Although Lilly has coverage for a portion of the Zyprexa product liability claims exposure, the SEC filing states, third-party insurance carriers have raised defenses to their liability under the policies and are seeking to rescind the policies.
The dispute is now the subject of litigation in the federal court in Indianapolis against certain carriers and in arbitration in Bermuda against others. "While we believe our position is meritorious," the filing states, "there can be no assurance that we will prevail."
"In addition," it warns, "there is no assurance that we will be able to fully collect from our insurance carriers on past claims."
The filing also says Lilly cannot predict the additional number of Zyprexa lawsuits that may be filed and that the ultimate resolution of Zyprexa litigation could have a material adverse impact on the company's consolidated results of operations, liquidity, and financial position.
The situation no doubt looks gloomier since July 24, 2006, when the state of Mississippi filed a lawsuit in Lafayette County Circuit Court, claiming the company engaged in a calculated marketing plan to defraud the state Medicaid program out of millions of dollars for off-label uses of Zyprexa.
Mississippi's attorney general, Jim Hood, who is known for suing companies on behalf of consumers, charged that Lilly promoted Zyprexa for unapproved uses, including for children. The case is titled, Hood v. Eli Lilly and Co., No. L06-280, Circuit Court, Lafayette County, Mississippi.
The complaint alleges that the rapid growth of Zyprexa sales in Mississippi "is primarily due to increased prescriptions by primary care physicians for non-medically accepted indications that are excluded from payment under the provisions of the Mississippi Medicaid Prescription Drug Program."
It alleges that after receiving FDA approval of Zyprexa for treatment of patients with diagnoses of schizophrenia or a bipolar disorder, Lilly formed a scheme to increase the sales while avoiding the expense and delay of obtaining approval for other new, expanded or additional uses of the drug.
It claims the scheme consisted of the promotion of Zyprexa for non-medically accepted conditions that are excluded from payment under the Mississippi Medicaid Prescription Drug Program.
Specifically, the lawsuit claims, Lilly trained and instructed its primary care sales force to attempt to expand the drug's market by convincing primary care physicians to prescribe the drug for mood, thought and behavioral disturbances and that the company established a consistent sales message "based on patients' symptoms and behaviors, rather than on their confirmed diagnoses."
Lilly, it says, through its primary care sales force, presented the physicians with hypothetical patient profiles, which included "patients complaining of symptoms such as anxiousness, irritability, mood swings and disturbed sleep, and submitting to physicians that such hypothetical patients would be medically indicated for treatment with Zyprexa."
The doctors are now prescribing the drug for non-approved uses, the lawsuit claims, as a direct response to Lilly's conduct in marketing the drug.
"As a result," it states, "Mississippi is spending millions of dollars on Zyprexa ® for patients who are not indicated for the drug; and further, who are being harmed by it."
The complaint also alleges that Lilly did not properly warn of the dangers related to the drug, such as the increased risk of diabetes and that treatment for beneficiaries who became ill from Zyprexa increased the state's Medicaid costs.
The suit charges that Lilly knew Zyprexa increased the risk of diabetes, pointing out that in April, 2002, nearly a year and a half before Lilly first warned of the risk of diabetes in the US, the company changed the drug's labeling in the UK and Japan to include warnings about the association between Zyprexa and diabetes related injuries.