Bloomberg News

J&J Ordered to Pay $1.1 Billion Penalty Over Risperdal

April 12, 2012

Johnson & Johnson's schizophrenia drug Risperdal. Photographer: JB Reed/Bloomberg

Johnson & Johnson's schizophrenia drug Risperdal. Photographer: JB Reed/Bloomberg

Johnson & Johnson (JNJ:US) must pay more than $1.1 billion in fines, a judge ruled after an Arkansas jury found the company’s officials misled doctors and patients about the risks of the antipsychotic drug Risperdal.

Judge Tim Fox in Little Rock, Arkansas, yesterday found J&J and its Janssen unit committed more than 238,000 violations of the state’s Medicaid fraud laws by illegally marketing Risperdal over an almost four-year period starting in 2002. Fox found each violation carried a $5,000 fine, pushing the total to more than $1.1 billion.

The penalty is the largest of the three handed down so far against New Brunswick, New Jersey-based J&J in state cases alleging the second-biggest (JNJ:US) maker of health products hid Risperdal’s risks and tricked Medicaid regulators into paying more than they should have for the medicine.

“I think this ups the ante quite a bit on the other states’ cases targeting J&J’s Risperdal marketing,” Carl Tobias, who teaches product-liability law at the University of Richmond law school, said in a telephone interview yesterday. “I think the judge was sending a message -- either settle these cases or litigate them at your peril.”

“Three losses in a row means the company needs to become more realistic about its exposure and come up with an exit strategy in the form a settlement,” Tobias had said earlier.

A state jury concluded yesterday that J&J’s Risperdal marketing violated both Medicare fraud laws and Arkansas’s deceptive trade practices statutes. Fox ordered the drugmaker to pay $11.4 million in penalties on the trade practices violations. The state had sought more than $1.25 billion in penalties in the case.

J&J Appeal

“We are disappointed with the judge’s decision on penalties,” Teresa Mueller, a spokeswoman for J&J’s Janssen unit, said in an e-mailed statement. “If our motion for a new trial is denied, we will appeal.”

The penalty amounts to 11 percent of J&J’s $9.7 billion in net income for 2011 and 1.7 percent of its $65.03 billion in revenue last year.

J&J fell 18 cents to $63.95 at 2:50 p.m. in New York Stock Exchange composite trading. The shares have fallen 2.5 percent this year. The drugmaker’s 4.95 percent bond that matures in 2033, fell almost 1 percent yesterday, after the penalties were announced, to 114 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Risperdal’s global sales peaked at $4.5 billion in 2007 and declined after the company lost patent protection. The drug generated $3.4 billion in sales in 2008, or 5.4 percent of J&J’s revenue (JNJ:US), according to company filings. Sales of the drug fell to $527 million in 2010, according to earnings reports.

Deceptive Marketing

Along with contending that J&J and Janssen defrauded the Medicaid program by failing to properly outline the antipsychotic medicine’s risks, Arkansas officials alleged J&J officials deceptively marketed the drug as safer and better than competing medicines.

The state also argued the companies marketed the drug for “unapproved uses, including various symptoms in children and the elderly” after being warned by federal authorities to halt such sales.

The U.S. has been investigating Risperdal sales practices since 2004, including allegations that the company marketed the drug for unapproved uses, J&J executives said in a U.S. Securities and Exchange Commission filing (JNJ:US) last year.

Justice Department Demand

The U.S. Justice Department is demanding that J&J pay about $1.8 billion to resolve the civil claims by federal regulators and some state attorneys general, people familiar with the settlement talks said this month.

Janssen’s Mueller said in an e-mail yesterday that J&J has reserved monies for state and federal Risperdal litigation. The drugmaker hasn’t specified how much it set aside in filings with the U.S. Securities and Exchange Commission.

J&J was sued by a total of 11 state attorneys general, who contend the drugmaker misled them about Risperdal’s safety and effectiveness to boost sales. The drugmaker has now been ordered by judges to pay more than $1.6 billion in fines and penalties over the marketing of the drug.

‘Miserable Failure’

Makers of competing antipsychotic drugs who also faced state suits over the marketing of their medications settled those claims for less than what J&J faces over Risperdal, said Steven Sheller, a Philadelphia-based lawyer representing former Risperdal users.

“They all settled cases before they got out of hand,” Sheller said. “J&J’s strategy is a miserable failure, and it’s only going to get worse.”

J&J will likely settle with states only if they can agree what the cases are worth after appellate courts rule on them, said Alexandra Lahav, a University of Connecticut School of Law professor.

“What J&J cares about what they will ultimately pay, not the momentary excitement of the verdict,” Lahav said. “That depends on the appellate court.”

Drugmakers still question the legal sufficiency of the attorneys generals’ claims that drug marketing can trigger violations of fraud or consumer-protection laws, said Tarek Ismail, a Chicago lawyer who has represented pharmaceutical companies such as Pfizer Inc. (PFE:US) in product-liability cases.

‘Legally Sufficient’

“A lot of manufacturers believe these claims are not legally sufficient because the vast majority of patients got treatment exactly as intended, without adverse effects, and without any specific proof that the physicians were influenced by any allegedly improper conduct,” Ismail said in a telephone interview.

In the Arkansas case, the state’s lawyers asked jurors to find J&J’s Risperdal marketing campaign violated the state’s deceptive-trade practices law by making false and deceptive statements about the drug in the letter to doctors.

They also argued J&J and Janssen executives made false statements about the drug’s diabetes risks and other side effects in its warning label.

The state said it also would seek fines over the misleading statements in the so-called “Dear Doctor” marketing letter the company sent to Arkansas doctors in 2003. Arkansas’s lawyers argued that J&J salespeople used information from the letter to deceive doctors in more 19,000 sales calls.

‘Big Win’

Arkansas Attorney General Dustin McDaniel yesterday called the more than $1.1 billion in penalties “a big win for Arkansas.”

“These two companies put profits before people, and they are rightfully being held responsible for their actions,” McDaniel said in an e-mailed statement.

In addition to the Medicaid fraud fines, Fox found J&J officials violated the trade-practices law more than 4,500 times as a result of the illegal Risperdal marketing and awarded $5,000 per violation. He denied the state’s bid to receive the $10,000 maximum penalty under the law.

Aaron Sadler, a spokesman for McDaniel, said it’s unclear how much of the more than $1.1 billion in penalties will go toward reimbursing the state’s Medicaid program for monies spent on Risperdal prescriptions.

“We would envision the lion’s share will go to Medicaid,” he said in an e-mailed statement.

Amy Webb, a spokeswoman for the Arkansas Department of Human Services, said in a telephone interview that the state is facing a shortfall of almost $400 million in 2014 in Medicaid expenditures.

Other States

J&J and Janssen faces suits from at least seven other states seeking reimbursement for Medicaid or other public funds paid for Risperdal prescriptions.

In June 2010, a judge threw out Pennsylvania’s suit over the Risperdal marketing campaign in the middle of a trial. An appeal of that ruling is set to be heard next month.

Four months later, jurors in Louisiana ordered the drugmaker to pay almost $258 million to state officials for making misleading claims about the drug’s safety. J&J has appealed.

In June 2011 a South Carolina judge ordered J&J to pay $327 million in penalties for deceptively marketing the medicine. The company has appealed that ruling. J&J ended the most recent trial in Texas with a $158 million settlement in January.

The case is State of Arkansas v. Ortho-McNeil-Janssen Pharmaceuticals Inc., CV07-15345, Pulaski County Circuit Court (Little Rock) Arkansas.

To contact the reporters on this story: Eric Francis in state court in Little Rock, Arkansas, at eric.francis@yahoo.com; Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net; David Voreacos in Newark, New Jersey, at dvoreacos@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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