Johnson and Johnson 2011 Annual Report Download - page 64

62 JOHNSON & JOHNSON 2011 ANNUAL REPORT
In January 2011, Genentech, Inc. (Genentech) initiated an
arbitration against UCB Celltech (Celltech) seeking damages for
allegedly cooperating with Centocor (now JBI) to improperly
terminate a prior agreement in which JBI was sublicensed under
Genentech’s Cabilly patents. JBI has an indemnity agreement with
Celltech, and Celltech has asserted that JBI is liable for any damages
Celltech may be required to pay Genentech in that arbitration. Trial
is scheduled for June 2012.
GOVERNMENT PROCEEDINGS
Like other companies in the pharmaceutical and medical devices
and diagnostics industries, Johnson & Johnson and certain of its
subsidiaries are subject to extensive regulation by national, state
and local government agencies in the United States and other coun-
tries in which they operate. As a result, interaction with government
agencies is ongoing. The most significant litigation brought by, and
investigations conducted by, government agencies are listed below.
It is possible that criminal charges and substantial fines and/or civil
penalties or damages could result from government investigations
or litigation.
AVERAGE WHOLESALE PRICE (AWP) LITIGATION
Johnson & Johnson and several of its pharmaceutical subsidiaries
(the J&J AWP Defendants), along with numerous other pharmaceu-
tical companies, are defendants in a series of lawsuits in state and
federal courts involving allegations that the pricing and marketing
of certain pharmaceutical products amounted to fraudulent and
otherwise actionable conduct because, among other things, the
companies allegedly reported an inflated Average Wholesale Price
(AWP) for the drugs at issue. Payors alleged that they used those
AWPs in calculating provider reimbursement levels. Many of these
cases, both federal actions and state actions removed to federal
court, were consolidated for pre-trial purposes in a Multi-District
Litigation (MDL) in the United States District Court for the District
of Massachusetts.
The plaintiffs in these cases included three classes of private
persons or entities that paid for any portion of the purchase of the
drugs at issue based on AWP, and state government entities that
made Medicaid payments for the drugs at issue based on AWP. In
June 2007, after a trial on the merits, the MDL Court dismissed the
claims of two of the plaintiff classes against the J&J AWP Defen-
dants. In March 2011, the Court dismissed the claims of the third
class against the J&J AWP Defendants without prejudice.
AWP cases brought by various Attorneys General have pro-
ceeded to trial against other manufacturers. Several state cases
against certain of Johnson & Johnson’s subsidiaries have been set-
tled, including Kentucky, which had been set for trial in January
2012. Kansas is set for trial in March 2013, and other state cases are
likely to be set for trial. In addition, an AWP case against the J&J
AWP Defendants brought by the Commonwealth of Pennsylvania
was tried in Commonwealth Court in October and November 2010.
The Court found in the Commonwealth’s favor with regard to certain
of its claims under the Pennsylvania Unfair Trade Practices and Con-
sumer Protection Law (“UTPL”), entered an injunction, and awarded
$45 million in restitution and $6.5 million in civil penalties. The
Court found in the J&J AWP Defendants’ favor on the Common-
wealth’s claims of unjust enrichment, misrepresentation/fraud, civil
conspiracy, and on certain of the Commonwealth’s claims under the
UTPL. The J&J AWP Defendants have appealed the Commonwealth
Court’s UTPL ruling to the Pennsylvania Supreme Court. The
Company believes that the J&J AWP Defendants have strong argu-
ments supporting their appeal. Because the Company believes that
the potential for an unfavorable outcome is not probable, it has not
established an accrual with respect to the verdict.
RISPERDAL®
InJanuary2004,JanssenPharmaceuticaInc.(Janssen)(now
Janssen Pharmaceuticals, Inc. (JPI)) received a subpoena from the
Office of the Inspector General of the United States Office of Per-
sonnel Management seeking documents concerning sales and mar-
keting of, any and all payments to physicians in connection with
sales and marketing of, and clinical trials for, RISPERDAL® from 1997
to 2002. Documents subsequent to 2002 have also been requested
by the Department of Justice. An additional subpoena seeking infor-
mation about marketing of, and adverse reactions to, RISPERDAL®
was received from the United States Attorney’s Office for the East-
ern District of Pennsylvania in November 2005. Numerous subpoe-
nas seeking testimony from various witnesses before a grand jury
were also received. JPI cooperated in responding to these requests
for documents and witnesses. The United States Department of
Justice and the United States Attorney’s Office for the Eastern Dis-
trict of Pennsylvania (the Government) are continuing to actively
pursue both criminal and civil actions. In February 2010, the Govern-
ment served Civil Investigative Demands seeking additional infor-
mation relating to sales and marketing of RISPERDAL® and sales
and marketing of INVEGA®. The focus of these matters is the
alleged promotion of RISPERDAL® and INVEGA® for off-label uses.
The Government has notified JPI that there are also pending qui tam
actions alleging off-label promotion of RISPERDAL®. The Govern-
ment informed JPI that it will intervene in these qui tam actions and
file a superseding complaint.
Discussions have been ongoing in an effort to resolve criminal
penalties under the Food Drug and Cosmetic Act related to the
promotion of RISPERDAL®. An agreement in principle on key issues
relevant to a disposition of criminal charges pursuant to a single
misdemeanor violation of the Food Drug and Cosmetic Act has been
reached, but certain issues remain open before a settlement can be
finalized. During 2011, the Company accrued amounts to cover the
financial component of the proposed criminal settlement.
In addition, discussions with state and federal government
representatives to resolve the separate civil claims related to the
marketing of RISPERDAL® and INVEGA®, including those under the
False Claims Act (the qui tam actions), are still ongoing. Although
it still remains unclear whether a settlement can be reached with
respect to the federal and state civil claims, there has been a sub-
stantial narrowing of the issues and potential liability, and in 2011, the
Company established an accrual to cover the estimated financial
component of the potential federal civil settlement. If a negotiated
resolution cannot be reached, civil litigation relating to the allegations
of off-label promotion of RISPERDAL® and/or INVEGA® is likely.
The Attorneys General of multiple states, including Alaska,
Arkansas, Louisiana, Massachusetts, Mississippi, Montana, New
Mexico, Pennsylvania, South Carolina, Texas and Utah, have pending
actions against Janssen (now JPI) seeking one or more of the follow-
ing remedies: reimbursement of Medicaid or other public funds for
RISPERDAL® prescriptions written for off-label use, compensation
for treating their citizens for alleged adverse reactions to
RISPERDAL®, civil fines or penalties, damages for “overpayments”
by the state and others, violations of state consumer fraud statutes,
punitive damages, or other relief relating to alleged unfair business
practices. Certain of these actions also seek injunctive relief relating
to the promotion of RISPERDAL®. In January 2012, JPI agreed to
settle a lawsuit filed by the Attorney General of Texas. Trial in the
lawsuit brought by the Attorney General of Arkansas is scheduled
to commence in March 2012; JPI has filed motions for summary
judgment in the Arkansas matter.
The Attorney General of West Virginia commenced suit in
2004 against Janssen (now JPI) based on claims of alleged con-
sumer fraud as to DURAGESIC®, as well as RISPERDAL®. JPI was