On September 8, 2005, I wrote that I was “very interested in Eli Lilly and their schizophrenia drug Zyprexa because there have been nearly 300 reported diabetes cases in Zyprexa patients”. I found a number of reports detailing how Zyprexa patients contracted diabetes and was shocked that the company was still selling the drug.

Today, The New York Times reports that Eli Lilly agreed to pay another $500 million to settle 18,000 more lawsuits related to patients that took Zyprexa and developed diabetes or other diseases. In total, the company has paid out more than $1.2 billion to more than 28,000 patients who were injured by the drug, and more than 1,000 lawsuits are still pending.

Zyprexa sales make up a large part of Eli Lilly’s revenue stream. If the company were forced to stop selling the drug, it could have a devastating effect on the company’s earnings. I can understand why the CEO would try to settle every case they could rather than let them go to court and risk an injunction that stops future sales of the drug as it is a cash cow for them. But considering how many people are taking Zyprexa and getting diabetes, I do not think that brushing this issue under the rug is the right thing to do.

It seems pretty clear that there is a problem here. Tens of thousands of people can’t be totally wrong when it comes to this Zyprexa-Diabetes connection. I am disappointed that the company hasn’t stepped up and done the right thing by shelving the drug. Until a judge takes action, I don’t think much is going to change.

Aside from shorting the company or buying long-term puts, I would stay away from Eli Lilly’s stock.