July 24 (Bloomberg) -- Eli Lilly & Co. fraudulently touted its antipsychotic drug Zyprexa for unapproved uses, including for children, and owes Mississippi for the cost of the medicine and injuries to patients, the state said in a lawsuit filed today.

Indianapolis-based Lilly hid the potential hazards of Zyprexa, which has been linked to excessive weight gain and an increased risk of diabetes, while persuading doctors to prescribe it for ``mood, thought and behavioral disturbances,'' uses for which the drug was never approved, Mississippi's attorney general said in a complaint filed today. The Food and Drug Administration approved Zyprexa for schizophrenia and bipolar disorder.

``Some of these patients are children and Zyprexa has never been approved for, nor found to be effective in the treatment of children,'' said attorney Timothy Balducci, who represents the state. ``Mississippi is expending millions of dollars on Zyprexa for patients who are not indicated for the drug and, further, who are being harmed by it.''

Mississippi joins three other states that have sued Lilly over Zyprexa on behalf of their Medicaid programs. Louisiana sued in 2004, and West Virginia and Alaska filed similar complaints in February. Lilly agreed to settle about 8,000 personal injury complaints for $700 million in 2005 and faces more than 4,000 additional claims.

Seeking Punitive Damages

Mississippi is seeking $30 million for the cost of supplying the drug to patients on Medicaid, a state-federal healthcare program for the poor, plus more than $50 million for diabetes- related costs and several hundred million dollars in civil penalties and punitive damages, Balducci said.

As many as 10 percent of the patients in the state Medicaid program who were prescribed Zyprexa developed insulin-dependent diabetes, he said.

``We haven't been served with the lawsuit yet, so we can't provide a comment,'' Lilly spokeswoman Terra Fox said.

Zyprexa provided Lilly with global sales of $4.2 billion in 2005, about 29 percent of the company's total. U.S. Zyprexa sales of $2.04 billion were down 16 percent from 2004.

In its second quarter earnings report on July 21, Lilly said Zyprexa worldwide sales for the first six months of this year were $2.12 billion, down 1 percent from $2.14 billion in the first half of 2005.

Reports about diabetes associated with the use of Zyprexa began surfacing a few years after the drug was approved. In September 2003 the FDA required Lilly and other companies selling similar anti-psychotic drugs to place warnings on labels.

Hid Risks

The Mississippi lawsuit, brought by state Attorney General Jim Hood, said that Lilly knew about the risks of Zyprexa before the FDA required label changes and concealed this from doctors. The state also claims that Lilly violated Mississippi Medicaid law by promoting non-approved use of the drug.

Payment for such prescriptions is barred under Medicaid law, Balducci said. The state said Lilly committed fraud in ``obtaining or aiding another to obtain'' Medicaid payments for the drug.

``Lilly formed a scheme to increase the sales of Zyprexa in Mississippi, and elsewhere, while avoiding the substantial expense and delay of obtaining approval for such expanded or additional uses of the drug,'' the state said in the complaint.

Lilly ``trained and instructed'' its sales representatives to expand Zyprexa's market ``by convincing primary care physicians to prescribe the drug for mood, thought and behavioral disturbances,'' according to the complaint. Lilly's sales representatives made false statements to doctors and pharmacists ``concerning the efficacy and safety of Zyprexa for non-medically accepted indications,'' the state said.

Expanded Sales

This promotion aided Lilly in expanding sales of the drug far beyond schizophrenics and those with bipolar disorder, the state said.

``Despite Zyprexa's limited approval for treatment of specific disorders, it has become the third-best-selling drug in the world,'' the state said in its complaint.

The state seeks triple damages for violation of the Mississippi Medicaid law and an injunction prohibiting promotion and sale of Zyprexa in Mississippi for non-approved uses.

Shares of Lilly, the seventh-largest U.S. drugmaker, rose $1.36 to $56.01 in New York Stock Exchange composite trading.

The Mississippi lawsuit is Hood v. Eli Lilly and Co., No. L06-280, Circuit Court, Lafayette County, Mississippi (Oxford).

To contact the reporters on this story: Margaret Cronin Fisk in Southfield, Michigan, at mcfisk@bloomberg.net and Karen Gullo in San Francisco at kgullo@bloomberg.net

Last Updated: July 24, 2006 16:24 EDT