March 20 (Bloomberg) -- Johnson & Johnson persuaded the Arkansas Supreme Court to throw out a $1.2 billion award against the drugmaker over its marketing of the antipsychotic drug Risperdal, erasing the biggest state verdict involving the controversial medicine.
Arkansas’s highest court concluded today that state officials relied on the wrong law to challenge the Risperdal marketing campaign and that a judge erred in setting the $1.2 billion in fines for violations of the state’s Medicaid fraud statute.
J&J’s Janssen unit was accused of making misleading claims about Risperdal’s effectiveness and downplaying its diabetes risks on warning labels. The high court said the state incorrectly tried to use a law governing health-care facilities as the basis for levying sanctions.
The penalty was the largest of the three handed down so far against New Brunswick, New Jersey-based J&J, the second-biggest maker of health products, in state cases alleging the company hid Risperdal’s risks and tricked Medicaid regulators into paying more than they should have for the medicine.
“We pursued this case based on the belief that the General Assembly intended to give the Attorney General’s Office the authority to pursue penalties against those that would enter our state and blatantly deceive the public,” Arkansas Attorney General Dustin McDaniel said in an e-mailed statement today. “I am disappointed that the court viewed the law differently.”
Pamela Van Houten, a spokeswoman for Janssen, said the company was pleased with the outcome.
“Janssen remains strongly committed to ethical business practices,” Van Houten said in an e-mailed statement.
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 $542 million in 2011, the last year the company provided figures for the medication.
The verdict is the second Risperdal award this year to be overturned by a state high court. In 2010, a Louisiana jury ordered J&J to pay about $258 million for making misleading claims about the safety of the antipsychotic drug as part of its marketing campaign in the state. The Louisiana Supreme Court threw out that award in January.
“J&J seems to be on a roll in the appellate courts on these Risperdal cases,” Carl Tobias, who teaches product-liability law at the University of Richmond in Virginia, said in an e-mail. “It’s difficult to protect these kinds of deceptive-trade practices cases on appeal.”
In 2011, a South Carolina judge concluded Janssen officials deceptively marketed Risperdal to the state’s doctors and ordered the company to pay $327 million in fines. The South Carolina Supreme Court is considering J&J’s appeal.
J&J has been under fire since 2010 over its aggressive Risperdal marketing campaigns. The drugmaker agreed last year to resolve criminal and civil probes over sales of Risperdal and other medications by paying more than $2.2 billion.
It also agreed to have its Janssen unit plead guilty to misbranding Risperdal for uses that weren’t approved by federal regulators.
The U.S. Justice Department and 45 state attorneys general alleged the company illegally marketed Risperdal for treating elderly patients with dementia. The U.S. Food and Drug Administration hadn’t approved the drug for use with that population.
J&J agreed in the middle of a 2012 trial to pay $158 million to settle Texas officials’ claims Janssen officials fraudulently marketed Risperdal in the state.
In the Arkansas case, McDaniel’s attempt to use a Medicaid fraud law governing health-care facilities to support fining J&J over Risperdal marketing was flawed, the court said.
“Janssen is indisputably not a health-care facility applying for certification or recertification as described in the statute,” the justices said.
Judge Tim Fox, who heard the case without a jury, also erred in admitting a letter J&J sent to Arkansas doctors touting Risperdal’s benefits, the judges said. The letter was “more prejudicial than probative,” a majority of the court found.
In a separate ruling, the state’s high court also threw out a $181 million award of legal fees to the private attorneys McDaniel hired to help him bring the case.
J&J rose 17 cents to $93.76 at 12:49 in New York trading. The shares had climbed 18 percent this year before today.
The case is Ortho-McNeil-Janssen Pharmaceuticals Inc. v State of Arkansas, CV 2007-15345, Arkansas Supreme Court (Little Rock).
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