Eli Lilly Beefs Up Compliance, Adds Four New Positions

Pharmaceutical giant Eli Lilly & Co. has agreed to create four new senior-level ethics and compliance positions as part of a deal to settle various shareholder lawsuits stemming from the illegal marketing and promotion of a handful of its drugs.

The proposed settlement, which still must be approved by a federal judge, addresses off-label promotion of Lilly’s antipsychotic drug Zyprexa. The Food and Drug Administration approved Zyprexa in the 1990s to treat schizophrenia and bipolar disorder, but last year Eli Lilly pleaded guilty to charges that it marketed the drug for several years for various unapproved uses, including sleep disorders, aggression, dementia and depression.

As part of that settlement, Lilly paid a $1.4 billion fine, including a $515 million criminal fine, the largest ever imposed on a U.S. corporation. The company also paid $800 million in civil settlements to state and federal regulators. That, in turn, led to a spate of shareholder lawsuits complaining that Lilly breached its fiduciary duty by allowing the illegal marketing to occur—which brought about today’s pending settlement and its four new compliance jobs.

The four new positions (and the duties as described by Lilly) are:

A vice president for global compliance strategy and risk management, to assist in the development of global compliance strategy, working with senior leaders across Lilly to promote highly ethical and compliant behaviors, and addressing emerging regulatory and enforcement trends and enterprise-level risks.

A vice president of global ethics and compliance, business liaison, to oversee the compliance function within the company and its various U.S.-based and international affiliates. This person also will be responsible for developing and implementing policies, procedures, and practices designed to promote compliance in those affiliates with applicable law or requirements regarding applicable healthcare programs.

A senior director of enterprise risk management, who reports to the vice president of global compliance strategy and ERM, and shall assist the chief ethics and compliance officer in administration of enterprise risk management at the company.

A project manager to assist in the implementation and monitoring of policies, procedures, and practices designed to promote compliance with the company’s obligations.

“Lilly believes that the changes it is instituting … will strengthen its long-established compliance program and ensure that it remains an industry leader.”

—Mark Taylor,

Director of Corporate Communications,

Eli Lilly

Mark Taylor, director of corporate communications for Lilly, said all four jobs outlined in the proposed settlement have been filled, but when pressed for further detail, he said the company is “not at liberty to disclose employees’ personal information.” All four of the new executives report to Anne Nobles, Lilly’s chief ethics and compliance officer. The company did not make Nobles available for comment.

Taylor also stressed that the settlement was only intended to let Lilly extricate itself from litigation, and the company “denies and continues to deny each and every one of the claims and contentions.”

“As the settlement agreement explains, the defendants entered into the settlement to eliminate the burden, expense, and risk of litigation,” he said. “Lilly believes, however, that the changes it is instituting, including the introduction of new senior-level positions, will strengthen its long-established compliance program and ensure that it remains an industry leader in areas of corporate compliance and enterprise risk management.

Several phone calls to plaintiffs’ attorneys in the case were not returned. Lead plaintiffs’ counsels in the case are Karen Morris of law firm Morris and Morris in Wilmington, Del., and Richard Greenfield of Greenfield & Goodman in New York.

ELI SETTLES

Below is a statement from Eli Lilly announcing a previous settlement with the Justice Department:

Eli Lilly & Co. today announced that it has reached resolution with the United States Attorney for the Eastern District of Pennsylvania (EDPA) and the Office of Consumer Litigation of the Department of Justice regarding the previously-reported government investigation into the company’s past U.S. marketing and promotional practices for the antipsychotic medication Zyprexa(R) (olanzapine).

Lilly has been cooperating with the government in its investigation since it began in 2004. As part of the resolution, Lilly has agreed to plead guilty to one misdemeanor violation of the Food, Drug, and Cosmetic Act. The company will also enter into a settlement agreement resolving the federal government’s civil investigation. Even though the company disagrees with and does not admit to the civil allegations, the company has agreed to settle the dispute over these allegations. In addition, the company has agreed to settle civil investigations brought by the State Medicaid Fraud Control Units of the states that have coordinated with the EDPA in its investigation.

“We deeply regret the past actions covered by the misdemeanor plea,” said John C. Lechleiter, Ph.D., chairman, president and chief executive officer of Lilly. “At Lilly we take seriously our responsibilities to abide by all the laws governing our business practices, and we realize that we have a tremendous responsibility to the patients and healthcare professionals we serve. Every day and with every interaction we strive to operate in a responsible and compliant manner. Doing the right thing is non-negotiable at Lilly, and I remain personally committed to all of us at Lilly maintaining the highest standards of conduct.”

Continued Lechleiter, “The company’s comprehensive compliance program is an embedded part of our company’s culture. These are not just words to us—we continue to implement a range of programs and policies to help ensure that we operate in a manner consistent with all applicable laws and regulations. These programs apply to all parts of our business, and all of our employees are aware of the imperative for them to be models of compliance and of ethical behavior.”

The misdemeanor plea is for the off-label promotion of Zyprexa between September of 1999 and March of 2001. Specifically, the plea states that Lilly promoted Zyprexa in elderly populations as treatment for dementia, including Alzheimer’s dementia, although Zyprexa is not approved for such uses. As part of this agreement regarding the criminal investigation, Lilly has agreed to pay $615 million.

Under terms for the resolution of the civil investigations, Lilly has agreed to make payments totaling nearly $800 million. Approximately $438 million will be paid to the federal government and approximately $362 million will be made available for payment to settling states. As previously reported, Lilly took a charge of $1.415 billion, or $1.29 per share, in the third quarter of 2008 in connection with this investigation. The 2008 charge will be sufficient to cover the payments announced today. The company is now finalizing the tax treatment of these payments, and will communicate this impact when the company announces fourth quarter 2008 financial results on January 29, 2009.

Lilly has a comprehensive compliance program that is designed to ensure that the company’s global business practices fully comply with all laws and regulations. Lilly’s compliance program, which the company is committed to continually improving and enhancing, includes each of the elements of compliance guidelines issued by the Department of Health and Human Services, Office of Inspector General, for the pharmaceutical industry. The company has a vice president and chief compliance officer, who reports directly to Lilly’s chief executive officer; a corporate compliance committee; a code of conduct; policies and procedures specific to promotion and marketing; extensive training; auditing, monitoring and reporting programs, including a compliance hotline; and processes for disciplinary and corrective action.

Also, as part of the settlement, Lilly has entered into a corporate integrity agreement with the Office of Inspector General (OIG) of the U.S. Department of Health and Human Services (HHS). This agreement will require Lilly to maintain its compliance program and to undertake a set of defined corporate integrity obligations for five years. The terms of the corporate integrity agreement are largely consistent with the company’s existing compliance program. They also provide for an independent third-party review organization to assess and report on the company’s systems, processes, policies, procedures and practices. This agreement reflects Lilly’s commitment to continually build on a foundation of compliance, accuracy and transparency.

The settlement is subject to approval by the federal court in Philadelphia; the company anticipates a hearing on the settlement will occur within the next few weeks.

Source

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align="left">Eli Lilly Press Release on Settlement (Jan. 15, 2009).

The settlement also calls on Lilly to hire an outside compliance expert for compliance-related leadership training and to include adherence to Lilly’s conduct code as an element in performance evaluations.

Aside from broad reforms to its ethics and compliance function, Lilly agreed to some specific product-safety reforms as well. It will formally adopt “product safety and medical risk management” as one of its core objectives, and adopt policies and procedures “to support scientific excellence in the development and communication of product safety,” the company said in a March 3 filing with the Securities and Exchange Commission. In addition, every Lilly product on the market and every drug entering large-scale development will have a product-safety physician responsible for safety issues throughout that product’s lifecycle.

Lilly also said it has adopted a “Clinical Plan Document” that defines and documents the medical research activities and regulatory strategies for each Lilly product. The Clinical Plan also tracks all “important identified medical, regulatory, and safety issues to resolution throughout the lifecycle of each product,” according to the SEC filing.

Lilly’s CEO will meet at least annually with senior management “to emphasize the importance of compliance and to emphasize their roles and accountability for both compliance and ethics at Lilly,” the company said. In addition, the chief ethics and compliance officer is charged with advising the CEO on a quarterly basis of all compliance-related performance issues and disciplinary actions, specifically as they apply to senior management.

Merck Settlement

The Lilly settlement is the second time in recent history that a drug maker agreed to create a new executive role to appease shareholders. Last December, Merck appointed Michael Rosenblatt, dean of Tufts University School of Medicine, as executive vice president and chief medical officer.

Similar to Lilly, Merck also agreed to create two new committees. A new product-safety committee would draft and implement procedures to monitor the safety of any Merck drug; another committee is charged with promptly identifying and addressing risks that could affect the company, its products, or customers.

The establishment of the chief medical officer position and the new committees followed on the heels of a settlement to end shareholders litigation over Merck’s painkiller Vioxx. Merck took Vioxx off the market in 2004 after a study showed it doubled the risk of heart attacks and strokes.

The Eli Lilly settlement must still be approved by a federal judge, which would eliminate the two of the seven pending shareholder cases. A final hearing on the settlement is scheduled for April 29.