Nov. 21 (Bloomberg) -- Eli Lilly & Co. lost its bid at Ontario's highest court to limit potential damages in a lawsuit filed by Canadian patients who claimed they developed diabetes after using its Zyprexa schizophrenia drug.

The Court of Appeal for Ontario in Toronto today denied Lilly's request for a hearing, according to Matthew Baer, the plaintiffs' lawyer. The decision couldn't immediately be confirmed.

The panel of three judges of the appeal court affirmed a lower-court's ruling that plaintiffs in a class-action, or group, suit may try to recover money the Indianapolis-based company made from sales rather than seek damages. The plaintiffs sought C$900 million ($705.2 million) in damages in their initial claim.

``We are pleased that the courts continue to agree with our theory of the case and we look forward to proceeding to trial as soon as possible,'' Baer said. ``It is mystifying to us that Eli Lilly has spent hundreds of millions of dollars to settle these types of cases in the United States but feels the need to continue to fight against Canadians.''

Lilly, the world's biggest maker of psychiatric medicines, is accused of failing to warn that the Zyprexa schizophrenia treatment may cause diabetes.

The company has paid about $1.2 billion to settle 31,000 claims brought by U.S. patients who said they weren't adequately warned that the medicine can cause diabetes, weight gain and pancreas inflammation.

Alaska Settlement

Lilly also agreed to pay the state of Alaska $15 million to settle a similar suit in March, before that case went to a jury.

Opting to go after a company's sales has ``the power to make defendants liable for truly enormous amounts of money,'' Judge Sidney Lederman wrote July 10, 2007, in granting Lilly permission to appeal a trial judge's ruling allowing the claim. ``The ramifications of exposure to this type of liability will extend beyond the parties to affect not just the pharmaceutical industry as a whole, but also the securities market.''

Following Lederman's ruling, a panel of Ontario's divisional court affirmed the lower-court's decision. Lilly then sought leave to appeal to Ontario's highest court. Lilly can still appeal to the Supreme Court of Canada.

Lilly officials in Canada didn't respond to voice-mail messages seeking comment after regular business hours.

Studies linking Zyprexa and similar medications, including AstraZeneca Plc's Seroquel and Risperdal, made by a Johnson & Johnson unit, to weight gain and diabetes prompted the Food and Drug Administration to require that doctors be warned of the drug's risk in 2003 and 2004.

The case is Andrea Heward vs. Eli Lilly & Co., 181/07, Ontario Superior Court of Justice, Divisional Court (Toronto).

To contact the reporter on this story: Joe Schneider in Toronto at jschneider5@bloomberg.net.

Last Updated: November 21, 2008 17:50 EST