J&J stock weathers big sanction

Critics think Johnson & Johnson got off relatively easy when the company agreed last week to pay $2.2 billion to settle allegations that it marketed its profitable anti-psychotic drug Risperdal and two other drugs for uses not approved by the FDA.

Citing the need to put a decade's worth of litigation behind it, J&J, the New Brunswick, N.J.-based maker of drugs, devices and consumer goods, agreed to the settlement—the third-largest in U.S. healthcare history—and pleaded guilty to a misdemeanor.

But critics say the government should have gone much further in punishing a company accused of selling unapproved drugs to medically vulnerable older people and children. The company was accused of marketing the drugs for unapproved uses between 1999 and 2005. During that period, U.S. sales for Risperdal jumped to $2 billion a year.

J&J's subsidiary, Janssen Pharmaceuticals, pleaded guilty in U.S. District Court in Philadelphia on Oct. 7 to introducing a misbranded drug into interstate commerce in a deal that includes $400 million in criminal penalties. The rest of the $2.2 billion settlement amount stems from allegations in four civil False Claims Act lawsuits that were joined by the federal government and 45 states. The company did not admit wrongdoing in those whistle-blower cases when it agreed to the settlement.

The company was accused of encouraging nursing homes to prescribe Risperdal to Medicare and Medicaid patients for a variety of mental health problems, even though it was approved at the time only for schizophrenia and company officials knew the drug caused elevated risk of stroke and diabetes. Similarly, the drug was marketed to children and teens at a time when no use for kids was approved, even though clinical evidence showed that it could cause hormonal imbalances in young people.

The company denied those allegations. “This resolution allows us to move forward and continue to focus on delivering innovative solutions that improve and enhance the health and well-being of patients around the world,” Johnson & Johnson Vice President and General Counsel Michael Ullmann said in a statement.

The big settlement did not appear to perturb the market, as the company's stock price dropped less than a dollar after the announcement and then ended the week almost a dollar per share higher.

Bonnie Patten, executive director of consumer-advocacy organization Truth in Advertising, said the lack of reaction from the market showed the company got a “great deal” from the government and the whistle-blowers. “If they had been required to disgorge all profits that they made, it would have had a much greater impact,” she said.

Follow Joe Carlson on Twitter: @MHJCarlson