Johnson & Johnson settles Texas lawsuit for $158M

January 19, 2012 - 5:15 PM

AUSTIN, Texas (AP) — Texas and a subsidiary of health care giant Johnson & Johnson reached a $158 million settlement in a Medicaid fraud lawsuit Thursday, allowing the drugmaker to pay a fraction of the potential $1 billion in penalties and fines that state officials had initially sought.

The lawsuit was one of dozens of state and federal cases alleging that the company committed fraud by making false or misleading statements about the safety, cost and effectiveness of the expensive anti-psychotic medication Risperdal, and improperly influencing officials and doctors to push the drug.

Janssen Pharmaceuticals Inc., one of the J&J subsidiaries that had been sued, said in a statement it will pay the money to fully resolve all claims in Texas. The company said it is not admitting any liability or fault with the settlement.

Texas Attorney General Greg Abbott, who initially called on the company to repay $579 million that the state's Medicaid program had spent on Risperdal prescriptions plus up to $500 million in penalties, called the settlement a warning to drugmakers.

But analysts called the $158 million figure a victory for J&J, which made billions off Risperdal, because the deal allowed the company to avoid a much larger verdict in a state with a reputation as an easy place to win big jury awards.

The settlement also is far less than the $327 million Johnson & Johnson recently was ordered to pay in South Carolina and the $258 million it was ordered to pay in Louisiana in Risperdal lawsuits.

"For Johnson & Johnson, it's a mighty easy result," said Eric Gordon, a clinical professor at the University of Michigan's Ross School of Business. "The legal team at Johnson & Johnson are doing high fives."

The settlement brought end to a trial that began on Jan. 10.

Texas' lawsuit said the company and some of its subsidiaries committed fraud against Medicaid, the joint state-and-federal health care program for the poor, by engaging in illegal marketing practices and providing kickbacks in an effort to boost Risperdal. The lawsuit also alleged the drugmaker falsely told doctors Risperdal was safe to use with children when federal regulators had not approved its use.

The lawsuit originally was filed in 2004 by whistleblower Allen Jones, a former employee of the Office of the Inspector General of Pennsylvania, who said he uncovered the drug company's actions in Texas while investigating claims in his home state. Texas joined the lawsuit in 2006.

Lawyers for Texas and Jones had said Texas was a key market for the drug companies because schizophrenic patients often rely on Medicaid to pay for medications, and Texas has one of the largest populations of Medicaid patients.

"Janssen ran amok," an emotional Jones said after the settlement was announced. "They trashed the Johnson & Johnson credo, and they misused Texas and, I believe, well-meaning officials to further their marketing. They subverted science and they influenced others to betray the people they were supposed to be taking care of. To me, that is reprehensible."

As the whistleblower, Jones will receive a portion of the settlement, but he said Thursday he doesn't know yet how much. Details of the settlement were not released.

Risperdal was among several "second generation" antipsychotic drugs developed in the 1990s to alleviate some of the most significant side effects of medications that dated to the 1960s. Those drugs cost pennies on the dollar compared to produce compared to Risperdal, which earned the company billions of dollars in sales before generic versions became available a few years ago.

Risperdal and similar antipsychotic drugs have been linked to increased risk of strokes and death in elderly dementia patients, seizures, major weight gain, diabetes and potentially fatal high blood sugar.

At the start of the trial, lawyers for New Brunswick, N.J.-based Johnson & Johnson had insisted the company did nothing improper in marketing the drug.

"Janssen is committed to ethical business practices and had policies in place to ensure its products are only promoted for their FDA-approved indications," the company said in its settlement statement

Last year, a South Carolina jury found Johnson & Johnson guilty of overstating the safety and effectiveness of Risperdal. In 2010, a Louisiana jury found the company violated that state's Medicaid fraud act. J&J is appealing the Louisiana verdict and has said it will appeal the South Carolina one as well.

Settling the Texas case made sense for the companies, said Steve Brozak, president of WBB Securities.

"They can quantify the damage and it does not bring the kind of visibility they would not want," with a negative verdict and larger penalty, Brozak said.

Jones, the whistleblower, deferred to Abbott's office when asked if $158 million was a fair amount.

"In terms of punishment, they'll feel it, but this industry will not change its behavior until executives are prosecuted, until executives actually go to jail for the frauds they perpetrate," Jones said.

Johnson & Johnson shares ended the day down 9 cents, or 0.1 percent, at $65.19.

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Lozano reported from Houston. Associated Press writer Linda A. Johnson in Trenton, N.J., contributed to this report.