There is such a thing as too much of a good thing.
Eli Lilly (NYSE:LLY) said yesterday that it "resolved an investigation" by 32 states and the District of Columbia over allegations that it marketed its antipsychotic, Zyprexa, for unapproved indications. While doctors are free to prescribe drugs "off label," pharmaceutical companies aren't allowed to encourage it.
The company will have to pay $62 million to the states, but Lilly actually looks like it's getting off pretty easy. It'll take a $0.04 charge to earnings per share in the third quarter, but the settlement works out to less than $2 million per state -- though California alone will receive $5.6 million according to one report. Of course, that is much cheaper than the $15 million it had to pony up just to Alaska earlier this year on a different matter involving the same drug.
Eli Lilly joins a list of companies that have gotten in trouble with the government for hocking their drugs a little too aggressively. Cephalon (NASDAQ:CEPH) paid $425 million to settle a similar federal lawsuit over its marketing practices, while Merck (NYSE:MRK) paid $58 million for aggressively marketing Vioxx before it was pulled from the shelves.
Fortunately, Lilly can afford this settlement and previous ones. Sales of Zyprexa came in at a whopping $2.36 billion in the first six months of this year. That towers over competing drugs like Pfizer's (NYSE:PFE) Geodon's $473 million or Bristol-Myers Squibb's (NYSE:BMY) Abilify's $983 million. Even Johnson & Johnson's (NYSE:JNJ) Risperdal couldn't catch Zyprexa, although if you add in its long-lasting Risperdal Consta it comes close at almost $2.17 billion combined.
Unfortunately companies are going to get in trouble with the government from time to time. In this case, though, investors needn't be worried about Eli Lilly's snag. It's just a small bump in the road that's now behind it.
Eli Lilly, Johnson & Johnson, and Pfizer are all Income Investor recommendations. To see how dividend-paying stocks can offer both secure income and the opportunity for growth, take a free look at this newsletter with a 30-day free trial.
Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool owns shares of Pfizer, which is an Inside Value recommendation. The Fool has a disclosure policy.
