Healthy Skepticism Library item: 9130

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Publication type: news

Lee D.
Lilly faces Zyprexa suit from investors
Indianapolis Star 2007 Apr 4
http://www.indystar.com/apps/pbcs.dll/article?AID=/20070404/BUSINESS/704040437/1003/BUSINESS

Full text:

Denials over drug’s diabetes link, negative publicity led to loss of $65 billion in value, 2 shareholders say

First it was patients suing Eli Lilly and Co. claiming that its blockbuster drug Zyprexa can trigger diabetes in some people.

Then states sued over what they say are increased Medicaid costs to care for some patients who took the drug.

Now shareholders are suing, too.

A lawsuit filed on behalf of two investors claims that Lilly failed to disclose the Zyprexa-diabetes link and marketed the drug for unapproved purposes, directly leading to more than $30 billion in lost market value.

The lawyers hope to receive class-action status on behalf of any investor who bought Lilly shares from March 28, 2002, to Dec. 22, 2006.

It’s the latest wrinkle in Lilly’s complex and costly legal battle over the antipsychotic drug, its best-seller.

In separate settlements in 2005 and this year, Lilly already has paid more than $1.1 billion to settle more than 26,000 claims that the company hid risks of weight gain or diabetes from using Zyprexa. About 1,200 individual claims remain unsettled.

The shareholder suit, filed last week in U.S. District Court in New York, accuses Lilly of making “false and misleading statements” about Zyprexa that helped to artificially inflate the stock.

The suit also contends a series of articles published late last year in The New York Times demonstrated that Lilly knew of the health risks despite its denials and that the company also illegally marketed Zyprexa for off-label uses.

Lilly said the shareholder suit is without merit.

“We are disappointed that a suit such as this has been filed based upon (New York Times) news stories resulting from a set of leaked documents that were hand-picked by our adversaries to paint an inaccurate, incomplete, and misleading picture of Lilly,” said company spokesman Phil Belt in an e-mailed statement.

“Lilly has been forthcoming with relevant data regarding Zyprexa and its safety and efficacy, and this data has been made available to regulators, physicians, patients and shareholders.”
Les Funtleyder, who follows Lilly for Miller Tabak and Co. in New York, said shareholder suits are common after a company’s stock declines.

“It’s like the American way: You lose money, you sue,” he said. “It doesn’t diminish Lilly’s potential culpability, but it’s not on my radar screen.”

The suit lists two individual investors as plaintiffs: Robert A. Smith, who lost almost $9,900 on 500 Lilly shares bought in 2003 and 2004 and then sold in 2005, and Scott J. Sebastian, who bought about $3,760 in Lilly stock in 2005 and 2006.

The suit contends that as public agencies raised warnings about the safety of Zyprexa, Lilly’s stock price dropped 35 percent in value from $76.95 on May 7, 2004, to $50.34 on Oct. 25, 2004 — a fall that erased $30 billion in total stock value.

After The New York Times articles were published late last year, the total value of the companies’ stock dropped another $3.5 billion, the suit contends.

Shares of Lilly gained 36 cents in regular trading Tuesday to close at $54.75.

The two firms filing the lawsuit — Schiffrin Barroway Topaz & Kessler of Pennsylvania and Grant & Eisenhofer of Delaware — are seeking Lilly investors to join the suit. Lawyers from the two firms declined comment Tuesday.

Legal experts say that attorneys in such class-action suits typically charge their clients 10 percent to 40 percent of any damages awarded.

Shareholders suing companies, though, face a high burden of proof, said Donna Nagy, a professor of business law at Indiana University- Bloomington.

Whatever the outcome, such litigation takes its toll, said David Hilgers, chairman of the health law section at Texas law firm Brown McCarroll. He compared a company having to fend off so many suits as a game of whack-a-mole.

“They have people who do nothing but deal with this now,” he said. “You’re going to have lots of costs.”