Chapter 15 ORTHO-MCNEIL-JANSSEN PHARMACEUTICALS, INC. V. STATE OF ARKANSAS SHELLY GARG I. Why It Made the List Ortho-McNeil-Janssen Pharmaceuticals, Inc. v. State of Arkansas 1 provides key commentary on the use, by state Attorneys General (AGs), of informal and advisory Food and Drug Administration (FDA) communications as evidence of alleged consumer protection violations. Significantly, the case also hints at the court s direction to guard against the risk of people using public agency investigations as a litigation tool by banning as evidence at the trial the factual findings contained in special reports that result from particular incidents. The case also provides interesting analysis that considers the probative versus prejudicial value of such special reports. The court s decision also brings us back to the basics of the underlying policies and rules against admission of hearsay and disparately prejudicial evidence. The comments duly recognize issues of fairness accompanying such practice that companies lack an opportunity to cross-examine regulatory officials on the use, context, and importance of the communications and may not be able to question in court, or at an administrative hearing, the substance of the findings. The case notes that this oftentimes leads to the improper request of state juries to accept such incontrovertible federal regulatory 1 Ortho-McNeil-Janssen Pharms, Inc. v. State, 2014 Ark. 124, No. CV-12-1058 (Mar. 20, 2014) (reversing $1.2 billion penalty) [hereinafter Janssen]. See also Ortho-McNeil-Janssen Pharms., Inc. v. State, 2014 Ark. 126, No. CV-13-468 (Mar. 20, 2014) (reversing $180 million attorney-fee award).
132 Top 20 Food and Drug Cases, 2014 & Cases to Watch, 2015 observations as conclusive governmental pronouncements of liability. The Arkansas court s decision consequently construes evidentiary rules in a way that is in concert with FDA s longstanding views on warning letters. The case also highlights the continued tug-of-war between state and federal jurisdiction of off-label marketing and fraud claims, and issues of federal preemption. In recent years, pharmaceutical companies have argued in several different circumstances that federal oversight makes state prosecutions invalid. For instance, some contend that FDA approval preempts state liability lawsuits. The court s ruling in this case reinforces that resolution of regulatory matters of the kind should remain within the primary jurisdiction of FDA. II. Facts of Case A. Factual Background Briefly, the case involves the appeal, by Ortho-McNeil-Janssen Pharmaceuticals, Inc. and Johnson & Johnson (collectively, Janssen ), of a $1.2 billion judgment issued at trial in a Medicare fraud case where the jury determined that Janssen had included inadequate risk information of an antipsychotic medication, Risperdal, downplayed the risks, and marketed the drug for off-label uses. The jury determined that such action/inaction had defrauded the state s Medicaid system and deceived Arkansas consumers about the safety risks of Risperdal. 1. FDA Oversight of Risperdal Risperdal (risperidone) 2 is a second-generation, or atypical, antipsychotic medication that was developed in 1993 by Ortho-McNeil-Janssen Pharmaceuticals, Inc., the Johnson & Johnson unit responsible for marketing Risperdal. 3 FDA approved Risperdal for the management of manifestations of psychotic disorders in 1993, based on adequate and well-controlled studies for Risperdal, and the drug was placed on the market in 1994. 4 The drug was a tremendous development following the multitude of side effects, which included severe neuroleptic effects similar to Parkinson s disease, associated with first-generation antipsychotics. 5 The drug was later used to treat schizophrenia and bipolar disorder in children and teens. 6 2 3 4 5 6 The generic name for the drug is risperidone. The use of the term Risperdal refers to the drug marketed by Janssen. See Janssen, No. CV-12-1058, slip op. at 1. Since 1994, the Arkansas Medicaid Program has approved Risperdal for Medicaid reimbursement. See Janssen, No. CV-12-1058, slip op. at 1. at 2. Janssen also submitted several supplemental new drug applications (sndas) for Risperdal over
Ortho-McNeil-Janssen Pharmaceuticals, Inc. v. State of Arkansas 133 In 2000, FDA required all drug manufacturers of second-generation antipsychotics to submit information that companies had involving weight gain and diabetes connected with the antipsychotics. 7 While Janssen responded in August 2000, FDA did not pursue further action until September 2003. In September 2003, FDA notified Janssen and all other drug manufacturers producing second-generation antipsychotics to add a class warning to their labels about diabetes. 8 Disagreeing with FDA s assessment that all second-generation antipsychotics required the same warning, Janssen corresponded with FDA regarding modification of its label. 9 In addition to the class warning, FDA required manufacturers of all second-generation antipsychotic drugs to provide specific warnings regarding side effects on their labels and to send a letter to all healthcare providers, referred to as a Dear Healthcare Provider letter (hereinafter DHCP Letter). 10 This letter intended to inform healthcare providers of the side effects associated with Risperdal and to advise of the label change. Janssen sent its DHCP Letter on November 10, 2003, stating that FDA had requested all manufacturers of second-generation antipsychotics, including Risperdal, to include a class warning label regarding hyperglycemia and diabetes mellitus in their product labeling and to enclose updated prescribing information for Risperdal. 11 Janssen provided its DHCP Letter with additional, unapproved caveats indicating that Risperdal presented a lower risk of side effects than other antipsychotic drugs. 12 In response to Janssen s November 10, 2003 DHCP Letter, on April 19, 2004, FDA s Division of Drug Marketing, Advertising and Communications (DDMAC) 13 sent a 7 8 9 10 11 12 13 time seeking FDA approval for additional indications of use. Under federal law, drug makers can promote only the approved use of their medicines, but doctors are free to write prescriptions for other off-label uses. Some physicians prescribed Risperdal to children and adolescents suffering from bipolar disorder and in adolescents with schizophrenia. at 2-3. See also, Letter from Janssen Pharmaceuticals, Inc., November 10, 2003 where Janssen wrote: Hyperglycemia-related adverse events have infrequently been reported in patients receiving RISPERDAL. Although confirmatory research is still needed, a body of evidence from published peer-reviewed epidemiology research suggests that RISPERDAL is not associated with an increased risk of diabetes when compared to untreated patients or patients treated with conventional antipsychotics. Evidence also suggests that RISPERDAL is associated with a lower risk of diabetes than some other studied atypical antipsychotics. at 3. DDMAC describes its role as follows: DDMAC reviewers have responsibility for reviewing prescription drug advertising and promotional labeling to ensure that the information contained in these promotional materials is not false or misleading. They engage in a variety of tasks to perform this responsibility, including: providing written comments to pharmaceutical sponsors on proposed promotional materials to ensure clear and unambiguous communication of the laws and regulations relating to prescription drug promotion; reviewing complaints about alleged promotional violations;
134 Top 20 Food and Drug Cases, 2014 & Cases to Watch, 2015 DDMAC Warning Letter (hereinafter, Warning Letter) to Janssen, instructing Janssen to stop distribution of any promotional materials contained in the information in the DHCP Letter and also to submit an action plan to distribute accurate and comprehensive information. 14 The Warning Letter stated in part: WARNING LETTER The Division of Drug Marketing, Advertising, and Communications (DDMAC) has reviewed a Dear Healthcare Provider (DHCP) Letter for Risperdal (risperidone) disseminated by Janssen Pharmaceuticals, Inc. on November 10, 2003. DDMAC has concluded that the DHCP letter is false or misleading in violation of Sections 502(a) and 201(n) of the Federal Food, Drug and Cosmetic Act (Act) (21 U.S.C. 352(a) and 321(n)), because it fails to disclose the addition of information relating to hyperglycemia and diabetes mellitus to the approved product labeling (PI), minimizes the risk of hyperglycemia-related adverse events, which in extreme cases is associated with serious adverse events including ketoacidosis, hyperosmolar coma, and death, fails to recommend regular glucose control monitoring to identify diabetes mellitus as soon as possible, and misleadingly claims that Risperdal is safer than other atypical antipsychotics. While Janssen disagreed with the DDMAC s position and asserted that scientific evidence confirmed its 2003 DHCP Letter, Janssen respected the DDMAC s directive and sent a corrective letter with information about Risperdal, regarding hyperglycemia and diabetes, to the recipients of its DHCP Letter. 15 On July 21, 2004, Janssen sent a corrective letter to healthcare providers stating that any claim that Risperdal was safer than other antipsychotic drugs was unsubstantiated. The corrective letter, titled IMPORTANT CORRECTION OF DRUG INFORMATION stated in part as follows: 16 initiating enforcement actions on promotional materials that are false or misleading; comparing the product labeling and promotional materials of various closely related products to ensure that the regulatory requirements are consistently and equitably applied; traveling to major medical meetings and pharmaceutical conventions to monitor promotional exhibits and activities; and acting as a liaison between DDMAC and other divisions within the FDA on promotional issues. 14 15 16 See Information About What DDMAC Reviewers Do, available at http://www.fda.gov/aboutfda/ CentersOffices/CDER/ucm090142.htm. FDA Warning Letter, April 19, 2014, available at http://www.fda.gov/downloads/drugs/guidance ComplianceRegulatoryInformation/EnforcementActivitiesbyFDA/ WarningLettersandNoticeofViolationLetterstoPharmaceuticalCompanies/ucm055315.pdf. See Janssen, No. CV-12-1058, slip op. at 4. at 5.
Ortho-McNeil-Janssen Pharmaceuticals, Inc. v. State of Arkansas 135 The Food and Drug Administration s (FDA) Division of Drug, Marketing, Advertising, and Communications (DDMAC) has asked us to contact you because Janssen Pharmaceutical Products, L.P. recently received a Warning Letter concerning the promotion of Risperdal (risperidone). This letter provides important corrective information about Risperdal relating to hyperglycemia and Diabetes Mellitus. The Warning Letter concludes that Janssen disseminated a Risperdal Dear Health Care Provider (DHCP) dated November 10, 2003 that omitted material information about Risperdal, minimized potentially fatal risks, and made misleading claims suggesting superior safety to other atypical antipsychotics without adequate substantiation, in violation of the Federal Food, Drug and Cosmetic Act ( FDCA ). Specifically, the Warning Letter stated that the DHCP letter omitted important information regarding hyperglycemia and diabetes, including the potential consequences and the recommendation of regular glucose control monitoring that was added to the approved product labeling for Risperdal; minimized the potentially fatal risks of hyperglycemia-related adverse events such as ketoacidosis, hyperosmolar coma and death; minimized the importance of blood glucose monitoring; suggested that Risperdal did not increase the risk of diabetes, contradicting the Warning in the revised product labeling; and made misleading claims suggesting that Risperdal has a lower risk of hyperglycemia and diabetes than other atypical antipsychotics without adequate substantiation which is inconsistent with the Prescribing Information for Risperdal. FDA closed the matter and elected to not pursue further action around October 14, 2004, referencing Janssen s several correspondence letters on the matter. 17 Following DDMAC s closure of the matter, the Attorney General became involved with Risperdal litigation in early 2007 after the office was approached by outside law firms and other states Attorney General offices. 18 2. Suit under Arkansas Law Arkansas recognized Risperdal s considerable value in treating patients with schizophrenia and other conditions, and had reimbursed the cost of Risperdal under its Medicaid program since the medication was first approved by FDA almost 20 years ago. 19 17 18 19 at 6. at 7. at 1.
136 Top 20 Food and Drug Cases, 2014 & Cases to Watch, 2015 In November 2007, the State of Arkansas sued Janssen contending that the Warnings section of the Risperdal label failed to properly disclose all risks associated with the drug s use. 20 Specifically, the State of Arkansas alleged violation of the Arkansas Medicaid Fraud False Claims Act (MFFCA), 21 contending that Janssen knowingly made false statements or representations of material fact in its Risperdal label in violation of the MFFCA, specifically Ark. Code Ann. 20-77-902(8)(B). 22 The State also alleged that Janssen violated the Arkansas Deceptive Trade Practices Act (DTPA), 23 via a promotion letter that Janssen distributed to Arkansas healthcare providers on grounds that Janssen made false, deceptive, or unreasonable statements in the letter. The circuit court determined that the alleged violations occurred between December 1, 2002 and June 30, 2006. 24 The State based its allegations on the fact that Janssen failed to comply with a federal labeling requirement, 25 evidenced by the fact that Janssen received an FDA warning letter. The warning letter stated, among other things, that Janssen failed to add certain information to the approved product labeling regarding Risperdal s additional adverse side effects. The State contended that these violations generated further violations under Arkansas law in the following ways: (1) The MFFCA was violated by every Risperdal prescription that was filled in the State and submitted to Arkansas Medicaid for payment over a 43-month period when the drug s labeling allegedly failed to comply with FDA s prescription drug labeling requirements. The circuit court determined that there were 238,874 Risperdal prescriptions filled and/or refilled during the 2002-2006 time frame. The State moved forward with its theory that the violations were actionable under 20-77-902(8)(B). 26 (2) With respect to the DTPA, the State theorized that Janssen s 2003 DHCP Letter violated the DTPA. The State submitted the number of healthcare providers 20 21 22 23 24 25 26 at 7. Ark. Code Ann. 20-77-902 (Repl. 2001). The MFFCA further provides that a person or entity found to have violated section 902 shall be liable to Arkansas for: 1) full restitution; 2) a civil penalty of not less than $5,000 or more than $10,000 for each violation ; and 3) three times the amount of all payments found to have been fraudulently received from the Arkansas Medicaid program. The State of Arkansas specifically alleged that at various times between November 2002 and June 2006, the Warnings section failed to include warnings for cerebrovascular events (i.e., strokes) in the elderly with dementia, diabetes, hyperglycemia, weight gain, and hyperprolactinemia. Ark. Code Ann. 4-88-107 (Repl. 2003). See Janssen, No. CV-12-1058, slip op. at 8. See 21 C.F.R. 201.57(e) (2002). See Janssen, No. CV-12-1058, slip op. at 8.
Ortho-McNeil-Janssen Pharmaceuticals, Inc. v. State of Arkansas 137 in Arkansas that had received the DDL as violations (total copies 4,569 which represented the basis for the number of violations under the DTPA). 27 B. Procedural Background Following a 12-day jury trial, the jury found that Janssen had violated the MFFCA and the DTPA. 28 The circuit court performed a civil-penalties hearing and determined that 238,874 prescriptions had been filled during the December 2002 to June 2006 time period, and that each constituted a violation under the MFFCA. 29 The circuit court imposed the minimum statutory fine of $5,000 per violation for a total of $1,194,370,000. 30 Regarding the DTPA violations, the circuit court found that, based on the jury s verdict, there were 4,569 violations, the number of copies of the DHCP Letter sent to healthcare providers, and imposed a $2,500 fine per violation for a total of $11,422.500. 31 Janssen made timely directed-verdict, judgment notwithstanding the verdict, and new-trial motions on both claims. 32 The appeal followed. Following denial of the motions, Janssen presented four issues on appeal: 33 (1) The circuit court erred as a matter of law when it entered judgment on the State s MFFCA claim; (2) The circuit court erred as a matter of law when it entered judgment against the defendants on the State s DTPA claim; (3) The civil penalties violate the excessive-fines and due-process clauses of the Arkansas and United States Constitutions; and (4) The judgment violates the First Amendment of the United States Constitution and the Free Speech Provision of the Arkansas Constitution. Therefore, the main question on appeal was whether the trial court s interpretation of the MFFCA was erroneous, overbroad, and untenable in allowing it to be the basis of liability for claims for payment of a prescription drug with labeling allegedly in non-compliance with the law. 27 28 29 30 31 32 33 at 8-9.
138 Top 20 Food and Drug Cases, 2014 & Cases to Watch, 2015 With respect to the first point on appeal, Janssen contended that the circuit court erred as a matter of law when it entered judgment on the State s MFFCA claim and specifically, that the circuit court s interpretation of the MFFCA was erroneous, overbroad, and untenable: the FDCA preempts the State s MFFCA claim, the State failed to prove the core elements of MFFCA liability, and the MFFCA and special-verdict forms do not support liability for 238,874 MFFCA violations. 34 The State argued that Janssen s actions fell squarely within the MFFCA insofar that Janssen s actions violated subsection (8)(B) when Janssen failed to comply with the FDA labeling requirements of 21 C.F.R. 201.57(e) and that liability is appropriate because the Risperdal prescriptions at issue were paid for through the Arkansas Medicaid Program. 35 On the second point on appeal, Janssen claimed that the circuit court erred when it entered judgment against Janssen on the State s DTPA claim on the basis that the circuit court erroneously admitted the 2004 DDMAC Warning Letter and that the State s DTPA claim was preempted by federal law. 36 Specifically, Janssen objected to the introduction of the warning letter into evidence on several grounds: 37 (1) Janssen argued that the warning letter was hearsay and therefore inadmissible under Arkansas Evidence Rule 801. (2) Janssen argued that the warning letter would not fall under the public records exception because it constitutes factual findings resulting from special investigation of a particular complaint, case, or incident (Rule 803(8)(iv) of the Arkansas Rules of Evidence). Janssen claimed that the State relied almost exclusively on the content of the letter to prove its claim under the DTPA. It further questioned whether such prejudice outweighed any value that the letter may have added. The State argued that the letter was admissible under Rule 803(8) because it was part of an ongoing, routine investigation by the DDMAC and was part of the records, reports, or data compilations of the DDMAC resulting from an investigation made pursuant to the authority granted by law. 38 However, Janssen contended that each document amounted 34 35 36 37 38 at 9. at 9-10. at 16. at 16-17. at 17. See also Omni Holding & Development Corp. v. 3D S.A., Inc., 356 Ark. 400, 156 S.W.3d 228 (2004) (granting admission of Federal Aviation inspection reports on grounds that the reports fell within the Rule 803(8) exception); Archer-Daniels-Midland Co. v. Beadles Enterprises, Inc., 367 Ark. 1, 238 S.W.3d 79 (2006) (admitting FDA letter advising consumers to refrain consumption of adulterated food); and McCorkle Farms, Inc. v. Thompson, 79 Ark. App. 150, 84 S.W.3d 884 (2002) (excluding investigational report that resulted from a special investigation of a particular complaint ).
Ortho-McNeil-Janssen Pharmaceuticals, Inc. v. State of Arkansas 139 to evidence that was not the subject to cross-examination and Janssen was therefore denied its right to confront witnesses. III. Court Ruling The Arkansas Supreme Court overturned the $1.2 billion civil penalty against Janssen Pharmaceuticals, determining that the manufacturer did not violate Arkansas s Medicaid Fraud and False Claims Act by distributing a drug in which FDA later amended its product label by requiring additional health warnings. The court also overturned the trial court s determination that the drug manufacturer violated the Arkansas Deceptive Trade Practices Act when it sent Arkansas doctors the DHCP Letter expressing views about Risperdal s safety. IV. Rationale for Decision The court held that the trial court abused its discretion in admitting the DDMAC Warning Letter on grounds that it was inadmissible hearsay evidence because Arkansas s version of the public records exception, unlike Fed. R. Evid. 803(8), expressly carves out factual findings resulting from special investigation of a particular complaint, case, or incident from the exception to hearsay. 39 The inquiry under Ark. R. Evid. 803(8) was therefore whether the DDMAC Warning Letter was the result of a routine investigation or special investigation. As expected, the Warning Letter stated that the issuance was because of the original Dear Doctor Letter. The court determined that the Warning Letter in this case stemmed from the investigation into the 2003 DHCP Letter and the particular information cited in the letter, and were part of an investigation, not part of a routine record admissible under Rule 803(8). The letter was sent in response to a specific issue and special investigation regarding the 2003 DHCP Letter. This sufficiently persuaded the majority of the panel to conclude that the document was not a routine document that counted as an admissible public record under Arkansas law. 40 The court further determined that the Warning Letter failed to denote any official determination by FDA that Janssen violated any federal law. The court commented that warning letters issued by FDA (a key piece of evidence used against Janssen by the plaintiffs) are often too prejudicial and not sufficiently probative to use against pharmaceutical companies in civil litigation, and admitted in an abuse of discretion. 41 39 40 41 at 19 at 24-27. at 26.
140 Top 20 Food and Drug Cases, 2014 & Cases to Watch, 2015 Part of its prejudice was because it was referred to repeatedly throughout trial and was mentioned at least fifteen times in closings. In addition, Reports issued by government agencies, because of their official nature, may well carry inordinate weight in the minds of jurors. 42 In addition, courts have observed that reports prepared by a disinterested governmental agency pursuant to a legal obligation carry a badge of trustworthiness. 43 The court commented that for evidence to be admitted, it must be more probative than prejudicial. 44 With respect to the court s determination that the improper evidentiary ruling mandated reversal of the DTPA judgment, the court did not rule on other grounds for reversal including contentions that federal law preempted the DTPA claim and that the First Amendment barred Arkansas from imposing liability for statements included in the DHCP Letter. V. Impact of Decision The court s ruling sends an important signal that it is the plaintiff s responsibility to prove any alleged liability with proper, admissible evidence, not reliance on a regulatory letter that cannot replace the role of a neutral fact-finder at trial. The Arkansas Supreme Court notably joins the West Virginia Supreme Court of Appeals, who in 2010 held in a similar case against Janssen that reliance on FDA warning letters for legal conclusions as to misconduct with respect to potential mislabeling was improper. The case also points out that courts will find imposition of sizeable penalties unwarranted without a showing that the defendants have said anything false even if a company failed to comply with federal law to include certain risk information in the Warnings section of a drug label, inadequate risk disclosure does not consequentially make the label false and without introducing evidence that citizens of the state were in fact injured. 45 The decision also highlights that reliance on state statutes for imposition of statutory penalties must sufficiently track a company s alleged misconduct. For example, here, the trial court imposed 238,874 statutory penalties on appellants, one for each of the 42 43 44 45 (quoting Boude v. Union Pac. R. Co., 277 P.3d 1221, 1225 (Mont. 2012)). Ortho-McNeil-Janssen Pharmaceuticals, Inc. v. State of Arkansas, 2014 Ark. 124, No. CV2007-15345 (Mar. 20, 2014) (citing Boerner v. Brown & Williamson Tobacco Co., 394 F.3d 594 (8th Cir. 2005)). See Ark. R. Evid. 403; see also Berry v. State, 290 Ark. 223, 233, 718 S.W.2d 447, 453 (1986) (finding that a good definition of unfair prejudice is found in the advisory committee s commentary to Fed. R. Evid. 403, which describes it as an undue tendency to suggest decision on an improper basis. ). For example, section 902(8) does not prohibit just any false statement; instead, it is limited to false statements made under limited circumstances described in Subparts (A) and (B). Review of these subparts evinces a focus on false statements made by entities for the purpose of obtaining unwarranted Medicaid payments. The record did not specifically point out that Janssen made statements on its labeling for that purpose, those statements are not subject to section 902(8).
Ortho-McNeil-Janssen Pharmaceuticals, Inc. v. State of Arkansas 141 Risperdal prescriptions filled or refilled by a Medicaid patient in Arkansas between 2002 and 2006. The higher court determined that such penalties were unreasonable when the statute authorized a civil penalty of between $5,000 and $10,000 for each violation, and when the state provided no credible argument that counting the number of prescriptions in any way traced Janssen s alleged misconduct where Janssen was not involved in writing or filling Risperdal. The plaintiff s bar and private attorneys hired by states on a contingency-fee basis should take note of the court s decision in representing clients in lawsuits of this sort. Together with earlier court decisions, there appears to be strong support for declining to impose liability when there appears to be nothing more than good-faith disagreements regarding regulatory requirements and where undue prejudice arises from the inordinate weight that a jury is likely to give to the probable cause determination reached by a government fact-finding body. VI. Conclusion Janssen and similar rulings suggest that courts are uneasy with state encroachment in regulatory matters that are within FDA s primary jurisdiction, and which compromise the agency s ability to achieve efficient and collaborative resolution through traditional, tried, and true agency processes. The Arkansas Supreme Court s decision also sends a strong message to state Attorneys General wishing to bolster state-law claims with little more than purported findings of regulatory violations that are included in FDA communications as a result of the agency s review of promotional activities or inspection of manufacturing facilities. Hence, the Arkansas Supreme Court s decision construes evidentiary rules in a way that is in concert with FDA s longstanding views on warning letters and with federal case law that follows the agency s position.