Drugmaker out $7.8M, allays state

Drugmaker Johnson & Johnson has agreed to pay about $7.8 million to settle a 71/2-year-old lawsuit by the state over how the company had marketed its popular anti-psychotic Risperdal to Arkansas doctors, according to court filings on Monday.

Of that amount, $2 million will go to the Texas law firm that represented Arkansas in the Medicaid-fraud and deceptive-marketing lawsuit initiated in November 2007. State Attorney General Leslie Rutledge and lawyers for Johnson & Johnson agreed to the payment to the Texas lawyers on Friday, court filings show. Rutledge spokesman Judd Deere said the specifics of the arrangement to resolve the lawsuit are still being hammered out.

"The full details of the settlement have not been finalized, and the parties are still working," he said.

The legal-services payment required the approval of Pulaski County Circuit Judge Tim Fox, who presided over the litigation. He signed off on the payment agreement on Monday in a two-page ruling that also described the state's settlement with the drugmaker. The judge had ordered the sides to attempt mediation earlier this month.

The remaining $5,750,000 payout to the state is less than 1 percent of the $1.2 billion fine that had been imposed on Johnson & Johnson after a 12-day trial three years ago in which a Pulaski County jury found that the company, through its Janssen Pharmaceutical subsidiary, had committed Medicaid fraud and violated the state Deceptive Trade Practices Act in its labeling and marketing of Risperdal.

At trial, state attorneys said the drugmaker put patients at risk by not completely disclosing potential side effects: the onset of diabetes, the hormonal disorder hyperprolactinemia affecting sexual development in children, excessive weight gain in all users and a propensity to cause stroke in elderly patients.

Janssen lawyers said at trial there's no evidence that Arkansas Medicaid or any doctor in the state was misled or that Medicaid wrongly paid for any Risperdal prescription. They have pointed out that Arkansas doctors and physicians worldwide still prescribe Risperdal for patients suffering mental conditions such as schizophrenia and bipolar disorder and that the state Medicaid program continues to pay for prescriptions.

A Janssen representative said Monday that the final details of the agreement to resolve the litigation have yet to be worked out, but confirmed that the company is paying to end the lawsuit.

"[The settlement] is not an admission of liability, which Janssen expressly denies," Michelle Bauer, the representative, said in an email. "The settlement, which resolves all claims filed by the Arkansas Attorney General, is a compromise reached in the interest of ending the litigation. Janssen is committed to delivering medicines and services that offer hope and a healthier life to people throughout the world."

Risperdal is one of the most widely prescribed treatments in the world for mental illnesses like schizophrenia and bipolar disorder. The fraud allegations concerned Risperdal prescriptions paid for by Arkansas' Medicaid program between November 2002 and June 2006.

The 2012 verdict and fine -- representing a $5,000 penalty for each of the 238,874 prescriptions paid for by Medicaid over the 3 1/2-year period -- were overturned on appeal by the Arkansas Supreme Court in March 2014, with the high court throwing out the Medicaid complaints.

The high court ruled that the Medicaid Fraud False Claims Act could not be applied the way state lawyers had used it at trial, although the verdict was endorsed as an appropriate exercise of the law by almost half of the General Assembly at the time.

The law, Arkansas Code 20-77-902, only applies to health-care facilities seeking certification of a "nursing home or similar facility," the court ruled.

The jury's deceptive-trade-practices findings, which carried a $11.4 million fine, were also overturned by the Supreme Court. The trial verdict was based on a November 2003 mailing from the company to Arkansas physicians, described as the "Dear Doctor" letter, that state lawyers argued did not accurately disclose the extent of the drug's potential to cause diabetes. The fine under the Deceptive Trade Practices Act was based on a penalty of $2,500 for each of 4,569 doctor letters sent out.

But the high court determined the state had wrongly used as evidence a "warning letter" from federal regulators to Janssen that had criticized the Dear Doctor letter for failing to fully explain the link between Risperdal and diabetes.

The warning letter was inadmissable as hearsay and because the warning was more inflammatory against the drug company than it was proof that Johnson & Johnson had done anything wrong, the Supreme Court ruled.

The agreement the attorney general reached on Friday with Johnson & Johnson calls for the Texas firm, recently renamed Bailey Peavy Bailey, to be paid $805,734 in attorney fees and $1,194,266 in expenses, which includes mediation costs and appeal work. To "facilitate" the settlement, the Texas lawyers reduced their fees by 30 percent from $1,162,500, court filings show.

Their contract with the state, negotiated under the tenure of former Attorney General Dustin McDaniel, had called for them to receive legal fees equaling 15 percent of the total payment. The $805,734 amount is about 10.4 percent of the settlement.

The Texas lawyers had originally been awarded almost $181 million in fees based on the original fine of $1,205,792,500 against Johnson & Johnson. The drugmaker's lawyers, Jim Simpson, Laura Smith and Martin Kasten, with the Friday, Eldridge & Clark firm of Little Rock, had disputed that award, arguing that $2.2 million to $3.8 million would be appropriate based on the amount of time the Texans devoted to the litigation.

The Bailey firm had also been awarded another $298,800 in expenses, which included $76,630 paid to expert witnesses who testified at the 12-day trial, $3,917 in meals, $20,330 for trial transcripts and a $50,816 stay at the Peabody Little Rock hotel, which represents more than a third of the lawyers' $140,992 in travel expenses.

All of those payments were also struck down by the Supreme Court on appeal.

McDaniel hired the Bailey firm of Houston in 2007 to represent Arkansas in lawsuits against Johnson & Johnson and two other makers of similar medications. The contract, which was also approved by the Legislative Council and then-Gov. Mike Beebe, called for Bailey lawyers to receive fees equal to about 15 percent of any judgment.

The firm has already earned $3.6 million in fees paid by drug manufacturers AstraZeneca and Eli Lilly & Co. over state claims mirroring the accusations against Johnson & Johnson. Arkansas has collected about $22.5 million from the lawsuits, with $20 million going to Medicaid and $2.4 million into an attorney general consumer protection fund.

AstraZeneca paid $3 million to settle in 2012, with no admission of wrongdoing, over its Seroquel medication, and the Eli Lilly company paid $18.5 million in 2010 on behalf of its Zyprexa, also without any admission of wrongdoing.

Metro on 05/19/2015