Lilly fighting with generic drug firms over Cymbalta, Alimta, 5 other medications

Here’s a nightmare scenario. Eli Lilly and Co., in addition to watching the patents on its bestseller Zyprexa expire in 2011,
also loses patent projection early on one of its rising stars.

That threat cropped up this fall as generic drugmakers asked U.S. regulators to invalidate Lilly’s patents on Cymbalta, which
are set to run until 2013 and 2014. The antidepressant drug is Lilly’s second-best-selling product, and one of its fastest
growing.

Lilly has filed lawsuits against seven generic drug companies in federal court in Indianapolis, asking a judge to declare
its Cymbalta patent valid and to tell the generic companies to back off.

Lilly also has sued two companies since June over its cancer drug Alimta, which has been its fastest-growing drug so far this
year. And Lilly also is engaged in ongoing patent fights over five other drugs.

The threat of losing in court and facing competition from cheaper generics is nothing new. But some say generic makers are
becoming increasingly aggressive at a time when big pharma companies have no cushion to absorb such a setback.

"Cymbalta is LLY’s most important growth driver," wrote Citigroup analyst John Boris, referring to Lilly by its
ticker symbol, in a Nov. 30 note to investors. He predicted the drug will account for 18 percent of Lilly’s sales and one-third
of its profits by 2011.

Lilly launched Cymbalta in 2004. It is on pace this year to rack up $2.7 billion in sales.

If Boris’ forecast is right, Cymbalta would almost make up for the $4.8 billion in sales the antipsychotic Zyprexa produces
each year. Most of those dollars would disappear once cheaper generic copies of the drug appear in November 2011. Already,
Zyprexa’s sales have been harmed by generic competitors OK’d by courts in Canada and Germany.

Lilly also needs the money from Cymbalta, Alimta and other drugs to pay for research to launch even newer drugs. Cymbalta,
Alimta and four other drugs will lose their patent protection sometime between 2013 and 2017.

"Now, [patent litigation] is part of the pharmaceutical business model," said Les Funtleyder, a pharmaceutical analyst
at Miller Tabak & Co. "It’s just something you have to deal with."

Generic minefield

Dealing with these threats falls, ultimately, to Lilly’s general counsel, Robert Armitage. He joined the company as a patent
lawyer in 1999 in the research division. A Lilly spokesman did not respond to questions or interview requests.

Armitage isn’t alone. His counterparts at every other large pharmaceutical company always have patent fights burning somewhere
in the world.

Generic drugs were first OK’d by the 1984 Hatch-Waxman Act. It allowed generic drugmakers to ask the U.S. Food and Drug Administration
to approve a generic copy of a drug four years after it hits the market — even if the patent won’t expire for many more
years afterward.

Many companies file for that approval right after the four-year deadline passes. That’s because the first company to file,
if it wins in court, gets to sell a generic version for 180 days before competing generics can enter the market.

In the case of Cymbalta, generic companies have declared that Lilly’s patents on Cymbalta were invalid when granted in 1991,
according to Lilly’s lawsuit. Even if Lilly’s patents are valid, the companies claim, their generic versions of Cymbalta would
not infringe on Lilly’s rights.

Pharmaceutical companies selling branded drugs, like Lilly, typically sue generic drugmakers after they make a request of
the FDA. Such lawsuits, which ask a judge to declare the generic companies are infringing on the patent, automatically delay
the launch of a generic 2-1/2 years. And big pharma companies can achieve further delays through other means.

"We will continue to aggressively defend our patent rights against increasingly aggressive infringement whenever appropriate,"
lawyers for New York-based Pfizer Inc., in a November securities filing, wrote.

One other company in a similar situation as Lilly is New Jersey-based Merck & Co. Inc. The U.S. patent on its best-seller
Singulair will expire in 2012. Meanwhile, generic drug companies have started patent fights on four other Merck drugs, including
some of its fastest-growing products.

Charles Anthony Butler, a pharmaceutical analyst at Barclays Capital, agrees that generic drugmakers have been more aggressive
in the last decade, particularly since Barr Laboratories’ 2000 victory over Lilly that broke the patent on the iconic antidepressant
Prozac.

"Ten years ago, it was discussed, but I didn’t really know much about it," Butler said. "The situation with
Barr Labs and Prozac really caught a lot of people’s attention. I think that’s when the dam broke."

Patent cases are typically as complex as the science behind the drugs. Drugmakers like Lilly can patent a product in various
ways, either based on the chemistry of the drug, on the way it is used, or on the process used to make it. Generic companies
often argue that what drugmakers’ claimed as a new invention was obvious or offered no advance on science already in the public
domain.

Hard to handicap

Analysts say it’s incredibly hard to predict the outcome of patent cases, but they typically bet against the generics.

"We tend to give the benefit of the doubt to the innovator," Funtleyder said. "It’s very hard to handicap.
We’ve tried hiring lawyers and judges and they don’t know."

The most aggressive generic company is Israel-based Teva Pharmaceutical Industries Ltd., which is in the process of acquiring
Barr. Lilly is engaged with Teva in fights over Alimta, another cancer drug Gemzar and an osteoporosis drug Evista.

Teva has made a practice of launching generic copies of a drug even before it has won a court victory.

These moves, called "at-risk launches" because Teva can pay up to triple damages if it fails to break a patent,
have forced some pharma companies into early settlements. For example, Sanofi-Aventis SA decided to settle with Teva out of
court over a challenge to its allergy pills Allegra-D and Nascort. In exchange for royalty payments, Teva agreed to wait until
June 2011 before selling generic copies.

According to a count by Bloomberg News, Teva has successfully pulled off 13 at-risk launches since 2004.

Teva and Lilly could face off in this way next year over Evista. Teva already won tentative approval from the FDA to launch
a generic version of Evista, whose patents begin to expire in 2012. Evista generated sales of $1.1 billion last year.

That launch has been stayed until March 9 — the same day Lilly and Teva are scheduled to start a court trial over the
patent.

Neither company is commenting on the case. But some analysts are watching it closely.

Goldman Sachs & Co. analyst Jami Rubin cites the potential patent litigation over Evista as one of two key risk factors
facing Lilly, according to a Nov. 6 research report.

Boris, the Citigroup analyst, devoted an entire research note to Lilly’s patent risks.

"We rate Lilly High Risk, largely because of a period of considerable generic risk in 2011-13 that is mitigated in part
by a solid drug pipeline," he wrote Nov. 16.

"The company also faces a number of [other] patent challenges (Gemzar, Evista, Cymbalta), which may negatively impact
earnings depending on their outcomes."