LITTLE ROCK, Ark. — Johnson & Johnson 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 on Wednesday 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, N.J.-based J&J in state cases alleging the second-biggest 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 Richmond law school, said Wednesday. “I think the judge was sending a message: Either settle these cases or litigate them at your peril.”
A state jury concluded Wednesday 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.
“We are disappointed with the judge’s decision on penalties,” Teresa Mueller, a spokeswoman for J&J’s Janssen unit, said. “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. The drugmaker fell 7 cents to $64.13 in New York Stock Exchange composite trading. The shares have fallen 2.2 percent this year.
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, according to company filings. Sales of the drug fell to $527 million in 2010, according to earnings reports.
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 United States 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 Securities and Exchange Commission filing last year.
The 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 Wednesday 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 SEC.
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.
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. in product-liability cases.
“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.
Arkansas Attorney General Dustin McDaniel on Wednesday called the more than $1.1 billion in penalties “a big win for Arkansas,” noting, “These two companies put profits before people, and they are rightfully being held responsible for their actions.”
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.
Amy Webb, a spokeswoman for the Arkansas Department of Human Services, said the state faces a shortfall of almost $400 million in 2014 in Medicaid expenditures.
J&J and Janssen faces suits from at least seven other states seeking reimbursement for Medicaid or other public funds paid for Risperdal prescriptions.
— With assistance from Margaret Cronin Fisk in Detroit, Alex Nussbaum in New York, and Michael Bathon in Wilmington, Del.