The state alleged that the companies didn't properly communicate Risperdal's risks and marketed it for off-label use, calling the practices fraudulent.
Johnson & Johnson said there was no fraud and Arkansas' Medicaid program to fund drugs for the poor wasn't harmed.
Attorney General Dustin McDaniel said Thursday that he believes the Legislature intended for the Medicaid fraud law to allow lawsuits like the one against Johnson & Johnson.
"I am disappointed that the Court viewed the law differently. Nevertheless, I will keep working to protect consumers against fraud and the kinds of irresponsible and greedy actions shown by Johnson & Johnson and Janssen Pharmaceuticals in their marketing of the drug Risperdal," McDaniel said in a statement released by his office.
Johnson & Johnson issued a statement that included a defense of how Risperdal is used.
"We are pleased that the Arkansas Supreme Court has ruled in our favor, reversing and dismissing the state's claims brought under the Medicaid Fraud False Claims Act, and has also reversed the Deceptive Trade Practices Act claim, remanding it to the court below.
"Janssen remains strongly committed to ethical business practices. Risperdal continues to help patients around the world who suffer from the debilitating effects of schizophrenia and bipolar mania," the companies said in the release.
McDaniel's office said it can't refile the major component of the lawsuit by alleging the companies broke some other law, but it intends to pursue a lesser aspect of it that the state Supreme Court sent back to the lower court. That part of the lawsuit, for which the state was awarded $11 million, claimed that the companies broke the state's deceptive trade practices law.