Lilly Pays Up. Big Deal.

It made for great headlines yesterday: "Eli Lilly (NYSE: LLY  ) fined nearly $1.5B in drug marketing case," read one. But the news was all much ado about nothing.

Or rather, much ado about something so "last year" that investors couldn't care less. The stock actually ended yesterday slightly up, after the company announced that it had settled the civil and criminal charges over its marketing of the antipsychotic Zyprexa for the treatment of diseases for which it wasn't approved. Eli Lilly had already taken a charge in the third quarter of last year to cover the settlement, so the news had already been factored into the stock price.

Like I said, much ado about nothing.

Now, don't get me wrong; such off-label marketing is illegal. Cephalon (Nasdaq: CEPH  ) and Merck (NYSE: MRK  ) have also paid fines for marketing their drugs a little too aggressively. But Eli Lilly has stopped the practice, and the show must go on.

Lawsuits are just a fact of life when investing in drug companies. Whether fending off attacks from the government, battling patent disputes from generic-drug companies like Teva Pharmaceuticals (Nasdaq: TEVA  ) and Mylan (NYSE: MYL  ) , or squabbling with rivals (like the seemingly never-ending battle between Boston Scientific (NYSE: BSX  ) and Johnson & Johnson (NYSE: JNJ  ) over drug-eluting stents), drug companies and their investors have to be prepared for the occasional settlement.

Sure, more than $1.4 billion is a pretty high price to pay for management's mistake, but drugs fetch pretty high margins, and Zyprexa alone brought in more than $3.5 billion of revenue in the first nine months of last year. I think Eli Lilly can afford to take the hit.

It's hard for investors to see these types of things coming. The best we can do is take it in stride and hope it's a one-time event.

Johnson & Johnson is a current Motley Fool Income Investor recommendation and Eli Lilly is a past pick of the service. To see how dividend-paying stocks can offer both secure income and the opportunity for growth, take a free look at this newsletter and all it has to offer for 30 days. 

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool's disclosure policy says "hey, nonny, nonny" to you.


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  • Report this Comment On January 16, 2009, at 4:48 PM, DannyHaszard wrote:

    Zyprexa Claims being Stonewalled.

    Where is the money going as many victim claimants haven't been paid yet?

    Something fishy going on here?

    Daniel Haszard www.zyprexa-victims.com

  • Report this Comment On January 17, 2009, at 12:33 PM, Earlysitter wrote:

    I don't agree with the author of the above article...that a drug company peddling drugs that causes weight gain and diabetes is no big deal. For those patients who were sickened by this drug...it is a big, big deal!

    Lilly and its competitors can stop the fines by doing the right thing and not selling harmful drugs. I do own some drug stocks, but will sell them when their ithics is clearly wrong. Profits at the cost of victims, is ill gotten gains.

    Maybe that is an old fashion concept,,, that need to come back into fashion.

  • Report this Comment On January 17, 2009, at 12:38 PM, Earlysitter wrote:

    I don't agree with the author of the above article...that a drug company peddling drugs that causes weight gain and diabetes is no big deal. For those patients who were sickened by this drug...it is a big, big deal!

    Lilly and its competitors can stop the fines by doing the right thing and not selling harmful drugs. I do own some drug stocks, but will sell them when their ethics is clearly wrong. Profits at the cost of victims, is ill gotten gains.

    Maybe that is an old fashion concept,,, that need to come back into fashion.

  • Report this Comment On January 20, 2009, at 11:09 AM, withoutlimits wrote:

    This is a minor fine for a legal drug pusher that has no ethical values. More to come as their psychiatric drug pushing will be revealed as infinitely more harmful than we have been lead to believe. Stay tuned.

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