me/this?

  16. Out of the mouths of babes...

    One whistleblower who initiated the Lilly case shared his story with Miriam Hill, Staff Writer for The Philadelphia Inquirer, recalling how his 15-year-old son inspired him to do the right thing. The article is posted here:


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