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Lilly's Ups and Downs

I jinxed myself.

That closing statement in my last posting about things quieting down on the beat: fuggedaboutit.

Yesterday and today, "The New York Times" ran above-the-fold, front-page stories on Lilly's marketing of Zyprexa. It's the company's top-selling drug and its biggest profit-maker -- analysts estimate the schizophrenia/bipolar disorder drug is responsible for one-third to as much as one-half of the company's bottom line.

A lawyer who's suing Lilly on behalf of mentally ill patients gave the newspaper hundreds of internal e-mails and documents that suggest the company tried to downplay Zyprexa's side effects and that it pushed use of the drug for an unapproved indication. The side effects are diabetes and weight gain --The Times reports that some patients claim to have put on more than a hundred pounds. And the off-label marketing allegation regards dementia in elderly patients.

In two press releases Lilly essentially denies the allegations, says it has never promoted off-label use and that it has never tried to hide Zyprexa's side effects. In today's statement, the company says it "vigorously objects" to the characterizations of its marketing practices in the Monday article. In fact, sales of the drug -- while still a multi-billion-dollar blockbuster -- in recent years have declined because of the known side-effect issues.

A couple of analyst reports I've read today say that sales of Zyprexa have begun to stabilize in recent months and they don't think this publicity will further damage the franchise. Lilly said at its analyst meeting less than two weeks ago that Zyprexa sales should be "stable" in 2007, but investors clearly don't agree with the stock trading down today more than two percent on heavy volume. Perhaps to try to blunt the selloff, in the final hour of trading Lilly announced it's bumping up its dividend by 6.25%. There's widespread speculation that Pfizer will soon raise its dividend as well.

Separately, Lilly this morning announced it will pony up another $200 million for Icos on the eve of the Icos shareholder vote on the deal. The companies make and sell the impotence drug, Cialis -- the longest-acting of the three pills on the market. That's equal to about $34 a share, two bucks higher than its first offer which CEO Sydney Taurel told me in a live interview at the analyst meeting was "full and fair" and that he wasn't going to raise the bid. But after a major proxy advisor said the deal was undervalued and investors should vote against it, the stock went up and Lilly had no choice but to sweeten the pot or risk getting shot down in tomorrow's vote.

Again, there could be some biotech and/or big pharma drug development data coming out before the holidays. In the meantime, we're gearing up already for our coverage of the JPMorgan Healthcare Conference in San Francisco in early January. It's the biggest investment conference of its kind -- more than 300 companies presenting and nearly 7,000 investors and money managers in attendance. They all go to try to get ideas about where to place their bets in the new year. I'll be ringing in the new year in Pasadena at the Rose Bowl to watch the Trojans beat the Wolverines.

Questions? Comments? PharmasMarket@cnbc.com