Bloomberg | January 6, 2012
By Margaret Cronin Fisk, Jef Feeley and David Voreacos

Johnson & Johnson (JNJ) will pay more than $1 billion to the U.S. and most states to resolve a civil investigation into marketing of the antipsychotic Risperdal, according to people familiar with the matter.

J&J, the world’s largest health products company, reached an agreement last week with the U.S. attorney in Philadelphia, according to the people, who weren’t authorized to speak about the matter. Negotiations over a possible criminal plea are still under way, they said.

The U.S. government has been investigating Risperdal sales practices since 2004, including allegations the company marketed the drug for unapproved uses, J&J has said in Securities and Exchange Commission filings (JNJ). The company said it has been in negotiations with the U.S. to settle the investigation.

J&J, based in New Brunswick, New Jersey, disclosed in August that it reached an agreement to settle a misdemeanor criminal charge related to Risperdal marketing. The company is discussing paying about $400 million more to settle that portion of the investigation, one of the people said.

“We’re not going to comment on rumor or speculation,” Teresa Mueller, a J&J spokeswoman, said in a phone interview.

Risperdal, once J&J’s best-selling drug, generated worldwide sales of $24.2 billion from 2003 to 2010, reaching $4.5 billion in 2007. After that, J&J lost patent protection and sales declined. The settlement represents 31 percent of Risperdal’s peak sales in 2007, before generic versions of the medicine eroded revenue. It’s about 5.6 percent of the drug’s cumulative sales since 2003.

Approved for Schizophrenia

The Food and Drug Administration approved Risperdal in 1993 for psychotic disorders including schizophrenia. That market is limited, and J&J’s Janssen unit sought to sell Risperdal for bipolar disorder, dementia, mood and anxiety disorders and other unapproved uses, according to documents in a lawsuit against J&J by the state of Louisiana. It was later approved for other uses.

Company officials said in an SEC filing in May that they had reserved funds to resolve the government’s claims over Risperdal marketing. The company didn’t say how much had been set aside. The drugmaker said in an August filing it added an unspecified amount to the reserve to cover criminal penalties.

When the final settlement will be announced isn’t clear. The Justice Department typically announces civil and criminal resolutions at the same time in corporate cases.

A majority of U.S. states will join the settlement, the people said. Which ones will accept the final agreement hasn’t been determined, they said. Each state can decide whether to join the federal government’s settlement or pursue its own case.

Texas Trial

Typically, states with cases in court continue to pursue their own. Texas alone is asking for more than $1 billion in a case that goes to trial in state court in Austin next week. Jury selection begins on Jan. 9.

J&J and Janssen deny any wrongdoing in the Texas case.

“Janssen is prepared to vigorously defend itself against these claims,” Mueller said in an e-mail. “We are committed to ethical business practices and have policies in place to ensure that our products are only promoted for their FDA-approved indication.”

J&J and Janssen have been sued by 12 states, including Texas, South Carolina and Louisiana, over Risperdal marketing. The attorneys general of the other states “have indicated a potential interest in pursuing similar litigation against” Janssen, J&J said in its quarterly SEC filing in November.

A jury in Louisiana, weighing claims that the company downplayed the drug’s risks, awarded that state $257.7 million in 2010. A South Carolina judge last year ordered J&J to pay $327 million over Risperdal sold in the state.

Unapproved Uses

Hundreds of Janssen salespeople sold to doctors, nursing homes, Veteran’s Administration facilities and jails, according to documents in the Louisiana case. Marketers gave doctors materials about studies of unapproved uses for Risperdal. Janssen sponsored clinical trials of its effects on other illnesses.

In 1994, 1999 and 2004, the FDA ordered Janssen to stop making false and misleading marketing claims about Risperdal’s superiority.

The FDA told J&J in 1999 that its marketing materials for geriatric patients overstated Risperdal’s benefits and minimized risks. A J&J business plan for the next year called for increasing the drug’s market share for elderly dementia sales, an unapproved use, according to documents in the Louisiana suit.

The FDA didn’t approve Risperdal for bipolar disorder until 2003. In 2006, the regulator approved it for symptoms related to autism in children and teens. The FDA approved it to treat bipolar children and teens the next year. It was never approved for dementia.

Federal Drug Act

“Discussions have been ongoing in an effort to resolve criminal penalties under the Food Drug and Cosmetic Act related to the promotion of Risperdal,” J&J said in its August SEC filing. “Certain issues remain open before a settlement can be finalized.”

“The ultimate resolution of the above criminal and these civil matters is not expected to have a material adverse effect on the company’s financial position,” J&J officials said in the filing.

The agreement in principle on the criminal charge is “pursuant to a single misdemeanor violation of the Food, Drug and Cosmetic Act,” the company said.

Risperdal is a member of a class of drugs, known as atypical antipsychotics, that includes Indianapolis-based Eli Lilly & Co. (LLY)’s Zyprexa and London-based AstraZeneca Plc (AZN)’s Seroquel.

Lilly, AstraZeneca and two other J&J competitors making these drugs have paid $2.7 billion to resolve government marketing claims, particularly that the companies pushed the drugs for unapproved uses.

Lilly paid more than $1.7 billion to resolve state and federal investigations over Zyprexa and AstraZeneca has paid almost $590 million. Pfizer Inc. (PFE) paid $301 million for its drug Geodon.