Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—S.C. Sup. Ct.: Drug maker to pay $136M in Risperdal deceptive marketing action, (Feb 26, 2015)

By Linda O’Brien, J.D., LL.M.

A pharmaceutical company was liable for engaging in unfair competition practices by intentionally failing to disclose known risks and side effects associated with its antipsychotic drug Risperdal, in both its product labeling and physician letters, the South Carolina Supreme Court has ruled. However, the trial court liability judgment regarding the product labeling for violations outside of the statute of limitations was modified and the imposition of civil penalties was reduced to $136 million (State of South Carolina v. Ortho-McNeil-Janssen Pharmaceuticals, Inc., February 25, 2015, Kittredge, J.).

Ortho-McNeil-Janssen Pharmaceuticals, the pharmaceutical division of Johnson & Johnson, manufactures the antipsychotic drug Risperdal, which is prescribed primarily for the treatment of schizophrenia. In response to strong competition from drug maker Eli Lilly’s antipsychotic drug Zyprexa, Janssen developed a marketing strategy to protect its market share, which included promoting Risperdal as having a lower risk of negative metabolic effects. Although clinical studies concluded that there was no difference between Risperal and Zyprexa in terms of metabolic side effects, Janssen continued to market Risperal as superior to Zyprexa.

The Food and Drug Administration (FDA) reviewed clinical data pertaining to the metabolic side effects of antipsychotic drugs and requested that the product labeling for those medications include a warning about hyperglycemia and diabetes. In November 2003, Janssen disseminated letters to physicians that did not include the warning. In April 2004, the FDA notified Janssen that its physician letters were false and misleading. As a result of the notification, Janssen issued a corrective letter, acknowledging the omission of material information. Janssen, however, did not update Risperdal’s labeling to include warnings about hyperglycemia and diabetes until April 2008.

In April 2007, the State of South Carolina filed suit against Janssen and Johnson & Johnson, alleging that Janssen engaged in unfair methods of competition by willfully failing to disclose known risks and side effects associated with Risperal on the product labeling and in physician letters in violation of the South Carolina Unfair Trade Practices Act (SCUTPA). A jury rendered a liability verdict against Janssen on both the labeling and physician letter claims, and the trial court imposed civil penalties for the deceptive conduct. Janssen appealed.

SCUTPA claims. The court determined that the state established that Janssen engaged in a systematic pattern of deceptive conduct. The court noted that, although the State had the burden of proving Janssen’s representations had a tendency to deceive, the State was not required to show actual deception or that those representations caused an injury-in-fact or adversely impacted the marketplace. There was ample evidence that Janssen’s unfettered desire for sales and market share led it to engage in a systematic pattern of nondisclosure, false representations, and deceptive conduct.

Statute of limitations. SCUTPA has a three-year statute of limitations after the discovery of the unlawful conduct. Janssen argued that the statute of limitations barred the State’s complaint since both claims arose more than three years prior to January 2007, when the State and Janssen entered into a tolling agreement. According to the court, the State could not have reasonably discovered the deceptive and unfair nature of Janssen’s conduct in disseminating the physician letter prior to April 2004, when the FDA issued a warning notification to Janssen. Thus, the trial court’s finding on the physician letter claim was proper.

However, with respect to the product labeling, the risks associated with antipsychotics such a Rispersal were well known in the physician community since 2000, and the State should have known of potential SCUTPA violations regarding the Rispersal label prior to January 2004. Thus, labeling violations occurring prior to January 2004 were barred by the statute of limitations. The labeling violations that continued after January 2004 triggered a new limitations period and an award of civil penalties within the applicable statute of limitations was proper, the court found.

Preemption. The court rejected Janssen’s argument that the physician letter claim was based solely on a violation of the Food, Drug and Cosmetic Act (FDCA), which provides no private right of action, and therefore was expressly preempted by federal law. The court determined that, although the State pursued its SCUTPA claim based on November 2003 physician letter and used the April 2004 FDA notification as support, there was additional evidence showing the false and misleading nature of the physician letter. The State presented company communications from Janssen executives that the company pursued its deceptive marketing strategy that Risperdal was superior to competing drugs despite scientific proof to contrary. Thus, the State’s claim concerning the physician letter was not preempted by the FDCA.

Civil penalty award. In determining the civil penalties, the trial court used a multi-factor test looking at: (1) the good or bad faith of the defendants; (2) the injury to the public; (3) the defendant’s ability to pay; (4) the desire to eliminate the benefits derived by the violation; and (5) the vindication of the regulatory agency. The court agreed in part with Janssen that the total penalty was excessive. Janssen’s conduct had little impact on the community of prescribing physicians since the risks associated with antipsychotics were well known in the pharmaceutical and medical professions. In the absence of significant actual harm resulting from the deceptive conduct, the combined civil penalties for the physician letter and product labeling claims were reduced from $327 million to $136 million, the court concluded.

The case is No. 27502.

Attorneys: Alan M. Wilson, South Carolina Attorney General, John B. White, Jr. (Harrison, White, Smith & Coggins, PC), and Fletcher V. Trammell (Bailey Peavy Bailey) for State of South Carolina. Steven W. Hamm (Richardson, Plowden & Robinson, PA), Mitchell Brown (Nelson Mullins Riley & Scarborough, LLP), and Edward M. Posner (Drinker Biddle & Reath, LLP) for Ortho-McNeil-Janssen Pharmaceuticals, Inc. and Johnson & Johnson, Inc.

Companies: Ortho-McNeil-Janssen Pharmaceuticals, Inc.; Johnson & Johnson, Inc.

Cases: StateUnfairTradePractices SouthCarolinaNews