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New Zyprexa lawsuit targets Lilly honchos: Shareholders ask directors, officers to pay company

January 28, 2008

The latest shareholder lawsuit against Eli Lilly and Co. over its drug Zyprexa gets personal.

The shareholders blame Lilly's board and top brass, both past and present, for what they call Lilly's illegal marketing of Zyprexa. In all, the lawsuit asks 18 directors and officers to pay the company for at least the $1.2 billion it has spent to settle Zyprexa lawsuits and to return all compensation they received during an unspecified period when the marketing took place.

They name not only Lilly's current chiefs Sidney Taurel and John Lechleiter, but also former CEO Randall Tobias, former President of Lilly Research Laboratories August Watanabe, former Chief Financial Officer Charles Golden and former board member Steven Beering.

"The Individual Defendants were aware of or recklessly disregarded the risk of substantial losses to the Company and its shareholders posed by illegal drug marketing and promotion practices," the lawsuit states. It was filed Jan. 17 in federal court in Indianapolis by shareholders N.A. Lambrecht of Florida and Jeffrey P. Jannett of Michigan.

Zyprexa is Lilly's bestselling drug by far, racking up $4.4 billion in worldwide sales in 2006. Zyprexa is approved to treat schizophrenia and bipolar disorder. However, stories in The New York Times in December 2006, citing an internal Lilly marketing memo, suggested Lilly sales personnel promoted Zyprexa to doctors as a treatment for dementia.

Those stories prompted Lambrecht and Jannett to send letters to Lilly in April, challenging the company to sue its own officers and directors for permitting that marketing.

So far, Lilly has declined to comply. But it has formed a committee to investigate the shareholders' claims, said Lilly spokesman Phil Belt. The committee, which includes independent members, has no conclusions yet to report, he said.

The lawsuit also claims that Lilly withheld information from regulators and the public about Zyprexa's side effects, such as weight gain and high blood sugar.

The lawsuit is derivative, meaning it's filed on Lilly's behalf. The suit claims the extreme measure is justified because the company has failed to take action on its own.

Whether Lambrecht and Jannett have a chance of success is up for debate. Derivative lawsuits are difficult to win, attorneys say, because corporate law allows wide latitude for executives and boards to make business decisions.

Patrick and Karen Morris, attorneys in Wilmington, Del., represent Lambrecht and Jannett. They did not return messages seeking comment.

Lambrecht and Jannett join more than 32,000 people who have filed a legal action against Lilly over Zyprexa. Nearly all have filed product liability claims, saying the drug caused or contributed to weight gain, diabetes or high blood sugar.

In October, Lilly added strong warnings to the labels on Zyprexa, noting that the drug tends to cause weight gain, high blood sugar and high cholesterol. The label now says that one in six patients will gain 33 pounds after two years of taking Zyprexa.

Lilly has settled all but 1,100 productliability claims. On Jan. 23, it confirmed a settlement of 950 claims with a Houston attorney. The remaining cases are set for trial in federal court in New York.

The first shareholder suit came in March, citing the New York Times stories. The suit includes six investors who are seeking class-action status. In February, a judge will consider Lilly's request to dismiss the suit. Lambrecht's and Jannett's suit also cites the Times stories.

Belt, the Lilly spokesman, said both the stories and the lawsuits based on them are "groundless."

"The stories were full of what we would call inaccurate, incomplete and misleading information, not reflective of Lilly's conduct," Belt said.

Lambrecht's and Jannett's lawsuit also hints that illegal marketing has been a pattern at Lilly. The suit notes that in 2005 Lilly pleaded guilty to violating the Food, Drug, and Cosmetic Act. It paid $36 million in fines and returned sales for promoting its osteoporosis drug Evista for unapproved uses.

The lawsuit also claims Lilly marketed its antidepressant Prozac for unapproved uses and concealed its ties to suicidal behavior.

Belt declined to comment on specific allegations in the lawsuit.
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