WSJ, January 26, 2004:  Lilly Dirty Tricks With Psych Drugs

Legal briefs unsealed Friday claim that Eli Lilly & Co. used a flawed clinical study to obtain a patent protecting its top-selling drug, Zyprexa.

The legal briefs were filed by Ivax Corp. of Miami and Dr. Reddy's Laboratories of India, two generic-drug makers, as part of a high-stakes legal case in which they are aiming to have the patent voided.

The Wall Street Journal filed a motion to the court, the U.S. District Court for the Southern District of Indiana, in Indianapolis, where Lilly is based, and won access to the briefs, which were previously sealed. The trial is set to begin Monday.

Sales of Zyprexa, which is used to treat schizophrenia, totaled $4.3 billion last year, accounting for a third of Lilly's sales.

Central to the patent trial is a clinical study in 40 beagles that Lilly used to overcome an initial rejection of its patent application. Lilly eventually won the patent in 1993 largely by convincing regulators that Zyprexa was different from an earlier, already-patented compound, called 222, in its effects on cholesterol levels.

Ivax and Dr. Reddy's will argue that Lilly exaggerated the significance of the study and manipulated the results to mislead the patent examiner.

In the study, the beagles, half male and half female, were given olanzapine (the generic name for Zyprexa), molecule 222, or a placebo for six months. Lilly needed to show that olanzapine was significantly different from 222 to warrant a new patent.

In its brief, Ivax says that Lilly scientists had actually designed the study to look for toxicities, such as blood disorders called cytopenias. They thought 222 would cause them and olanzapine wouldn't. But by the end of the study, neither compound caused the blood disorder. Ivax paints a picture of Lilly scientists then scrambling, mining the study data for any differences it could take to the patent examiner.

"Lilly was desperate to find some unexpected property of olanzapine to overcome the inevitable" rejection at the patent office, Ivax writes in its brief.

A Lilly scientist noticed that some of the female dogs taking high doses of 222 seemed to have higher cholesterol at some points in the study. The scientists reanalyzed the data from those eight female dogs and found what they said was a significant difference in cholesterol levels. Lilly successfully made the case to the patent office that olanzapine was better and deserved a new patent. Lilly got a new patent in 1993, which is good until 2011.

In their briefs, the generic companies say Lilly didn't tell the patent office key facts, including that the cholesterol effect was not seen in male dogs and that the effect might not translate to humans. Lilly says it turned over all the information required. Lilly also will argue that Zyprexa deserved a new patent because it met a longtime need of schizophrenia patients, was a major improvement over other treatments and was a commercial success.

Write to Leila Abboud at leila.abboud@wsj.com¹

Updated January 26, 2004

INDIANAPOLIS (AP)--Indianapolis-based Eli Lilly & Co. (LLY) opened its defense in federal court Monday of its patent on the company's top-selling drug, Zyprexa, saying that its discovery came after years of research.

Three generic drug manufacturers are seeking to have declared invalid Lilly's patent on Zyprexa, an anti-psychotic introduced in 1996 to treat schizophrenia that has sales of about $4 billion a year.

The companies challenging the patent argue the drug's molecular structure was obvious and that a previous Lilly patent covered it. The companies also claim that Lilly misled the patent office and omitted certain test results when applying for the patent.

Lilly lawyer Charles Lipsey said the active molecule in Zyprexa wasn't an obvious discovery because many drug companies were trying to find an anti-psychotic drug that wouldn't give patients the side effects of other schizophrenia medications.

He questioned how the drug could be obvious if so many companies, including Lilly, tried numerous versions without positive results.

"Lilly was right there failing with everybody else," Lipsey said.

Lilly is hoping to avoid a legal loss similar to one four years ago when it lost a patent challenge to its former top-selling drug Prozac.

Updated January 26, 2004 2:18 p.m.

(Updates with details, background)

INDIANAPOLIS (AP)--Eli Lilly & Co. (LLY) opened its defense in federal court Monday of its patent on the company's top-selling drug, saying that its discovery came after years of difficult research.

Three generic drug manufacturers are seeking to have declared invalid Lilly's patent on Zyprexa, an anti-psychotic introduced in 1996 to treat schizophrenia that has sales of about $4 billion a year.

The companies challenging the patent argue that discovery of the drug's molecular structure was obvious and that a previous Lilly patent covered it. The companies also claim that Lilly mislead the patent office and omitted certain test results when applying for the patent.

Lilly lawyer Charles Lipsey said the active molecule in Zyprexa wasn't an obvious discovery because many drug companies were trying to find an anti-psychotic drug that would not give patients the side effects of other schizophrenia medications.

He questioned how the drug could be obvious if so many companies, including Lilly, tried numerous versions without positive results.

"Lilly was right there failing with everybody else," Lipsey said.

Indianapolis-based Lilly is hoping to avoid a legal loss similar to one four years ago when it lost a patent challenge to its former top-selling drug Prozac.

The generic drug makers - Zenith Goldline Pharmaceuticals, owned by Ivax Corp. (IVX) of Miami; Indian drug maker Dr. Reddy's Laboratories (RDY); and the U.S. arm of Israel-based Teva Pharmaceutical Industries (TEVA) - claim Lilly knew about the Zyprexa compound for years and included it in a patent that expired in 1995.

The generic companies claim that by the time Lilly was ready to market Zyprexa, time was running out on the first patent so it decided to apply for a second one, which violates patent rules.

"The patent should have never been issued," said Thomas Heneghan, and attorney for Zenith Goldline Pharmaceuticals. "Lilly did not invent anything.

Zyprexa's patent was issued in 1993, giving Lilly exclusive U.S. rights on the drug until 2011.

At issue is a molecule, called olanzapine, that is shaped like a seven-sided ring. Previous medications featured a similar ring with various atoms, like fluorine or chlorine, attached.

Lipsey, however, said discovering olanzapine - the generic name for Zyprexa - wasn't as easy as chopping off the attached atoms.

"That's not the way the chemistry works," Lipsey said, adding that "nobody in a million years" would have ever started research with a molecule lacking the additional atoms.

When Lilly lost the Prozac patent, it triggered a slide in Lilly's fortunes as less expensive generic versions of the antidepressant hit the market in late 2001 and captured most of Prozac's market share.

Zyprexa, which accounts for about a third of Lilly's revenues, accounts for greater sales than Prozac ever reached.

The bench trial U.S. District Court Judge Richard L. Young is expected to last three weeks, and an appeal of his decision is expected regardless of his ruling.

Updated January 26, 2004 5:00 p.m.

It all comes down to one dead dog.

On Monday, a federal judge in Indianapolis is scheduled to begin hearing one of the biggest pharmaceutical-patent cases in years, involving Eli Lilly & Co.'s top-selling product, Zyprexa. For Lilly, the stakes are enormous, since the $4.3 billion-a-year schizophrenia medication represents about one-third of the Indianapolis drug maker's annual sales.

Two generic drug makers, Ivax Corp. of Miami and Dr. Reddy's Laboratories Ltd. of Hyderabad, India, contend that Lilly never should have received the patent because it was based on flawed research. A major focus of their attack is a clinical study in 40 beagles of the drug's effects, especially on cholesterol, that Lilly submitted to the patent office.

Central to that study is one beagle that suffered from pneumonia -- and whether Lilly properly excluded that dog from the pivotal analysis of blood-cholesterol levels that was the basis of awarding the patent.

In an era of rising health-care costs, the stakes are also immense for the purchasers of Zyprexa, especially state and federal governments. State Medicaid programs spend enormous sums on the drug because many of the poor they cover suffer from mental illness. State mental hospitals also account for a hefty portion of Zyprexa sales. New York state alone spent $205 million on Zyprexa in the first 10 months of 2003, more than for any other drug.

Heightening interest in the suit is the fact that in 2001, Lilly lost a high-profile patent case involving its antidepressant Prozac. Prozac was Lilly's top-selling drug at the time. Despite having a promising new-drug pipeline, Lilly couldn't easily sustain another such loss anytime soon.

But the two patent cases differ in a fundamental way. In the Prozac litigation, Lilly's original patent had expired in August 2001, and Lilly had sought to use an additional patent to extend its sales exclusivity. In the Zyprexa suit, the fight is over the original patent on the chemical compound, issued in 1993 and good until 2011.

Generics companies enjoy a high success rate in patent litigation, winning nearly 75% of cases, according to a study by the Federal Trade Commission last year. But many of those cases turned on patents that didn't cover the drug molecule itself but other characteristics, such as dosage form. The odds are stacked high against the generics makers in the Zyprexa case because the patent being contested covers the drug molecule. Meanwhile, neither has yet won approval for its generic versions of Zyprexa.

For decades, older schizophrenia drugs were used to treat the devastating disease. But many patients stopped taking them because of serious side effects, such as uncontrollable jerky limb motions. Later schizophrenia drugs had more limited side effects and the first one, Novartis AG's Clozaril, was a lifesaver for patients. But it produced a rare and lethal blood disorder called agranulocytosis. Lilly, and other companies, began working on a class of chemical compounds similar to Clozaril but designed to avoid that side effect.

To that end, Lilly researchers eventually developed a class of compounds, which was patented and protected until 1995. One was called compound 222, and another was olanzapine. Lilly eventually chose to pursue olanzapine to market as Zyprexa. In 1991, the company sought to get a patent specifically on Zyprexa and did the dog study in support of the application. After initially being turned down by the patent office, Lilly won the patent in 1993 in large part by convincing a patent examiner that Zyprexa was different from compound 222 in its effects on dogs' cholesterol.

The study consisted of 40 dogs, half male and half female. Some were given the 222 molecule, others a placebo, and still others Zyprexa. Data from only seven female dogs were submitted to government officials to get the Zyprexa patent.

Lilly says the study was done correctly, and that the sick dog's data showing soaring cholesterol were properly excluded from the study's results because it was dying of pneumonia. At trial, Lilly is likely to submit additional studies and data in an attempt to prove that Zyprexa is different from compound 222.

The controversy over the dog study points out a crucial but little-known fact about the high-stakes world of pharmaceutical patents. While the Food and Drug Administration requires extensive and high-quality data for a drug approval, much less evidence is needed to get a patent. Applicants must show the patent office that the drug is useful, new and not obvious, but there are few rules on study design and controls. For example, Lilly could choose what parts of the dog study to submit, and wasn't required to show regulators all of its data.

But once the government awards a patent, it takes a lot of evidence to overturn the presumption that it is valid.

The trial is expected to last three or four weeks. Like many complicated patent cases, there is no jury. The companies present their evidence and submit closing briefs, and up to six months later U.S. District Judge Richard L. Young is expected to issue a verdict.

The case has garnered considerable attention on Wall Street, thanks largely to a report last year by UBS Warburg analyst Steven Valiquette, who described "potentially damaging admissions" by Lilly in court documents about the beagle study. He also noted a potential huge upside for Ivax stock should it win. Ivax shares have climbed 31% since October to $25.53 Thursday on the American Stock Exchange.

Richard Evans, an analyst at research firm Sanford C. Bernstein & Co., concludes that the potential magnitude of a Lilly loss could be a 40% drop in its stock, but adds that "we think the probability [of Lilly losing] is low."

Write to Leila Abboud at leila.abboud@wsj.com¹ and Thomas M. Burton at tom.burton@wsj.com²

Updated January 23, 2004

NEW YORK -- A group of prominent U.S. researchers said in a report Wednesday that a common class of antidepressants doesn't increase children's suicide risk, the New York Times reported Thursday.

The Times report said the group, drawn from members of the American College of Neuropsychopharmacology, also found that the drugs were effective in treating children's depression.

The drugs are known as selective serotonin reuptake inhibitors, or SSRIs, the Times said, and they include Pfizer Inc.'s (PFE) Zoloft, Wyeth's (WYE) Effexor, GlaxoSmithKline PLC's (GSK) Paxil and Eli Lilly & Co.'s (LLY) Prozac.

The Times report quoted the co-chairman of the reporting panel, Columbia University psychiatry professor Dr. J. John Mann, as saying, "Depression in children and adults is the major illness that underlies suicide, and we believe that the SSRI class represents the medication with the greatest efficacy against this very serious condition."

The Times report noted that British drug regulators told doctors last month not to prescribe SSRIs for children, with the exception of Prozac. The British report cited associations between antidepressants and suicidal thoughts or tendencies in children, the Times said.

The Times reported that the U.S. panel didn't have access to some information that the U.K. regulators used to come up with their opposite conclusions. The U.S. report also didn't pool figures from many studies for what's known as a "meta-analysis," though other researchers are conducting that analysis, the Times reported.

The U.S. study recommended clinicians continue to use the drugs for depressed youths, although it said clinicians should "ask depressed patients about suicide, suicidal thinking and plans for suicide," the Times reported.

The Food & Drug Administration plans hearings on the matter on Feb. 2.

Critics of the study, the Times said, noted that nine of the 10 U.S. task force members had significant financial ties to the pharmaceutical industry, but such ties are common among prominent researchers and no industry money financed the report.

-By Steven C. Higgins, Dow Jones Newswires; 1-201-938-4378; hbsglobaldesk@dowjones.com

Updated January 22, 2004 12:02 p.m.