Johnson & Johnson to Pay $2.2 Billion to Settle Charges Regarding Children and the Elderly

Last week, healthcare giant Johnson & Johnson agreed to pay $2.2 billion and plead guilty to a misdemeanor in order to settle a long-running civil and criminal investigation by the U.S. Justice Department into its off-label marketing of certain drugs, including the antipsychotic Risperdal. Under federal law, drug makers may not market drugs for a use that has not been approved by the Food and Drug Administration, though doctors may still prescribe drugs for such unapproved, off-label use.

The government had alleged that Johnson & Johnson promoted Risperdal for use by elderly dementia patients—despite evidence of an increased risk of stroke—as well as by developmentally-challenged boys—despite knowing they could develop breasts as a result of elevated hormone production. The government further alleged that the company paid kickbacks to doctors and pharmacies as part of its promotional campaigns.

The company did not admit civil liability or wrongdoing as part of the settlement, which also requires it to upgrade its compliance practices and submit to five years of monitoring by the Health and Human Services Department’s Office of Inspector General. The settlement also preserves the company’s ability to sell its products to government health programs. Losing that ability, which is commonly referred to as debarment, can devastate a business that depends on government grants or contracts or that provides services under federal programs like Medicare or Medicaid.

The deal represents the government’s third-largest settlement ever with a pharmaceutical company. Number one on the list is the GlaxoSmithKline settlement from 2012, which totaled $3 billion and also included a guilty plea to criminal charges. The second-largest settlement was back in 2009, when Pfizer coughed up $2.3 billion to resolve a criminal investigation.

For Johnson & Johnson, the litigation may have been a cost of doing business. The company sold $24.2 billion of Risperdal from 2003 to 2010, and because the drug’s patent protection expired in 2008, it’s now far less critical to the company’s financial statements. In August, the company said that resolving the litigation would not have “a material adverse effect” on its finances, and indeed, the $2.2 billion settlement is reported to represent just 12.5 percent of revenue for its most recent quarter.