Download State ex rel. Wilson V. Ortho-McNeil

FOOD AND DRUG LAW INSTITUTE
Top Food and Drug Cases
2015
& Cases to Watch
2016
EDITED BY GREGORY J. WARTMAN
26
Top Food and Drug Cases, 2015 & Cases to Watch, 2016
STATE EX REL. WILSON V. ORTHO-MCNEILJANSSEN PHARMACEUTICALS, INC.
by Anand Agneshwar and Anna Thompson
WHY IT MADE THE LIST
Since 1980, state attorneys general have brought over one
hundred enforcement actions against healthcare companies.1
These actions have increased in frequency in the last few
years, and are now routine. With the South Carolina Supreme
Court’s decision in State ex rel. Wilson v. Ortho-McNeilJanssen Pharmaceuticals, Inc., 414 S.C. 33 (2015), state
attorney general actions likely will continue to be part and
parcel of pharmaceutical product liability practice.
There have been several state enforcement actions
brought against Ortho-McNeil-Janssen Pharmaceuticals, Inc.
(Janssen) related to its antipsychotic drug Risperdal. Most
have (eventually) resulted in defense victories.2 In 2010, the
West Virginia Attorney General dropped its claims after the
Supreme Court of Appeals reversed a $4.5 million award.3 In
January 2014, the Louisiana Supreme Court reversed a $257
million award of civil penalties.4 In March 2014, the Arkansas
Supreme Court reversed and remanded a $1.2 billion award;5
Janssen and the state then settled the action for less than one
percent of the original amount.6
But in July 2015, the South Carolina Supreme Court,
reviewing essentially the same record as was presented
in Louisiana and Arkansas, affirmed a civil penalty award
related to Janssen’s marketing of Risperdal.7 Although the
Court reduced the trial court’s original $327 million award to
$124 million, it upheld liability for Janssen’s allegedly unfair
and deceptive trade practices even though the State presented
no evidence that anyone had actually been deceived.
Moreover, the Court interpreted the relevant South Carolina
statute broadly to permit a multiplier effect. It counted as
separate violations each sample box of Risperdal that Janssen
distributed, each “Dear Doctor” letter it sent to doctors, and
each follow-up call Janssen’s sales representatives made.
Each violation was then multiplied by a factor of $100 to
$4000, resulting in $124 million in civil penalties.
Food and Drug Law Institute
DISCUSSION
Facts
Between the 1950s and the 1990s, physicians prescribed
“typical” antipsychotic drugs to treat schizophrenia.8
Although effective, these drugs carried serious risks including
involuntary muscle movements and tardive dyskinesia.9 In
December 1993, the U.S. Food and Drug Administration
(FDA) approved Risperdal—a second-generation “atypical”
antipsychotic drug that carried a lower risk profile.10 The
initial FDA-approved labeling included a statement that the
drug “‘elevates prolactin levels.’”11 In 1994, Janssen began
marketing Risperdal in the United States and the drug was
immediately successful.12 Janssen—as many pharmaceutical
companies do—continued to conduct clinical trials on
Risperdal’s safety and efficacy.
In 1996, Zyprexa—another atypical antipsychotic
medication—entered the market.13 According to the South
Carolina Supreme Court, by the early 2000s, Janssen had
information that Risperdal was associated with a higher
risk of long-term weight gain or diabetes than Zyprexa,
but withheld that information and promoted its drug as
being safer.14 Despite this alleged concealment, the Court
recognized that by this time, the medical community
was well-aware of the risks associated with atypical
antipsychotics.15
In September 2003, FDA required all drugs in the same
class as Risperdal to include a warning about the risk of
diabetes and hyperprolactinemia.16 Janssen complied and
Anand Agneshwar chairs Arnold & Porter LLP’s Product
Liability Litigation practice group. He represents
pharmaceutical and consumer product companies
as national, strategic, trial, and appellate counsel in
product liability litigation and related litigation.
Anna Thompson is an associate in Arnold & Porter LLP’s
Product Liability practice group. She has substantial
experience in complex commercial litigation, including
product liability and mass tort actions at both the trial
and appellate levels.
WILSON V. ORTHO-MCNEIL-JANSSEN PHARMACEUTICALS
changed its labeling.17 In November 2003, the company sent a
“Dear Doctor” letter, which stated:
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.18
In April 2004, FDA sent Janssen a Warning Letter,
finding the 2003 “Dear Doctor” letter to be “‘false or
misleading . . . because it fails to disclose the addition
of information relating to hyperglycemia and diabetes
mellitus to the approved product labeling, minimizes
the risk of hyperglycemia-related adverse events . . . and
misleadingly claims that Risperdal is safer than other atypical
antipsychotics.’”19 Janssen issued a corrective letter, and FDA
did not take any further action.20
On January 24, 2007, the State and Janssen entered
into a tolling agreement.21 Three months later, the South
Carolina Attorney General brought an action under the South
Carolina Unfair Trade Practices Act (SCUTPA) related to
Janssen’s advertisement and promotion of Risperdal.22 The
State alleged that the Risperdal labeling was inadequate
and that Janssen’s 2003 “Dear Doctor” letter was unfair and
deceptive.23 Following a two-week trial, the jury returned a
verdict for the State.24 As to the labeling claim, the trial court
assessed a $300 civil penalty for each of the 509,499 sample
boxes distributed in South Carolina from 1998 until the filing
of the complaint.25 As to the “Dear Doctor” letter claim, the
trial court assessed a $4000 penalty on each of the 7,184
letters sent and a $4000 penalty on each of the 36,372 followup sales calls.26 The $327 million award was the largest
penalty for SCUTPA violations.
Food and Drug Law Institute
27
Holding
On February 25, 2015, the South Carolina Supreme Court
affirmed the jury’s findings on liability but reduced the civil
penalty award. The Court granted a rehearing, and issued
a modified decision on July 8, 2015 to correct a calculation
error. The Court remanded the action to the trial court for
entry of a $124 million judgment.27 Although the Court
reduced the award by $200 million, the resulting verdict
was still a hundred million dollars more than the average
Risperdal state settlement.28 Janssen’s petition for certiorari
before the U.S. Supreme Court was denied.29
Rationale for Decision
(i) Liability
SCUTPA prohibits “[u]nfair methods of competition and
unfair or deceptive acts or practices in the conduct of any
trade or commerce.”30 The statute itself does not define
“unfair” or “deceptive,” but instead notes that these terms
“will be guided by” decisions from federal law.31 Under federal
law, an act is deceptive if it has a “tendency to deceive”32
and at least one federal circuit court has found the requisite
capacity to deceive in the absence of actual deception.33
In affirming liability, the South Carolina Supreme
Court distinguished between SCUTPA actions brought by
private citizens and those brought by the Attorney General
on behalf of the State.34 To recover under SCUTPA, an
individual plaintiff must prove both a tendency to deceive
and an “‘ascertainable loss of money or property, real or
personal, as a result of the use or employment by another
person of an unfair or deceptive method, act or practice.’”35
In other words, private citizens must demonstrate actual
injury and causation. By contrast, the Court held, there is no
requirement to show actual injury in actions brought by the
State.36
With little analysis, the Court then concluded that the
jury verdict was supported by the evidence, “bear[ing] out the
State’s allegations that Janssen engaged in a systemic pattern
of deceptive conduct.”37
28
Top Food and Drug Cases, 2015 & Cases to Watch, 2016
The Court held that the FDA-approved labeling is a
mere “‘floor upon which the States could build’” and
that FDA’s own position is that drug labels do not
preclude the states from imposing additional labeling
requirements.
(ii) First Amendment Violation
Janssen argued that if the verdict stands, it would
impermissibly restrain free speech.38 Four years earlier, the
U.S. Supreme Court in Sorrell v. IMS Health Inc., 131 S. Ct.
2653 (2011), held that “‘[s]peech in aid of pharmaceutical
marketing . . . is a form of expression protected by the Free
Speech Clause of the First Amendment.’”39 Because the
Risperdal jury had not found that Janssen’s speech contained
a knowing or reckless falsehood, Janssen argued that
awarding civil penalties would unduly chill protected speech.
The Court flatly rejected any First Amendment violation.
First, it found that Janssen had not properly preserved the
issue on appeal.40 Second, on the merits, the Court concluded
that the First Amendment does not entitle a blanket
protection for all commercial speech.41 The Court effectively
ignored Sorrell, distinguishing the case because it did not
involve deceptive commercial speech—even though there was
no evidence that Janssen had actually deceived any doctor.42
(iii) Regulated Activity Exception and Preemption
Janssen raised several other arguments on appeal. First,
the company argued that the regulated activity exception
barred the State’s labeling claim.43 Because SCUTPA does
not apply to “‘[a]ctions or transactions permitted under
laws administered by any regulatory body,’”44 and because
FDA approved the Risperdal labeling, Janssen argued that
it was immune from inadequate warning claims. The Court
concluded that the issue was not properly preserved for
appellate review,45 but even if it was, Wyeth v. Levine, 555
U.S. 555 (2009), foreclosed the argument.46 Levine held that
unless there is clear evidence that FDA would have rejected
a stronger warning, the pharmaceutical manufacturer has a
responsibility to update the labeling.47
Second, Janssen argued that the Food, Drug and
Cosmetic Act (FDCA), which does not provide for a private
Food and Drug Law Institute
right of action, preempted the “Dear Doctor” claim because
that claim rested entirely on FDA’s Warning Letter. The
Court disagreed. In its view, the “Dear Doctor” claim was not
limited to a single FDCA violation. The State had presented
other evidence—including internal emails discussing
Janssen’s desire to gain market share over its competitors—to
form the basis for the claim.48 Third, the Court rejected Janssen’s implied preemption
argument, concluding that the argument was waived because
it was not asserted in the company’s initial motion for
directed verdict.49 In any event, the Court rejected implied
preemption on the merits. The Court held that the FDAapproved labeling is a mere “‘floor upon which the States
could build’” and that FDA’s own position is that drug labels
do not preclude the states from imposing additional labeling
requirements.50 The Court, however, failed to explain why
or how Levine—a run-of-the-mill personal injury action
involving an individual who was actually injured—applies
to an attorney general action where no showing of actual
deception is required.
IMPACT
The South Carolina Supreme Court’s “easy, get rich quick”
decision in State ex rel. Wilson may embolden state attorneys
general to bring similar actions against pharmaceutical
companies. But it should not. The decision directly
contradicts findings by other state high courts in the very
same litigation, as well as the U.S. Supreme Court’s decision
in Sorrell, and even then must be limited to the unique facts
underlying the decision. Unlike many state government
enforcement actions alleging years of deceptive conduct,
the SCUTPA claim here was largely based on the “single”
purportedly misleading letter mailed to thousands of doctors.
Despite being an outlier, the decision may still have
broader implications. First, the decision effectively permits
individual states to enforce FDA regulations by broadly
construing state consumer protection statutes. But FDA—
the federal agency assigned to ensure that drugs are safe and
effective—approved the Risperdal labeling. In other words,
South Carolina punished Janssen for not deviating from the
FDA-approved labeling. With respect to the “Dear Doctor”
claim, after Janssen sent a corrective letter, FDA did not take
WILSON V. ORTHO-MCNEIL-JANSSEN PHARMACEUTICALS
further action. Without any evidence that any doctor had
been actually deceived by Janssen’s statements, the State was
nevertheless awarded a nine-figure verdict even though FDA
considered the matter closed.
Second, the decision chills protected speech. Janssen
sent doctors a letter discussing what it believed was the state
of the science relating to Risperdal, and made statements
about potential side effects in the FDA-approved labeling.
Under Sorrell, this type of pharmaceutical marketing “is a
form of expression protected by the Free Speech Clause of
the First Amendment.” But the South Carolina Supreme
Court ignored this precedent, concluding that the speech
was not protected because it was “deceptive.” But the jury
never found Janssen’s speech to be a “knowing or reckless
falsehood.” The Court’s award of $124 million in civil
penalties might therefore act to keep a tight rein on otherwise
protected speech.
9
Food and Drug Law Institute
Id.
10 Br. of Pet’r at 6, Ortho-McNeil-Janssen Pharm., Inc. v. State, No. 15-600 (U.S.
Nov. 5, 2015) (hereinafter “Janssen’s Sup. Ct. Pet.”).
11
Id. at 7.
12 State ex rel. Wilson, 414 S.C. at 51.
13 Id.
14 Id. at 51-53.
15 Id.
16 Id. at 52; Janssen’s Sup. Ct. Pet. at 7.
17 Janssen’s Sup. Ct. Pet. at 7.
18 State ex rel. Wilson, 414 S.C. at 54.
19 Id. at 54-55.
20 Id. at 55.
21 Id. at 46.
22 Id.
23 Id.
24 Id.; Janssen’s Sup. Ct. Pet. at 9.
25 State ex rel. Wilson, 414 S.C. at 86.
26 Id. at 86-87.
27 Id. at 91.
28 Id. at 89 n.33, 91.
29 Ortho-McNeil-Janssen Pharm., Inc. v. State, 136 S. Ct. 824 (2016).
30 S.C. Code Ann. § 39-5-20(a).
31 State ex rel. Wilson, 414 S.C. at 57.
ENDNOTES
1
See Alan Greenblatt, The Story Behind the Prominent Rise of State AGs,
Governing (June 2015), http://www.governing.com/topics/politics/govattorneys-general-lawsuits-policymaking.html.
2
In 2013, Janssen’s parent company, Johnson & Johnson, settled a Risperdal
litigation with the U.S. Department of Justice and 45 states for $2.2 billion.
See Johnson & Johnson, Johnson & Johnson and Its Subsidiaries, Janssen
Pharmaceuticals, Inc. and Scios Inc., Conclude Previously Disclosed Settlement Agreements with U.S. Department of Justice and 45 States (Nov. 4,
2013), https://www.jnj.com/news/all/Johnson-Johnson-and-its-Subsidiaries-Janssen-Pharmaceuticals-Inc-and-Scios-Inc-Conclude-PreviouslyDisclosed-Settlement-Agreements-with-US-Department-of-Justice-and45-States.
32 Id. at 56-57.
33 Id. at 57 (citing Royal Oil Corp. v. FTC, 262 F.2d 741 (4th Cir. 1959)).
34 Id. at 57-58.
35 Id. at 57 (citation omitted).
36 Id. at 58.
37 Id.
38 Id. at 67.
39 Id. (citing Sorrell, 131 S. Ct. at 2659) (omission in original).
40 Id.
41 Id. at 67.
42 Id. at 68.
43 Id. at 85, 87.
44 Id. at 72 (quoting SCUTPA).
3
State ex rel. McGraw v. Johnson & Johnson, 226 W. Va. 677 (2010).
4
Caldwell v. Janssen Pharmaceutica, Inc., 144 So. 3d 898 (La. 2014).
5
Ortho-McNeil-Janssen Pharmaceuticals, Inc. v. State, 2014 Ark. 124 (2014).
46 Id. at 73.
6
Jef Feeley, J&J Pays Millions to Settle Billion-Dollar Risperdal Case, Bloomberg (May 21, 2015), http://www.bloomberg.com/news/articles/2015-0521/j-j-pays-7-8-million-to-settle-billion-dollar-risperdal-case-i9yl3jr4.
48 Id. at 81-82.
7State ex rel. Wilson v. Ortho-McNeil-Janssen Pharmaceuticals, Inc., 414 S.C.
33 (2015), cert. denied, 136 S. Ct. 824 (2016).
8
Id. at 50.
29
45 Id. at 72-73.
47 Id.
49 Id. at 82.
50 Id. at 83 (citation omitted).