INDIANAPOLIS - Big Pharma drugmaker Eli Lilly is set to face its first jury trial over mounting claims of illegal off-label marketing of its anti-psychotic drug Zyprexa.

The Alaska trial set to begin this week will be closely watched by the eight state attorneys-general who have also filed suit against Eli Lilly on behalf of their Medicare and Medicaid programs.

The trial commencing this week in Alaska alleges that Lilly failed to warn patients of potential Zyprexa side effects and improperly marketed the drug to Medicaid patients, causing the state to overpay the drugmaker. Other Zyprexa lawsuits against Lilly make similar allegations.

Lilly has offered Alaska a $2 million settlement over its complaint but the state wants more like $200 million, reports indicate. The company has set aside more than $1.2 billion to settle Zyprexa-based legal claims but even that may be insufficient.

Eli Lilly has already paid out more than $1 billion to settle lawsuits against Zyprexa since its introduction in 1996. The drug achieved sales in 2007 of $4.8 billion, one quarter of Lilly's total annual revenue, one source noted.