UPDATE 3-Eli Lilly to pay $1.42 bln to resolve Zyprexa probes

(Adds prosecutor quotes, sales practices details, bylines)

BOSTON/NEW YORK, Jan 15 (Reuters) - Eli Lilly and Co LLY.N said on Thursday it will pay about $1.42 billion to settle criminal and civil investigations into the marketing of its antipsychotic drug Zyprexa and has agreed to plead guilty to a federal misdemeanor.

The drug maker has agreed to pay $615 million to settle the criminal probe and about $800 million to settle the civil investigations brought by State Medicaid units.

Lilly said the misdemeanor plea was for advertising Zyprexa for ailments for which it was not approved between September 1999 and March 2001 in a practice called off-label promotion.

“Specifically, the plea states that Lilly promoted Zyprexa in elderly populations as treatment for dementia, including Alzheimer’s dementia, although Zyprexa is not approved for such uses,” the company said in a statement.

Lilly anticipated the settlement booking $1.48 billion in charges related to the probes in the third quarter of 2008.

Zyprexa is one of Lilly’s biggest selling drugs, with 2007 sales of $4.8 billion. Many physicians consider it to be the most effective in a class of drugs known as atypical antipsychotics used to treat schizophrenia, but it is also seen as one of the worst offenders in causing weight gain, which can be a precursor to diabetes.

“Eli Lilly had an army of 2,000 sales representatives engaged in nothing but off-label marketing,” Laurie Magid, the Acting U.S. Attorney in Philadelphia said in an interview on Thursday.

One Lilly sales force targeted nursing homes and assisted living facilities, even though schizophrenia rarely occurs in the elderly and studies of Zyprexa called into question its effectiveness in treating psychosis from Alzheimer’s disease, Magid said.

In their visits to homes for the elderly, Lilly sales reps touted weight gain from Zyprexa as a health-promoting benefit, instead of a worrisome side effect that could lead to diabetes, Magid said.

And another Lilly sales force courted primary care doctors with marketing materials, including profiles of fictitious patients called “Martha” and “Rose Jackson” who had behavior difficulties, Magid said.

Zyprexa is set to lose patent protection in 2011. Earlier this month, U.S. regulators delayed a final decision on whether to approve a long-acting form of the drug.

As part of the settlement, Lilly has entered into a corporate integrity agreement with the Office of Inspector General of the U.S. Department of Health and Human Services.

Under the agreement, Lilly’s drugs can be excluded from federal health programs if the company fails to comply with good-conduct assurances during the next five years.

Eli Lilly’s shares were up 10 cents to $37.57 on the New York Stock Exchange in mid-afternoon trade. (Additional reporting by Jennifer Robin Raj, editing by Maureen Bavdek, Leslie Gevirtz)