When Japanese health officials learned of serious health complications with Zyprexa in 2002, they forced the drugmaker to put a strong warning on its label: Do not give to patients with diabetes. Sales took an immediate dive. So did Lilly’s reputation and not just with the Japanese health ministry, the Anchorage Daily News reports from Anchorage Superior Court.

Japan made Lilly send a “Dear Doctor” letter in response to nine reported cases of serious diabetic complications, including two deaths “for which causal relationship with this product cannot be denied,” according to the letter. That was out of an estimated 137,000 patients, the paper writes, adding that, as a result, Lilly had to put new warnings on the drug label, and doctors weren’t pleased.

“Market research shows we have also lost quite a bit of credibility with prescribers and opinion leaders, basically because they felt left in the dark with what they perceived as the late sharing of safety information,” two Lilly execs wrote that year in a memo to John Lechleiter, who was Lilly’s chief operating officer and president at the time.

Meanwhile, in the US, Zyprexa’s label, which guides doctors and other prescribers, has gradually been strengthened since the drug was first approved in 1996, the paper notes. Doctors now are told to closely monitor patients with diabetes. But they are not told diabetics should never be given Zyprexa.

The state of Alaska, you may recall, sued Lilly in 2006, alleging the drugmaker failed to warn of weight gain and diabetes caused by Zyprexa, and wants Lilly to cover treatment costs of Medicaid patients who suffered serious health problems. The civil suit is being closely watched by state and federal prosecutors investigating the drugmaker, because this is the first lawsuit filed by a state against Lilly to make it to trial.

The outcome - and even the evidence - could, therefore, influence settlement talks under way with the US Attorney in Phildelphia and state attorneys general. An unfavorable verdict could also prompt other states to file lawsuits, although eight others already have done so

In court, jurors were told that a Lilly memo described what happened to sales after Japanese doctors learned of the health risks: “A 75% drop in new patients who are being put on the drug, and a continuing fairly high drop-out rate.”

That June, the head of Lilly’s Zyprexa product team and another exec went to Japan and assessed the damage. Lilly didn’t agree with the health ministry’s ruling, and said so, arguing against the warning on the drug label, Lechleiter said in his video deposition, which was played in the courtroom. That might explain why one of the execs thought the company “lost substantial ground and trust” with the government in Japan, he said.

After the trial ended for the day, a Lilly spokeswoman and an attorney told the paper that the drugmaker shared all the data from Japan with the FDA, which didn’t see it the same way as officials in Japan and didn’t require the same warnings.