Drugmaker Lilly Wins Reversal of Overpricing Case Brought by Insurers

September 13, 2010

A federal appeals court decertified a class of unions and insurers that accused Eli Lilly and Co. of overpricing its Zyprexa anti-psychotic drug after misrepresenting its efficacy and side effects.

The U.S. Second Circuit Court of Appeals Friday also said a lower court judge had erred in denying Lilly’s motion for summary judgment on the overpricing claims.

Expert witnesses for the plaintiffs had estimated that damages could reach several billion dollars. The court returned the case to U.S. District Judge Jack Weinstein, who oversees Zyprexa litigation in the federal court in Brooklyn, New York.

Zyprexa is used to treat schizophrenia and symptoms of bipolar disorder, and is Lilly’s biggest drug by revenue.

Sales totaled $4.92 billion in 2009, or 23 percent of the Indianapolis-based company’s total, but prescriptions began falling after the use of Zyprexa was linked to diabetes, hyperglycemia and weight gain. The drug should face generic competition next year when Lilly loses patent protection.

The unions and insurers, which underwrite drug purchases, alleged that Lilly’s misrepresentations caused them to overpay for Zyprexa, or pay for prescriptions that otherwise would not have been issued.

Weinstein had in 2007 rejected Lilly’s motion to dismiss the case, citing the drugmaker’s ability to “distort[] the general body of knowledge” about Zyprexa.

A year later he certified the class of unions and insurers to pursue claims that Lilly’s pricing violated the federal Racketeer Influenced and Corrupt Organizations Act, or RICO.

Class-action status can make it more efficient and less costly to pursue litigation.

But writing for the three-judge appeals panel, Circuit Judge Gerard Lynch said the RICO class could not stand because the relationship between the plaintiffs and Lilly was too attenuated.

“Crucially, the (plaintiffs) do not allege that they relied on Lilly’s misrepresentations — the misrepresentations at issue were directed through mailings and otherwise at doctors,” he added.

The Second Circuit sent the case back to Weinstein for further proceedings.

“We are very pleased with today’s ruling from the Court of Appeals,” Lilly’s general counsel, Robert Armitage, said in a statement. “We were confident that the suit filed by third-party payors was without merit and believed that the earlier decision would be overturned.”

A lawyer for the plaintiffs did not immediately return a call seeking comment.

The case is In re: Zyprexa Products Liability Litigation, U.S. Second Circuit Court of Appeals, No. 09-0222.

(Reporting by Jonathan Stempel, additional reporting by Lewis Krauskopf; Editing by Lisa Von Ahn, Matthew Lewis and Carol Bishopric)

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