Complaints accuse Lilly of illegally marketing Zyprexa

December 11, 2006

Eli Lilly and Co. is facing another round of litigation over its star seller, Zyprexa, as insurers and third-party payers ask to be reimbursed for covering the antipsychotic drug.

Six potential class-action lawsuits accuse the Indianapolis drugmaker of illegally marketing Zyprexa for uses the U.S. Food and Drug Administration had not approved. The complaints also say Lilly didn't adequately warn of problems with weight gain and diabetes that have been tied to the drug.

Primarily a treatment for schizophrenia and bipolar disorder, Zyprexa also has been pitched as a solution for senior citizens with dementia and depressed "soccer moms," according to the most recent complaint, which was filed Nov. 21 in U.S. District Court in New York.

"It was not the product it was made out to be," said Eric Young, a Pennsylvania-based plaintiff's attorney. "In most cases, it never should have been prescribed at all."

All told, five complaints involving third-party payers like union benefits funds have been filed in federal court and one in Indiana state court. Some of these complaints also seek to certify a class of consumers who want to recoup out-of-pocket expenses for the drug, said Douglas Plymale, another plaintiff's attorney.

Lilly, which already has spent $700 million to settle personal-injury litigation, mostly involving Zyprexa patients, stands by the drug and denies the latest accusations.

"We firmly believe that these allegations are without merit," spokeswoman Tarra Ryker said. "We are committed ... to follow the highest ethical standards and to promote our medications only for approved uses."

Plymale, who is based in New Orleans, thinks the new cases could prompt a payout that surpasses Lilly's deal with patients.

"It could be in the b's, billions," Plymale said.

However, Wall Street has lost little sleep so far. Analysts who follow Lilly say any payout--if there is one--should have little impact on company earnings.

"I think Lilly can manage this issue, that's the bottom line," said Herman Saftlas, an analyst with New York-based Standard and Poor's.

The company reported an $874 million third-quarter profit and has registered $2.5 billion in earnings so far this year.

Zyprexa has helped. The drug pulls in $4 billion annually for Lilly, a total that easily surpasses the $2.7 billion peak sales figure for Prozac, a former best-seller. Through the first nine months of 2006, Zyprexa sales amounted to $3.2 billion--$2 billion more than Lilly's next-most-popular product, the cancer drug Gemzar, which brought in $1 billion.

Lilly officials say Zyprexa has helped more than 20 million people worldwide since it debuted in 1996.

But it also has attracted litigation. In September, a federal judge in New York approved the $700 million personalinjury settlement, which resolved 10,500 product-liability claims tied to Zyprexa.

Those claims also alleged improper marketing and a failure to adequately warn patients about problems tied to Zyprexa.

About 1,500 patient lawsuits are still pending. The third-party payers began filing lawsuits last year. Lilly faces six separate suits making the same basic allegations, according to Ryker. None has received class-action status yet.

The most recent, a 187-page complaint, is filled with redacted passages of confidential company information and loaded with strong accusations.

It alleges that Lilly engaged in "widespread fraudulent statements and conduct, and pervasive false and misleading marketing, advertising and promotion of Zyprexa."

It says Lilly deceived doctors and patients about the effectiveness of Zyprexa compared to other drugs in its class and alleges that the company advocated non-approved uses for it.

"From the outset, Lilly recognized the need to promote off-label uses as the key to blockbuster success for Zyprexa and included off-label uses in its long-term planning for the drug," the complaint states.

Doctors can prescribe drugs as they see fit, but pharmaceutical companies are prohibited from marketing them for unapproved uses.

The complaint also charges that Lilly paid public officials to create misleading guidelines for antipsychotic usage and trained its sales force to outline or even write articles for doctors.

As a result, third-party payers believe they paid a lot more for Zyprexa than they should have, said Young, the plaintiff's attorney. He added that these lawsuits are part of the increased scrutiny that has befallen the pharmaceutical industry in recent years.

"There is clearly a focus on a lot of practices that have caused, in our view, the cost of prescription drugs to increase," he said.

Lilly's Ryker said "a substantial body of evidence supports the safety and efficacy profile of Zyprexa."

She also said the company makes certain that all marketing and promotional practices comply with the law. When asked whether Lilly trains its sales staff to promote off-label uses, her answer was succinct: "Absolutely not."

"They are very well-trained when it comes to what is on-label versus what is off-label," she said.

Lilly, which also faced criticism from some National Institutes of Health scientists earlier this fall over marketing for the sepsis treatment Xigris, is not alone when it comes to product litigation.

Several other drug companies have faced lawsuits in recent years, and some have been hit with huge judgments. New Jersey-based Wyeth, for instance, has spent $21 billion on legal matters involving diet drugs like the one commonly known as "fenphen."

Merck and Co. Inc., also based in New Jersey, has faced a hail of litigation since it pulled the arthritis drug Vioxx off the market over concerns about its link to heart risks.

Drugs pulled from the market generate the biggest risk and largest payouts for a pharmaceutical company, said Arthur Wong, another Standard and Poor's analyst. That hasn't happened with Zyprexa.

At worst, these cases involving Lilly and third-party payers might settle for "hundreds of millions of dollars," predicts Shaojing Tong, an analyst for New York-based Mehta Partners. That would lead to a relatively small financial hit for Lilly.

"That's still a fraction of Zyprexa's total sales, and that will be a one-time charge," he said.

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