Buyers of Zyprexa Could Bring RICO Suit Against Drug Company for Overpricing

This posting was written by Sonali Oberg, editor of CCH RICO Business Disputes Guide, and John W. Arden.

As purchasers of the antipsychotic drug Zyprexa, consumers and third-party payers had standing to bring a civil RICO lawsuit for economic damages against Eli Lily and Co. because they demonstrated a sufficient causal connection between the drug company’s alleged fraud and their own claimed economic injuries, the federal district court in Brooklyn, New York has held.

Eli Lily’s motion for summary judgment on the ground that the purchasers could not show injury, causation, and reliance was denied.

According to a class action suit brought by pension funds, labor unions, insurance companies and individuals, Eli Lily pursued a scheme to mislead the American public, during an eleven-year period, about the safety and efficacy of Zyprexa. In furtherance of this scheme, the drug company allegedly promoted the drug for non-indicated uses and marketed it to patients who would have been better served by less-expensive medications.

Injury and Causation

The purchasers’ purported injury was direct—they overpaid for Zyprexa because of the drug company’s alleged misrepresentations, the court ruled.

The drug company allegedly misled purchasers by asserting that Zyprexa was safer and more efficacious than other available drugs, which led doctors to continue to prescribe and consumers to pay for greater amounts of Zyprexa than they would have paid absent the fraud.

This conduct kept Zyprexa sales at a higher level than they otherwise would have been. In turn, elevated demand for the drug allowed Eli Lily to keep prices higher than they otherwise would have been, and purchasers paid more for Zyprexa than they otherwise would have.

Reliance

Contrary to the drug company’s contention, the purchasers could use aggregate proof—rather than individualized proof—to establish reliance, according to the court.

Statistical proof of reliance is appropriate when the RICO claim alleges a sophisticated, broad-based scheme that is designed to distort the entire body of public knowledge, rather than to individually mislead millions of people, the court stated.

In this case, Eli Lily was charged with intentionally engaging "in a broad-based plan to misrepresent to the medical and scientific communities the nature of Zyprexa's benefits and risks," the court found. That plan "was successful in distorting the general body of knowledge about Zyprexa."

Allowing the suit to proceed furnishes "backstop protection against under-regulated potentially dangerous activity by a market where caveat emptor largely rules," the court concluded.

The decision is In re: Zyprexa Products Liability Litigation, 04-MD-1596, filed July 3, 2007. It appears at CCH RICO Business Disputes Guide ¶11,317.