Alaska's settlement with Eli Lilly is a tax on healthcare, says critic

Chris Rizo Mar. 26, 2008, 1:13pm

Talis Colberg

ANCHORAGE - Alaska Attorney General Talis Colberg has reached a $15 million settlement with pharmaceutical giant Eli Lilly and Co., over claims that the pharmaceutical company systematically downplayed the risks associated with its schizophrenia drug Zyprexa.

In what is the first Zyprexa-related lawsuit to reach a jury trial, Alaska officials were seeking $270 million in damages under the Alaska Unfair Trade Practice Consumer Protection Act for costs that the state said it would incur from health problems that its Medicaid patients could develop from using the widely used psychiatric medication.

The case was watched closely by other states, including Pennsylvania and Connecticut, and by federal prosecutors that are considering similar actions against Eli Lilly.

In ongoing mediation ordered by Anchorage Superior Court Judge Mark Rindner, the Indianapolis-based drugmaker agreed to pay the state $15 million plus a term that will ensure that Alaska is treated as favorably as any other state that may settle with Lilly in the future over similar claims.

The settlement agreement, announced Wednesday, involves no admission of wrongdoing on Eli Lilly's part.

Attorneys for the state had claimed that Lilly failed to warn patients and the state of health problems linked to Zyprexa, including diabetes and obesity, among other side effects. The state also contended that Lilly broke federal regulations by marketing the drug for unapproved uses in children with hyperactivity disorder and elderly patients with dementia.

James Beck, an attorney and medical liability expert in the Philadelphia law office of Dechert LLP, said Wednesday that the Alaska attorney general was pursuing a matter best left to federal regulators.

Beck said, so-called "off label" use, where a drug is used for an unapproved purpose, is generally within the medical standard of care that is "designed to help people."

He said the state was trying to assess liability for drugs that were prescribed for "therapeutically appropriate," off-label use that helped patients recover from mental illness.

"This litigation made no logical sense; it was brought purely to recover as much money as they can for things even when nobody did anything wrong," said Beck, who wrote the Drug and Medical Device Product Liability Handbook.

States, he said, are pursing these types of regulatory cases in order to generate revenue simply because state lawmakers are "afraid" to raise taxes.

"This is an attempt to put in a tax without having the legislature approve it," Beck said. "If you divorce this from any sense of legal wrongdoing then you are simply taxing the healthcare system in another name."

Throughout the trial that began March 3, Lilly maintained that it had not broken the law, and said it stood behind the medication that was considered a breakthrough in the treatment of schizophrenia and bipolar disorder when it was introduced in 1996.

Robert Armitage, Lilly's senior vice president and general counsel, said in a statement Wednesday that while the drug company had a "strong defense," reaching an "amicable resolution" was in the best interest of Lilly and the state.

"A trial always involves significant time and resources, especially a two-phase trial like this one that posed additional legal hurdles," he said. "A settlement helps us get back to what we want to focus on as a company: developing important new medications through research and partnerships with doctors and patients."

Zyprexa, which is among the third-best-selling antipsychotic in the United States, had worldwide sales last year of $4.76 billion.

Patrick Burns, communications director of Taxpayers Against Fraud, a Washington, D.C. group that monitors government anti-fraud actions, said the Alaska lawsuit will likely prove to be less significant than lawsuits against Eli that are sure to follow.

"There is almost a perfect storm of litigation for everything from stockholder suits to patients who have medical fallout, to off-label marketing to state liability issues," Burns said. "It's just like a clown car of litigation; it's just going to keep unbundling."

The case is Alaska v. Eli Lilly & Co., 3AN-06-05630 CI, Alaska Superior Court in Anchorage.

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