Scary Math: J&J Better Hope $1.2 Billion Arkansas penalty Isn’t the Standard in Other Risperdal Cases

Johnson & Johnson (JNJ) is just one of several Pharma manufacturers facing big legal claims for alleged marketing of drugs for unapproved uses, but its potential liability in defending cases involving Risperdal, an antipsychotic, grew more worrisome to investors after an Arkansas judge ordered J&J to pay $1.2 billion.

The widely prescribed drug had 2011 sales of about $1.6 billion, but J&J may soon wish it had never heard of the compound. Prior penalties in the litigation were more manageable: J&J settled with Texas for $158 million; a South Carolina court awarded penalties of $327 million. And a Louisiana jury awarded $258 million.

Problem is, J&J says in its 10-K that Attorneys General in about 40 other states are mulling similar litigation. Among potential claims are reimbursement of Medicaid dollars spent on Risperdal prescriptions alleged to be for unapproved uses, medical costs incurred by the states for alleged health problems caused by the drug and penalties for failure to sufficiently warn about the drug’s alleged risks.

Each state’s case – and the laws applying to them – varies. But just measuring the penalties to date against state populations – horribly oversimplified, but that’s what the back of envelopes are for -- suggests J&J’s potential liability could be manageable or injurious:

The Texas settlement, divided a state population of about 25.1 million, works out to $6.30 per person.

Louisiana’s $258 million judgment, spread over its 4.5 million residents, equals about $57.30.

South Carolina’s $327 million, spread over 4.6 million residents, equals $71.10.

And Arkansas’s $1.2 billion, against just 2.9 million residents, is worth $413.80 apiece.

So, should California litigate over Risperdal and prevail against J&J, applying the Texas standard would yield its 37.3 million residents roughly $235 million. Pocket change for J&J.

JNJ Cash and ST Investments Chart

JNJ Cash and ST Investments data by YCharts

But applying the costlier Arkansas metric, California would cost $15.4 billion. Yikes. Again, 40 Attorneys General are considering Risperdal litigation, and they had to have been encouraged by the Arkansas order. Maybe Texas is kicking itself. J&J’s market cap is about $175 billion.

J&J, of course, says it’s appealing the various decisions against it and that it has solid defenses. The cases will likely play out over several years. Many large trial court awards are reduced on appeal.

Jeff Bailey is an editor for the YCharts Pro Investor Service which includes professional stock charts, stock ratings, stock screener and portfolio strategies.



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