$1.1 Billion Verdict Demonstrates Continued Allure to AGs of Drug-Marketing Lawsuits

As we noted earlier this month, an Arkansas state court recently handed down a $1.1 billion judgment in a lawsuit brought by the Arkansas AG against Janssen Pharmaceuticals and its parent Johnson & Johnson after a jury found that the company had concealed the risks associated with its antipsychotic drug Risperdal. The size of the award was based on the judge’s determination that in marketing the drug the company had committed more than 240,000 violations of the State’s Medicaid fraud statute – one for each prescription written to a state Medicaid patient – and more than 4,500 violations of the state’s consumer protection law.

This verdict is one of the latest in a series of actions filed by state AGs against pharmaceutical companies over alleged misconduct in marketing their medications. As in Arkansas’s suit, these actions typically assert that drug companies either failed to report or actively concealed risks posed by their medicines or promoted drugs for uses not approved by the FDA (so-called “off-label” uses). The AGs allege that these actions cause consumers or Medicaid to pay for drugs that doctors would not have prescribed had they been fully aware of the risks, and they seek damages and civil penalties under consumer protection and Medicaid fraud laws. While some AGs have joined multi-state settlements, in which 20, 30, or more states simultaneously resolve such claims against a given drug-maker, other AGs, often using outside law firms compensated on a contingency fee basis, have continued to trial on claims seeking millions or billions of dollars in damages and fines.

Johnson & Johnson, for example, also has been sued over Risperdal by the AGs of Alaska, Massachusetts, Mississippi, Montana, New Mexico, Pennsylvania, South Carolina, and Utah, and the company is subject to already-rendered verdicts of $327 million in South Carolina and $258 million in Louisiana and a $158 million settlement with Texas reached on the eve of trial in February 2012.

Among the other companies that have faced or are facing AG lawsuits are Eli Lilly for its drug Zyprexa and AstraZeneca for Seroquel. In some of these cases, drug-makers have challenged the role played by outside counsel in conducting these suits on behalf of the States, questioning whether permitting attorneys for the State to be compensated via contingency fees or to have such fees include a share of civil penalties may violate due process, although the final results of those challenges remains to be seen.

The takeaway is that, as Medicaid spending on prescription drugs continues to increase and outside firms recover substantial contingency fees,  these actions by state AGs emphasize the need for continued diligence by pharmaceutical companies.