Lilly reserves $690m for Zyprexa claims

Lilly is to set up a fund worth $690m to settle some 8,000 legal claims regarding its top-selling drug, antipsychotic Zyprexa (olanzapine).

Sales of Zyprexa, which is used to treat schizophrenia and bipolar disorder, have been hit in the last 12 months over claims that it can cause health problems in patients, including diabetes or weight gain.

The majority of the lawsuits claimed that, before September 2003, the drug's label information regarding the risk of hyperglycaemia and diabetes was not adequately displayed.

ìWhile we believe the claims are without merit, we took this difficult step because we believe it is in the best interest of the company, the patients who depend on this medication, and their doctors,î said Lilly chairman, president and chief executive, Sidney Taurel.

Lilly said that while it had agreed in principle with plaintiffs' attorneys for the majority of Zyprexa claims arguing that their clients developed diabetes-related conditions, it would ìcontinue to vigorously defendî the remaining 2,600 lawsuits.

Christopher Seeger, a member of the plaintiffs' steering committee, said the group was pleased with the agreement: ìProtracted litigation was in no one's interest.î

Analysts gave a mixed reaction to the announcement. George Farra, at Woodley Farra Manion Portfolio Management, described it as a positive step ìbecause it eliminates any uncertainty about what the potential liability could beî.

However, in a Prudential Equity Group report, analyst Tim Anderson called the settlement ìa bit oddî.

ìIt would be more common to at least have a few verdicts handed down to see the direction of the liability before paying out nearly $700m, unless the company feels it has weak legs to stand on,î he noted.

Tony Butler, analyst at Lehman Brothers, said the move reflected Lilly's resolve to remove much of the uncertainty that surrounded Zyprexa's liability litigation, and concentrate its efforts on the future.

In April this year, Lilly managed to prevent further erosion of its US sales when a federal judge upheld Zyprexa's patent giving it exclusive rights in the US market until 2011, although the case could face appeals. In the same month, the firm announced that US sales of Zyprexa fell 17 per cent, and 5 per cent worldwide, because of competition from rival treatments. In 2004, the drug had worldwide sales of some $4.4bn.

Lilly said it would take a pretax second-quarter charge of at least $700m to cover the settlement for the claims, which account for about 75 per cent of total legal claims against Zyprexa.