Johnson & Johnson was handed a bitter pill Wednesday when an Arkansas judge fined the company and a subsidiary more than $1.1 billion for downplaying and concealing risks associated with the antipsychotic drug Risperdal, a ruling that could affect dozens of pending lawsuits over the drug.
Circuit Judge Tim Fox ruled from the bench after an hour-long penalty hearing that Janssen Pharmaceuticals Inc. and its parent company must pay $5,000 for each of 240,000 Risperdal prescriptions the state Medicaid program paid for during a 3 1/2-year period, accounting for the bulk of the penalty. He also fined the companies $2,500 for more than 4,500 letters Jannsen sent to Arkansas doctors, about $11 million. A jury had found the companies liable a day earlier.
Arkansas sued the companies alleging they misled doctors throughout the state in a letter that downplayed Risperdal's side effects. State attorney General Dustin McDaniel said in an emailed statement that the ruling "sends a clear signal that big drug companies like Johnson & Johnson and Janssen Pharmaceuticals cannot lie to the (U.S. Food and Drug Administration), patients and doctors in order to defraud Arkansas taxpayers of our Medicaid dollars."
Janssen said in an emailed statement that evidence at trial showed it acted responsibly and also noted the state paid only $8.1 million for Risperdal in the time frame in question. The company pledged to appeal the Arkansas Supreme Court if Fox denies a motion for a new trial.
Risperdal, introduced in 1994, is a "second-generation" antipsychotic drug that earned Johnson & Johnson billions of dollars in sales before generic versions became available several years ago. The U.S. Food and Drug Administration in 2004 forced the company to revise the drug's labeling to reflect increased risk of strokes and death in elderly dementia patients, seizures, major weight gain, onset of diabetes and potentially fatal high blood sugar.
Dozens of states have since filed lawsuits making claims similar to those in Arkansas. A South Carolina judge upheld a $327 million civil penalty against Johnson & Johnson and Janssen in December. Texas reached a $158 million settlement with the companies in January in which the company didn't admit fault.
Erik Gordan, a clinical assistant professor of business at University of Michigan, said he was surprised Johnson & Johnson had been willing to go to trial again in Arkansas.
"I'm surprised they exposed themselves to a judgment where you don't know that the number is," Gordan said. "When you settle, you know what the number is."
Based on the claims in the Texas settlement, Gordan estimated Johnson & Johnson may have been able to settle with Arkansas for as little as $30 million.
"Even if they get the $1.1 billion overturned for being excessive, if (Arkansas gets) $500 million or $250 million, J&J still lost big," he said. "Here is another jury that looked at the facts and said, `You guys are guilty.'"
Ed Posner, an attorney for the companies, had argued during the Arkansas trial that the deceptive practices violations should have been reduced to a single fine because one letter was sent to multiple doctors. He also argued there was no evidence any patients were harmed by the drug and that the state Medicaid program didn't suffer by paying for legitimate prescriptions.
But Fox noted in court before issuing the penalty that a 1969 Arkansas Supreme Court established fines could not be found to be excessive, and thus unconstitutional, based simply on a large number of violations. He also ultimately assessed the minimum fine of $5,000 per violation for the prescriptions; the maximum fine topped out at $10,000 per violation. The penalty for the deceptive trade practices violation ranged from zero to $10,000, with Fox opting for $2,500 per violation.
Paul Pennock of the New York-based Weitz & Luxenberg law firm in New York, who has handled similar cases, likened the per-violation fine to a driver who, over 60 years, got two speeding tickets every year for a total of 120 violations.
"Do you think they're going to stop fining him after 100 violations?" he said.
If the fines are upheld, the money will go to the state, which is facing a projected $400 million deficit in the Arkansas Medicaid program next year. Matt DeCample, a spokesman for Gov. Mike Beebe, said it's too early to say how the money will be distributed.
Shares of New Brunswick, N.J.-based Johnson & Johnson closed Wednesday at $64.13, down seven cents per share.