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January 20, 2009 6:18 PM

Quietly, Pepper Hamilton Gets a Win for Eli Lilly

Posted by Zach Lowe

Eli Lilly has taken quite a beating lately, most obviously in its decision, announced last week, to plead guilty to a single criminal charge and fork over $1.4 billion in fines to settle charges that it illegally marketed the antipsychotic drug Zyprexa for off-label use

Pepper Hamilton shared lead counsel duties on that case (and several others brought against Lilly by individual states) with Sidley Austin. As we wrote last week, the settlement left the door open for other claims against Lilly--namely, hundreds of individual suits from plaintiffs who claim they suffered side effects, including diabetes and weight gain, because of Zyprexa. 

But there's another, more complicated suit before the U.S. Court of Appeals for the Second Circuit, this one involving insurance companies and other third-party providers who claim they overpaid for Zyprexa prescriptions written by doctors swayed by Lilly's false marketing of the drug. (The Food and Drug Administration has approved the drug for use only by patients suffering from schizophrenia and serious bipolar disorder.) On Friday the Second Circuit announced that it would review whether that suit is valid, and drug law experts are watching very, very closely.

The insurance companies, represented by a pile of big-time plaintiffs firms, including Seeger Weiss and Motley Rice, filed suit in 2006 under the mail fraud section of the Racketeer Influenced and Corrupt Organizations (RICO) Act. District court judge Jack Weinstein of federal court in Brooklyn ruled last year that the suit could move forward--and, perhaps more controversially, that the insurance companies could proceed as a class of plaintiffs.  

Weinstein's ruling raised two interesting legal questions, according to the gurus who run the Drug and Device Law blog. Last year the U.S. Supreme Court in Bridge v. Phoenix Bond & Indemnity interpreted the RICO Act to mean that plaintiffs didn't have to prove they relied on a defendant's allegedly fraudulent marketing when they purchased a product.

But the decision didn't resolve whether a third party with money at stake (such as an insurance provider) could sue an allegedly fraudulent marketer if its complaint is based on a different group (prescribing doctors) making decisions based on the illegal marketing. In other words, can insurance companies sue Lilly even though Lilly didn't market Zyprexa directly to them? 

Whether the insurance companies--or the doctors, for that matter--deserve class-action status is a whole other question, says Mark Herrmann, the Jones Day partner who co-authors the drug law blog. In theory, judges could rule that some doctors decided to prescribe Zyprexa because they thought it would work, not because they fell for some allegedly fraudulent marketing campaign. Eli Lilly spokeswoman Marni Lemons claimed just that in a brief interview with The Am Law Daily. (The Pepper attorneys on the case referred calls to Lemons.) 

In fact the Second Circuit has already overturned a Weinstein class certification in a somewhat similar tort case, Lemons says. That case involved plaintiffs who sued tobacco companies claiming they purchased "light" cigarettes because the companies falsely marketed them as a healthier alternative to regular cigarettes, according to this New York Times story. But the Second Circuit reversed, claiming some members of the purported class probably purchased the cigarettes for different reasons, including their taste. 

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