J&J Said to Face Demand to Lift Risperdal Settlement Offer by $800 Million

Johnson & Johnson (JNJ) faces a U.S. government demand to raise its offer by $800 million from an initial proposal to settle a federal civil investigation into marketing of the antipsychotic Risperdal, according to three people familiar with the matter.

The Justice Department is demanding that J&J pay about $1.8 billion to resolve the civil claims by the U.S. and some states, the people said. The company raised its offer to settle the civil investigation to $1.3 billion by March 8, and negotiations on a final amount are continuing, one person said.

The demand came after the Justice Department and states decided that a $1 billion settlement that had been negotiated by the U.S. Attorney’s Office in Philadelphia in late December wasn’t adequate, according to the people, who weren’t authorized to speak on the matter.

A $158 million settlement between J&J and the Texas attorney general during a trial over Risperdal marketing in that state increased the demands by other states and the Justice Department, one of the people said. Several states wanted more money because of the Texas agreement, the person said.

The U.S. government has been investigating Risperdal sales practices since 2004, including allegations the company marketed the drug for unapproved uses, J&J has said in Securities and Exchange Commission filings. The company said it has been in negotiations with the U.S. to settle the investigation.

Criminal Charge

J&J, based in New Brunswick, New Jersey, disclosed in August that it reached an agreement to settle a misdemeanor criminal charge related to Risperdal marketing. The company had been discussing paying about $400 million more to settle that portion of the investigation, a person familiar with the negotiations said.

A J&J spokeswoman, Carol Goodrich, declined to comment.

The Justice Department expects to announce an accord in May, said one person. The department typically announces civil and criminal resolutions at the same time in corporate cases.

The number of states that will join the final agreement remains in flux, one person said. Each state can decide whether to join the federal government’s settlement or pursue its own case.

“Considering how much money the State of Texas got, it makes sense for the DOJ to push back for a significantly higher number,” said Patrick Burns of the advocacy group Taxpayers Against Fraud. “Washington can do the math.”

Philadelphia Accord

The Wall Street Journal reported March 9 the Justice Department had rejected the $1 billion settlement negotiated by the U.S. Attorney’s Office in Philadelphia, citing unidentified sources.

Risperdal, once J&J’s best-selling drug, generated worldwide sales of $24.2 billion from 2003 to 2010, reaching $4.5 billion in 2007. After that, J&J lost patent protection and sales declined.

The U.S. Food and Drug Administration approved Risperdal in 1993 for psychotic disorders including schizophrenia. That market is limited, and J&J’s Janssen unit sought to sell Risperdal for bipolar disorder, dementia, mood and anxiety disorders and other unapproved uses, according to documents in a lawsuit against J&J by the state of Louisiana. It was later approved for other uses.

Company officials said in an SEC filing in May that they had reserved funds to resolve the government’s claims over Risperdal marketing. The company didn’t say how much had been set aside. The drugmaker said in an August filing it added an unspecified amount to the reserve to cover criminal penalties.

12 State Suits

J&J and Janssen have been sued by 12 states, including Texas, South Carolina and Louisiana, over Risperdal marketing. The attorneys general of the other states “have indicated a potential interest in pursuing similar litigation against” Janssen, J&J said in its quarterly SEC filing in November.

J&J settled the claims by Texas for $158 million during trial in January.

A jury in Louisiana, weighing claims that the company downplayed the drug’s risks, awarded that state $257.7 million in 2010. A South Carolina judge last year ordered J&J to pay $327 million over Risperdal sold in the state.

Risperdal is a member of a class of drugs, known as atypical antipsychotics, that includes Indianapolis-based Eli Lilly & Co. (LLY)’s Zyprexa and London-based AstraZeneca Plc (AZN)’s Seroquel.

Lilly, AstraZeneca and two other J&J competitors making these drugs have paid $2.7 billion to resolve government marketing claims, particularly that the companies pushed the drugs for unapproved uses.

Lilly paid more than $1.7 billion to resolve state and federal investigations over Zyprexa and AstraZeneca has paid almost $590 million. Pfizer Inc. (PFE) paid $301 million for its drug Geodon.

To contact the reporters on this story: Margaret Cronin Fisk in Southfield, Michigan, at mcfisk@bloomberg.net; 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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