Eli Lilly & Co. struck a $15 million settlement with the State of Alaska that closes the book on a potentially costly trial over the antipsychotic medicine Zyprexa.
Zyprexa, which notched $4.8 billion in sales last year, is approved by the Food & Drug Administration to treat schizophrenia and bipolar disorder. Thousands of product-liability suits have been filed against Lilly, alleging the company didn't adequately disclose information about Zyprexa's links to weight gain and diabetes. Other suits claim Lilly pushed the drug for unapproved purposes, causing state Medicaid programs and third-party payers to bear unwarranted costs.
Lilly already has reached a $1.2 billion settlement with 31,000 plaintiffs. It still faces nine cases filed by other state attorneys general, 1,600 by individual plaintiffs, and others by shareholders and third-party payers such as insurers.
In addition, Lilly is in talks with the U.S. attorney for the eastern district of Pennsylvania to resolve a probe into the Indianapolis drug maker's marketing practices.
The central issue in Alaska's suit, which sought $5,000 for each of the roughly 200,000 Zyprexa prescriptions written for state residents, was whether Alaska's consumers were deceived because Lilly failed to adequately warn about a link to diabetes.
Before Tuesday night's settlement ended the three-week trial, closing arguments had been set to begin as early as Friday.
Lilly didn't admit any wrongdoing and said it settled to avoid having the trial drag on. "This represented, from the company's perspective, a very good way to resolve this matter and get back to business," said Nina Gussack of Pepper Hamilton LLP, a law firm representing Lilly.
Alaska Assistant Attorney General Ed Sniffen said the state took the deal because damages would be difficult to prove and the certainty that Lilly would appeal an unfavorable verdict made a final outcome uncertain. He said $200 million would have been the "best-case scenario," but added that, "at the end of the day, our original estimates kept getting refined, and as the trial went on it became clear that we could take some money now or risk more later."
Anchorage Superior Court Judge Mark Rindner bolstered the state's position last week when he said the FDA has proven incapable of policing drug regulation, according to an Associated Press report.
But both Lilly and the state also were anticipating a U.S. Supreme Court ruling this fall on whether FDA approval pre-empts state claims regarding drug defects. A decision in favor of pre-emption could have made moot any judgment in Alaska's favor.
While the $15 million is a fraction of the penalties the state sought, it is a substantial sum relative to Alaska's population of 670,000. The attorneys general for other states that have sued -- as well as those for the roughly 30 states with Zyprexa probes under way -- could use their larger populations to multiply any claims based on the Alaska settlement, says Edward Sherman, a specialist in complex litigation at Tulane University Law School in New Orleans.
A clause built into Tuesday's deal requires the company to pay Alaska more per capita if any other state gets a better deal.
Ms. Gussack said Lilly would consider each claim separately and that $15 million wouldn't be a benchmark. She said "the reason the number is so small is because Lilly's defense was so good," not because Alaska's population is small.
Connecticut Attorney General Richard Blumenthal, who filed suit against Lilly March 11, said he was "highly encouraged" by the Alaska settlement.
Write to Avery Johnson at avery.johnson@WSJ.com
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