By Philip Mattera
Founded shortly after the Civil War, when the U.S. drug industry was still filled with purveyors of snake oil, Eli Lilly became a leading producer of what were known as ethical drugs. Starting in the 1970s, its ethics came into question as the company became embroiled in a series of controversies in which it was accused of covering up dangerous side effects of some of its drugs and engaging in illegal marketing for unapproved purposes. Lilly ended up paying hundreds of millions of dollars to settle private lawsuits and more than $1 billion in criminal fines and civil settlements with the federal government and the states.
Lilly’s pain medication Darvon, introduced in the late 1950s, became the subject of controversy two decades later as the watchdog group Public Citizen labeled it dangerously addictive (and in some cases fatal) and called for its removal from the market. In 1979 the U.S. Department of Health, Education and Welfare urged doctors to avoid prescribing it. The drug was finally taken out of distribution in 2010, by which time Lilly was no longer producing it.
In 1973 Public Citizen urged the FDA to ban Lilly’s erythromycin antibiotic Ilosone because of evidence that users could develop liver toxicity. The agency denied the petition, but after Public Citizen renewed its call in 1979 the FDA asked Lilly to withdraw the product. At the request of Lilly, the FDA examined the drug again and decided to allow it to remain on the market.
Lilly was one of the companies that came under fire in the 1970s for the marketing of the synthetic estrogen DES (diethylstilbestrol) to pregnant woman to prevent miscarriages. DES was linked to vaginal cancer, not only in the direct users of the drug, but also in their daughters. In 1976 three women who said they had been given DES in the 1950s filed a class action suit against Lilly and nine other companies. Other litigation followed. Many DES cases were settled out of court, but some are still pending today.
In 1982 an FDA advisory panel called for the use of a warning label on Lilly’s arthritis drug Oraflex in the wake of reports of a dozen deaths from kidney and liver failure. Public Citizen urged a ban on the drug, and lawsuits filed by users of the medication began to mount. In 1983 the plaintiff in one of those suits was awarded $6 million.
In 1985 Lilly pleaded guilty to criminal charges that it failed to notify federal regulators about deaths and illnesses linked to Oraflex; the company was fined $25,000. The company’s former chief medical officer entered a plea of no contest to similar individual charges. A Justice Department report put the number of deaths the company had covered up at 28.
In 1989 Lilly halted distribution of all drugs produced at an Indianapolis plant and recalled 18 lots of those products because of manufacturing quality-control deficiencies found in a federal inspection. It later came out that the problems cited by the FDA included the submission of false or incomplete data to the agency by Lilly employees at the plant (Wall Street Journal, September 21, 1989).
In 1990 Lilly was faced with accusations that its antidepressant drug Prozac caused suicidal or homicidal tendencies, but the company insisted there was no clinical evidence to support the charges. Soon Lilly was hit with a series of multimillion-dollar lawsuits. Criminal lawyers also began to use what became known as the Prozac Defense—the argument that individuals accused of committing murder while they were using the drug should not be held legally responsible for their actions. The Church of Scientology launched a crusade against the drug.
In late 2004 the British Medical Journal obtained and sent to the FDA internal Lilly documents that the publication said showed that the company knew about the troubling side effects of Prozac back in the 1980s. The company took out full-page advertisements in newspapers across the country to deny those claims.
In the early 2000s, Lilly faced more than 200 lawsuits alleging that the company knew that a pharmacist in Kansas City was diluting the company’s cancer drug Gemzar but failed to notify authorities promptly. In 2003 it was reported that Lilly had paid $48 million to settle the cases.
In 2003 Lilly was the target of a series of lawsuits accusing it of failing to warn that its schizophrenia drug Zyprexa created an elevated risk of diabetes. The following year, the cases were consolidated in federal court in Brooklyn. In 2005 Lilly agreed to pay up to $690 million to settle about 8,000 individual lawsuits representing about three-quarters of the cases that had been filed. Nonetheless, Zyprexa remained on the market. In 2006 the New York Times reported that it had received internal Lilly documents indicating that the company had engaged in a decade-long effort to downplay the health risks of Zyprexa. In 2007 Lilly agreed to pay up to $500 million to settle 18,000 other Zyprexa lawsuits. In 2008 it settled for $15 million a suit brought by the state of Alaska and paid another $62 million to settle a suit brought by 33 states.
In 1999 a federal judge ordered Lilly to stop promoting its osteoporosis drug Evista with what were said to be false claims that the medication reduced the risk of breast cancer (Indianapolis Star, July 20, 1999). In 2005 the U.S. Justice Department announced that Lilly had agreed to plead guilty and pay $36 million in connection with the illegal promotion of Evista. The Indianapolis Star (December 22, 2005) pointed out that the fine represented less than two weeks’ worth of revenue generated by the drug.
In 2005 the FDA warned Lilly that its television advertisement for Strattera, a drug for attention deficit hyperactivity disorder, understated the risks associated with the medication.
In 2007 the FDA accused Lilly of issuing “misleading” information about the efficacy of its Reconcile behavior modification drug for dogs.
In 2009 the U.S. Justice Department announced that Lilly had agreed to pay $1.4 billion to resolve allegations relating to the illegal marketing of its schizophrenia drug Zyprexa. The amount included a $515 million criminal fine—which was then the largest such penalty ever in a health care case and the most ever imposed on a single corporation—as well as a $100 million asset forfeiture. The remaining $800 million covered the settlement of civil charges. The company also agreed to sign a corporate integrity agreement covering its future conduct.
Taxes and Subsidies
In 1999 state and local officials in Indiana gave Lilly economic development subsidies worth a total of $214 million in connection with the company’s planned $1 billion expansion of its operations in Indianapolis.
Lilly was among the companies that made the greatest use of the repatriation tax holiday that Congress allowed for 2005 to enable large corporations to bring home large amounts of untaxed offshore profits and pay artificially low domestic taxes. Lilly announced that it would bring home $8 billion.
In December 2012 the U.S. Securities and Exchange Commission announced that Lilly would pay a total of $29.4 million to resolve charges that some of its subsidiaries violated the Foreign Corrupt Practices Act by making improper payments to win business in Russia, Brazil, China and Poland.
In 1975 a federal court in Pennsylvania found that Lilly had violated antitrust laws in its marketing of a group of antibiotics know as cephalosporins. The case went all the way to the U.S. Supreme Court, which left the lower court ruling in place.
In 1979 Lilly agreed to license its insulin production processes to other drug producers in order to resolve U.S. Federal Trade Commission antitrust charges against the company. Before the move, Lilly controlled about 85 percent of the domestic insulin market.
In 2006 a group of black employees at Lilly’s Indiana operations filed a federal lawsuit charging the company with racial discrimination. It appears that the case was settled out of court.
In 2011 Lilly agreed to pay a fine of $337,500 to settle Environmental Protection Agency charges that a company plant in Indianapolis released dangerous chemicals into the air.
Other Information Sources
Violation Tracker summary page
Watchdog Groups and Campaigns
Key Books and Reports
A Healthy Business? World Health and the Pharmaceutical Industry by Andrew Chetley (1990).
Bad Pharma: How Drug Companies Mislead Doctors and Harm Patients by Ben Goldacre (2012).
Corporate Crime in the Pharmaceutical Industry by John Braithwaite (1984; new edition 2014).
Investing for Life: Meeting Poor People’s Needs for Access to Medicines through Responsible Business Practices (Oxfam International, 2007).
Last updated: August 27, 2014