J&J to Pay $158M to Settle Texas Drug Case

Johnson & Johnson (JNJ) agreed to pay $158 million to settle Texas officials’ claims that the drugmaker fraudulently marketed its Risperdal anti-psychotic drug, ending a trial over the allegations.

J&J’s settlement will resolve claims it defrauded the state’s Medicaid program by promoting Risperdal for uses not approved by U.S. regulators, including for children with psychiatric disorders, the company said today. The state also claimed the New Brunswick, New Jersey-based drugmaker downplayed the health risk of Risperdal. The settlement was about one- quarter of the $579 million the state was seeking.

“Under the terms of the settlement, Janssen will pay $158 million in full resolution of all claims in Texas,” Teresa Mueller, a company spokeswoman, said in an e-mail. “This settlement represents a resolution to claims brought by the state in 2004 for alleged Medicaid overpayment during the years 1994-2008, and will circumvent potentially lengthy and costly appellate activities.”

The Texas settlement is the first time J&J and Janssen have agreed to resolve a state’s claims over Risperdal, Mueller said.

J&J, the world’s largest health-care products company, and its Janssen unit agreed to the accord in the middle of a four- week trial of the state’s lawsuit.

Photographer: Chris Gallagher/Photo Researchers/Getty Images

Risperdal, also known as Risperidone, Ridal, Rispen is an antipsychotic medication. Close

Risperdal, also known as Risperidone, Ridal, Rispen is an antipsychotic medication.

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Photographer: Chris Gallagher/Photo Researchers/Getty Images

Risperdal, also known as Risperidone, Ridal, Rispen is an antipsychotic medication.

‘Strong Message’

“Today’s agreement sends a strong message that the state will pursue those who defraud Texas taxpayers,” Greg Abbott, Texas attorney general, said in a statement. “Johnson & Johnson’s scheme to profit from the Medicaid program by overstating the safety and effectiveness of an expensive drug and improperly influencing officials ended up costing taxpayers millions of dollars.”

Texas joined a lawsuit filed in 2004 by a whistle-blower, Allen Jones, an ex-investigator for the Pennsylvania Office of Inspector General. Jones said he was fired after probing company payments to a top pharmacist in Pennsylvania’s government who hid the money.

“We’re not disappointed at all” by the size of the settlement, Tom Melsheimer, Jones’s lawyer said in an interview today. The settlement is “the largest in a Texas Medicaid fraud case brought by the state,” he said.

‘Tell the Story’

Settling during trial provided a benefit to the public, he said. “We got to tell the story of Risperdal that we never could have been able to tell if we settled before trial,” Melsheimer said.

The settlement will be split between the state, the federal government, Jones and his attorneys, Mueller said.

“I’ve no idea what the distribution of the settlement will be,” Jones said in an interview today. He said his first reaction to the settlement was, “Damn, I wanted another two days of testimony.”

The trial showed that Janssen “subverted science and induced others to betray the people they were supposed to take care of,” Jones said. “To me, that’s reprehensible.”

Jurors began hearing evidence on Jan. 10 about Janssen’s efforts to promote Risperdal, which the Food and Drug Administration approved in 1993 for uses including schizophrenia. J&J made $34 billion on Risperdal sales after its introduction, Melsheimer told jurors in his opening statement.

State Medicaid Program

Lawyers for Texas and Jones sought to prove that J&J defrauded the state Medicaid program by promoting Risperdal for other uses, including children with psychiatric disorders.

Janssen’s marketing to children continued until the FDA’s first approval for pediatric uses in 2006, testified attorney Arnold Friede, an expert witness for the state. Friede explained company documents and FDA letters and said Janssen repeatedly disregarded agency admonitions to not market Risperdal beyond its approved use.

He said Janssen didn’t follow the drug’s label, which said: “Safety and effectiveness in children have not been established.”

He reviewed an FDA letter that denied a 1996 application by Janssen to allow use in children. The Janssen application never said “for what child or adolescent psychiatric disorders Risperdal would be intended,” the FDA said.

“Your rationale for proposing this supplement appears to be simply that, since Risperdal is being used in pediatric patients, this use should be acknowledged in some way in labeling,” according to the FDA letter in September 1997.

‘Flood Clinics’

Janssen pushed salespeople in Texas to “flood clinics with Risperdal stuff” in a 2004 campaign to boost prescriptions for children and adolescents, according to a company memo. The goal was to position Risperdal to compete with rival anti-psychotic drugs, such as AstraZeneca Plc (AZN)’s Seroquel and Eli Lilly & Co.’s Zyprexa, a former Janssen sales manager, Shane Scott, testified.

Bruce Perry, a psychiatrist at Northwestern University Medical School who works with traumatized children, told jurors that young people “are more vulnerable” to the side effects of anti-psychotic drugs.

Those conditions include weight gain, drowsiness and sometimes-severe withdrawal symptoms, said Perry, a former head of psychiatry at the Texas Children’s Hospital in Houston. He testified as an expert for the state.

Another expert for the state, Joseph Glenmullen, said J&J hid three studies showing some patients using Risperdal developed diabetes. As early as 1999, Janssen had researchers’ findings that about half the patients taking Risperdal in a study comparing its risks to those of Zyprexa developed diabetes after a year on the medication, said Glenmullen, a psychiatrist and Harvard Medical School instructor.

‘Serious Weight Gain’

That study concluded Risperdal caused “medically serious weight gain” that led patients to develop diabetes, Glenmullen said. At the same time, Janssen salespeople told doctors that researchers concluded the drug didn’t cause the disease, he said.

Jurors also heard evidence that J&J played a central role in the development of Texas guidelines advising doctors that a newer class of drugs like Risperdal were a “first choice or option” for schizophrenia.

Development of the guidelines, known as Texas Medication Algorithm Project, or TMAP, was funded in part by the Robert Wood Johnson Foundation, which donated $2.8 million to TMAP, and J&J and Janssen gave $375,465, said Margaret Hunt, an investigator in the state Civil Medicaid Fraud division.

TMAP Promotion

Janssen paid $942,659 to three doctors and their company, which helped develop and promote TMAP, another witness said. Another doctor who played a key role in TMAP was Steven Shon, who was medical director of the Texas Department of Mental Health and Mental Retardation. Janssen paid Shon for several years to tout the TMAP guidelines to other states, he testified.

The Texas settlement comes less than a month after J&J officials agreed to pay more than $1 billion to the U.S. and a number of states to end a civil investigation into Risperdal marketing practices, people familiar with the matter told Bloomberg News Jan. 6.

The U.S. government has been investigating Risperdal sales practices since 2004, including allegations the company engaged in so-called off-label marketing of the medication, J&J has said in U.S. Securities and Exchange Commission filings. The company said it has been negotiating with the U.S. to resolve the investigation.

Louisiana, South Carolina

Officials in Louisiana and South Carolina sued J&J partly over marketing letters the company sent to doctors in those states touting Risperdal as superior to rival drugs. Those states’ attorneys general alleged the company falsely claimed Risperdal didn’t cause diabetes to charge a premium for the drug.

In June, a South Carolina judge ordered J&J to pay $327 million after a jury found the drugmaker liable for damages over its Risperdal marketing. The drugmaker vowed to appeal that award.

The company also lost a Risperdal case in Louisiana in October 2010, where on top of a $257.7 million jury award, a judge ordered the company to pay $73.3 million in attorneys’ fees and costs.

A Pennsylvania judge threw out the state’s case against J&J and Janssen in June 2010.

J&J and Janssen also have been sued over their Risperdal marketing by Alaska, Arkansas, Louisiana, Montana, New Mexico, Pennsylvania and Utah. The Arkansas case is set for trial in March.

The Texas case is Texas v. Janssen LP, D-1GV-04-001288, District Court, Travis County, Texas (Austin).

To contact the reporters on this story: Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net; Margaret Cronin Fisk in Detroit at mcfisk@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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