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J&J Will Pay More Than $2.2 Billion to Settle U.S. Cases

Johnson & Johnson agreed to resolve criminal and civil probes into the marketing of Risperdal, an antipsychotic drug, and other medicines by paying more than $2.2 billion, one of the largest U.S. health-fraud penalties.

J&J’s Janssen unit will plead guilty to a misdemeanor criminal charge over misbranding Risperdal for uses not approved by the Food and Drug Administration, including treating elderly patients with dementia. Under a plea agreement announced today, Janssen will pay a $334 million fine and forfeit $66 million.

Janssen also settled civil claims that it marketed Risperdal without approval for the elderly, children and the mentally disabled, and that it paid kickbacks to physicians and to Omnicare Inc., the largest pharmacy for nursing homes. The civil accord covered off-label marketing of Risperdal; Invega, another antipsychotic; and Natrecor, a heart drug.

“These companies lined their pockets at the expense of the American taxpayers, patients and the private insurance industry,” U.S. Attorney General Eric Holder said at a news conference today in Washington. J&J “recklessly put at risk the health of some of the most vulnerable members of our society -- including young children, the elderly, and the disabled.”

Set Aside

J&J, the world’s largest seller of health-care products, said it already accrued the settlement amount, and it won’t record any other charge to earnings. The company had previously acknowledged setting aside $600 million.

Based in New Brunswick, New Jersey, J&J signed a five-year corporate integrity agreement with the inspector general of the Department of Health and Human Services. It lets J&J recoup bonuses and other long-term incentives from those engaged in “significant misconduct.”

“Today we reached closure on complex legal matters spanning almost a decade,” Michael Ullmann, J&J’s general counsel, said in a statement. “This resolution allows us to move forward and continue to focus on delivering innovative solutions that improve and enhance the health and well-being of patients around the world.”

While Janssen “accepts accountability” for the actions described in the misdemeanor plea, the civil settlement “is not an admission of any liability or wrongdoing, and the company expressly denies the government’s civil allegations,” J&J said.

J&J fell 62 cents to $92.75 at 2:07 p.m. in New York trading.

Third-Biggest Agreement

The agreement is the government’s third-biggest with a pharmaceutical company, behind a $3 billion settlement that GlaxoSmithKline Plc (GSK) reached last year over the marketing of medicines including Paxil, Avandia and Wellbutrin, and the $2.3 billion accord that Pfizer Inc. (PFE) entered in 2009 over the marketing of the painkiller Bextra and other drugs.

The civil settlement, which involves the U.S. Justice Department and 45 states, resolves three lawsuits filed by whistle-blowers under the False Claims Act, which lets citizens sue on behalf of the government and join in any settlement. The Justice Department joined those cases.

One whistle-blower was Victoria Starr, a former Janssen sales representative whose lawsuit challenged the company’s orders to target doctors to prescribe Risperdal for children with mental-health problems, an unapproved use at the time.

Starr will share in the reward set aside for whistle-blowers, according to her lawyer, Steven Sheller.

‘Life-Shattering’

“This settlement finally holds Johnson & Johnson (JNJ) accountable for not telling the truth about this drug, which has had life-shattering effects on patients ranging from the elderly to children,” said Sheller, a lawyer in Philadelphia.

J&J’s settlement doesn’t end Risperdal claims brought by U.S. states including Louisiana and South Carolina.

Risperdal has been linked to excessive weight gain and diabetes. The drug, once J&J’s biggest seller, 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. government has been probing Risperdal sales practices since 2004, including allegations the company marketed the drug for unapproved uses. While doctors may prescribe an approved drug for any reason, companies can market them only for purposes authorized by the FDA.

The FDA approved Risperdal in 1993 for “the management of the manifestations of psychotic disorders.” That market is limited, and Janssen soon sought to sell Risperdal for bipolar disorder, dementia, mood and anxiety disorders and other unapproved uses, according to court filings by U.S. Attorney Zane Memeger of the Eastern District of Pennsylvania.

ElderCare Force

In 1998, J&J started an ElderCare sales force that promoted Risperdal to nursing homes, according to plea documents filed today. By the next year, the FDA said that J&J’s marketing campaign was “false, misleading, and/or lacking in fair balance.”

“This campaign, with a theme of ‘Hostile Outside, Fragile Inside,’ used material which stated or implied that Risperdal had been found to be safe and effective for the elderly and in specifically treating hostility in the elderly, but in fact the elderly had not been specifically studied in the clinical trials for Risperdal,” according to government filings.

The drug was later approved for other uses, including for children in 2006.

Omnicare Agreement

The Omnicare (OCR) part of the settlement is $149 million, said attorney Linda Wyetzner, who represents whistle-blower Bernard Lisitza. He’s a former pharmacist for Omnicare who said he was fired after complaining about his employer’s switching patients’ prescriptions to J&J drugs.

“This case was about Johnson & Johnson using kickbacks to drive sales of their atypical antipsychotic drug to people in nursing homes,” she said. Wyetzner called the practice “outrageous.”

The civil settlement includes: $1.39 billion for false claims related to off-label marketing and kickbacks for Risperdal and Invega; $149 million to resolve Omnicare claims; and $184 million to resolve Natrecor claims.

In October 2011, J&J’s Scios unit pleaded guilty to a misdemeanor violation over Natrecor and paid an $85 million criminal fine.

Three States

The settlement won’t resolve suits brought by attorneys general in Arkansas, Louisiana and South Carolina, where the company has appealed or has said it will appeal judgments over Risperdal sales.

Judges or juries in those states have ordered J&J to pay a total of about $1.8 billion in damages and fines over Risperdal marketing campaigns that were found to have misled doctors and patients about the drug’s health risks and effectiveness.

In 2012, a judge in Arkansas ordered the drugmaker to pay $1.2 billion in fines over Risperdal marketing. That verdict came three months after J&J decided to end a trial in Texas over the drug’s sales with a $158 million settlement. The Arkansas judge also awarded the state $180 million in attorney fees, J&J said in an August regulatory filing. The company is appealing the judgment.

In June 2011, a judge in South Carolina ordered J&J to pay $327 million in penalties for deceptively marketing the medicine. Ten months earlier, jurors in Louisiana ordered the drugmaker to pay almost $258 million to state officials over J&J’s Risperdal marketing campaign in the state. A Louisiana judge later ordered the drugmaker to pay an additional $73.3 million in attorney fees and costs.

The criminal case is U.S. v. Janssen Pharmaceuticals, 13-cr-605, U.S. District Court, Eastern District of Pennsylvania (Philadelphia).

To contact the reporters on this story: Laurie Asseo in Washington at lasseo1@bloomberg.net; David Voreacos in Newark, New Jersey, at dvoreacos@bloomberg.net. Margaret Cronin Fisk in Detroit at mcfisk@bloomberg.net.

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

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