LITTLE ROCK — One of the world’s largest drug manufacturers is facing potential penalties of more than $1 billion in a lawsuit set to begin Monday in Pulaski County Circuit Court.
Arkansas Attorney General Dustin McDaniel accuses Johnson & Johnson, through its Janssen Pharmaceuticals subsidiary, of illegally marketing the drug Risperdal in Arkansas for 13 years by concealing the medication’s potential health risks and promoting it for unauthorized uses — all in violation of the state’s Deceptive Trade Practices Act, Arkansas Code 4-88-100, and the Medicaid Fraud False Claims Act at Code 20-77-900.
A win for the state has the potential to rival the 1998 $1.6 billion tobacco settlement, which also benefited the state Medicaid program, as Arkansas’ largest civil award.
Risperdal, used to treat schizophrenia and bipolar disorder, is one of the company’s two best-selling medications, with the 125-year-old New Jersey-based company reporting sales of a record $6 billion of those drugs last year out of sales of $61.6 billion. The other drug is Topamax.
Monday’s proceedings before Circuit Judge Tim Fox represent the fourth time Johnson & Johnson has gone to trial over a state’s complaints about Risperdal since they first arose in 2004, three years before Arkansas sued. The most recent trial, in Texas, ended with a $158 million settlement.
But Friday, in a final appearance before the judge, both sides said settlement talks are over, with Fletch Trammell, one of the attorneys representing Arkansas, describing negotiations that began around the first of the month as “unfruitful.”
Asked by the judge whether talks were concluded, Johnson & Johnson attorney Jim Simpson of Little Rock’s Friday, Eldredge & Clark firm nodded his agreement that negotiations had concluded.
OFF-LABEL USE
Arkansas is accusing the drugmaker of risking the lives and health of thousands of residents by deliberately hiding the drug’s potential to cause serious weight gain and inflict diabetes and related ailments, as well as cause circulatory problems that increase stroke risk.
Describing Risperdal, launched in 1993, as the most widely prescribed antipsychotic medication of its kind, state attorneys allege that its “blockbuster success” was due in large part to the company’s hiding or downplaying its risks, even to the point of concealing negative results of studies of the medication. Particularly egregious, according to the lawsuit, is that Johnson & Johnson, through Janssen, deliberately marketed the medication for use by elderly patients and children who were more susceptible to the drug’s side effects.
The suit also targets Risperdal’s “off label” use, the practice of prescribing medications for purposes other than its label-listed, federally approved purpose. The drugmaker promoted it for the treatment of dementia and Alzheimer’s disease, according to the suit, despite testing that showed the drug increased the risk of death in elderly users. For children, according to the suit, Risperdal was marketed “off label” for treatment of depression, attention-deficit disorders and as a mood stabilizer although the drug never has been found safe and effective for children.
In response, Janssen and its parent company deny any wrongdoing, countering that Risperdal was always distributed with all warnings and precautions approved by the federal Food and Drug Administration and that Medicaid continues to pay for the prescriptions.
RX BY THE THOUSANDS
State attorneys want the drugmaker fined the $10,000 maximum allowed under Arkansas law for every improper Risperdal prescription paid for using state Medicaid money.
In the original suit filed more than four years ago, the attorney general cited 597,906 eligible prescriptions. However, in response to a challenge by the drugmaker, the number of eligible claims was whittled down in February from those issued over 13 years to a five-year span under the Medicaid-fraud statute of limitations — amounting to about 300,000 prescriptions written between November 2002 and November 2007.
On Friday, state attorneys told Fox the time frame had been further scaled back, covering from November 2002 through June 2006 to resolve a question involving changes to federal regulations. The move reduced the total claims to around 250,000 prescriptions. At the $5,000 minimum penalty required by the statute, that amounts to a potential fine of $1.25 billion.
Friday’s change was not expected to significantly affect Arkansas’ deceptive-trade claims. The state originally cited 23,827 cases of questionable marketing practices, which was subsequently reduced last month under the limitations statute to around 20,000 instances, each one eligible for a fine of up to $10,000 maximum.
Aside from the size of the potential fine, the trial is unusual in that, under the fraud and deceptive trade laws, the jury won’t be asked to assess any damages, with the jurors’ role limited to assessing whether the drugmaker has any liability. The decision on the penalties will be up to Fox.
Under Arkansas Code 20-77-903 of the Medicaidfraud statute, Fox can order restitution, with fines of between $5,000 and $10,000 per violation, with the potential, in limited circumstances, to order a repayment amount three times what Medicaid has paid out.
Those fines and payments, the law says, must go into the Medicaid Trust Fund, Arkansas’ reserves for funding shortfalls, which is funded by ambulance fees, a tax on soft drinks and fraud judgments. According to the Department of Human Services, the $365 million fund is expected to be tapped for $155 million this year and run out of money by the middle of next year.
The Code 4-88-202 of the deceptive trade law requires the fines assessed by the judge, up to $10,000 per violation, to go into an attorney general fund dedicated to investigating frauds that target elderly and disabled residents.
OTHER STATE ACTIONS
Since the litigation began nationally, Johnson & Johnson defeated in court a similar claim filed by Pennsylvania but lost in Louisiana and South Carolina, resulting in judgments of $330.7 million and $327.1 million, respectively, according to company reports.
Both of those verdicts are on appeal, with Johnson & Johnson telling shareholders that the company is confident it will prevail in higher courts. Texas settled in midtrial after seeking $1.1 billion in penalties, half of which represented Texas Medicaid-paid prescriptions.
At least eight other states have pending Risperdal lawsuits against Johnson & Johnson, while a consortium of attorneys general is representing as many as 30 other states investigating the company for possible litigation, according to company financial disclosures released earlier this month.
Johnson & Johnson has also acknowledged that it has negotiated with federal prosecutors to resolve criminal proceedings to a single misdemeanor of a violation of the Food, Drug and Cosmetic Act, and Forbes magazine has reported that that agreement could include a $1 billion fine. The company has notified investors that it has put aside funding to resolve the case.
Moving against the drug manufacturer was one of the first things McDaniel did after taking office, announcing his intentions in September 2007 to take on the makers of Risperdal and the two manufacturers of similar antipsychotics.
The Risperdal suit was the first filed. And the law firm he hired, Bailey Perrin Bailey LLP of Houston, successfully represented South Carolina and Louisiana in their Risperdal suits.
So far, the arrangement has netted Arkansas about $22.5 million from lawsuits against Eli Lilly & Co. and AstraZeneca Pharmaceuticals, with $20 million going to Medicaid and $2.4 million into an attorney general consumer protection fund.
In January, AstraZeneca paid $3 million, with no admission of wrongdoing, over its Seroquel medication, and the Eli Lilly company paid $18.5 million in February 2010 on behalf of its Zyprexa, also without any admission of wrongdoing.
McDaniel’s office described the terms of its contract with the Bailey Perrin law firm as requiring the firm to pay all of its own expenses while collecting about 15 percent of any judgment. The settlements with the two other drug manufacturers have together paid the firm about $3.6 million, with the Texas lawyers collecting $787,031 from AstraZeneca and $2.8 million from Eli Lilly.
Jury selection is set to begin at 9 a.m. Monday, with opening statements expected Tuesday morning. The trial is scheduled to run through April 17.
Front Section, Pages 1 on 03/24/2012