Eli Lilly is close to settling criminal and civil charges related to its mismarketing of Zyprexa for $1.4 billion, the New York Times reports. The settlement will mean that Lilly will have disgorged $4.5 billion in charges, mostly for Zyprexa, since 2006. That’s about 12 percent of its revenues over the period.
The settlement will close charges that Lilly marketed the drug for unapproved uses in children and the elderly, and ignored side effects such as weight gain that resulted in diabetes.
Lilly records such legal settlements as “one-time” charges on its financial statements, and the company tells the SEC and investors that such charges are “not meaningful.” When you add up Lilly’s “not meaningful” charges from Q4 2006 through Q3 2008, the last period available, it comes to $3.1 billion. That’s about 8 percent of its total revenues over the period.
So how “not meaningful” will this next settlement be? Do the-back-of-the-envelope math: Add up all Lilly’s revenues since Q4 2006, and add up all Lilly’s “not meaningful” charges over the same period. Assume that Lilly will grow its revenues by about 3 percent in Q4 2008, which is the average growth rate per quarter for Lilly over the time period, and assume that the $1.4 billion hit will come in the same period. The result is that Lilly has frittered away about 12 percent of its revenues in “not meaningful” legal charges. Here’s the breakdown:
- Period “NM” % of Revs
- 4q06 945.2 22%
- 1q07 123 3%
- 2q07 0.00 0%
- 3q07 81.3 2%
- 4q07 98.2 2%
- 1q08 145.7 3%
- 2q08 88.9 2%
- 3q08 1,659.40 32%
- 4q08 1400 26% Estimated
- TOTAL 38,046.3 12%
(Note: these numbers factor out the acquisition of ImClone, which doubtless makes the calculation a lot more complicated.)
Last time BNET looked at the issue, we said that these expenses were the rough equivalent of not having Strattera on the books since Q3 2006. That remains true. It’s also the equivalent of not having the entire sales of Actos and Byetta combined.
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