J&J’s Oklahoma Opioid Fight May Signal Drug Industry Liability

(Bloomberg) -- Makers and distributors of opioid painkillers are about to get a clearer picture of how much it will cost to resolve their legal liability for an epidemic of U.S. addiction and overdose deaths caused by the drugs.

An Oklahoma judge will rule Monday whether Johnson & Johnson created a public nuisance by duping doctors to overprescribe its opioid-based medications. The state sued for as much as $17.5 billion to recover costs associated with the widening drug crisis.

The decision by Judge Thad Balkman could set a benchmark for the rest of the pharmaceutical industry, which faces thousands of lawsuits from cities, counties and states. While a few cases have been settled, Oklahoma’s claim was the first to go to trial. Some analysts predict opioid makers and distributors may have to pay a combined $100 billion.

“People will try to make some calculations as to what will happen to their opioid lawsuits based on the decision in Oklahoma,” said Elizabeth Burch, a University of Georgia law professor who teaches about mass torts.

The ruling by Balkman -- who heard more than eight weeks of testimony at a trial without a jury in Norman, Oklahoma -- will be an early indicator of the potential strength or weakness of more than 2,000 claims that have been consolidated in federal court in Cleveland. Government agencies across the U.S. are seeking reimbursement for spending on increased policing, medical care and drug-treatment programs.

While many on Wall Street expect the Oklahoma judge to rule against J&J, some analysts are advising caution.

“Everyone is analyzing this exposure incorrectly and coming to the wrong conclusions,” said Patrick Trucchio, a pharmaceutical analyst at Berenberg Capital Markets. “This is unquantifiable risk. Manufacturers have different market shares in each state, and you can’t extrapolate this decision” to the thousands of cases before the Cleveland judge, Trucchio said. “We expect an overreaction to headlines.”

Even if J&J loses, “they’re in a strong position to be able to fight a negative decision individually through an appeals process, and any payout would ultimately be over a long period of time,” said Edward Jones & Co. analyst Ashtyn Evans.

Oklahoma Trial

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Oklahoma Attorney General Mike Hunter accused J&J of overstating the benefits of their drugs and understated the risks with a relentless marketing campaign that led doctors to prescribe the medications to treat ailments for which they’d not been approved.

Hunter also characterized J&J, based in New Brunswick, New Jersey, as a “kingpin” of the crisis because it once owned companies that grew and processed poppies used to make the painkillers. J&J no longer owns those companies.

During the trial, J&J said it was being blamed for the actions of other drugmakers and that it did nothing wrong in marketing medicines and producing opium.

“We agree opioid abuse is a significant public-health problem in Oklahoma, but the facts and the law in this case warrant a judicial decision rejecting the state’s public-nuisance claim,” John Sparks, one of J&J’s lawyers, said in an emailed statement. “The state’s attempt to resolve this tremendously complex social problem with an unprecedented expansion of public-nuisance law is misguided and legally unsustainable.”

Comparing J&J to the head of a drug-dealing cartel isn’t fair or productive, the company’s lawyers said during the trial. Federal regulators oversaw poppy production and processing and the opium is used only for prescription medicine, they noted.

Purdue, Teva

J&J argued Oklahoma officials are confusing the company’s marketing efforts with those by rival such as Purdue Pharma LP and Teva Pharmaceutical Industries Ltd. Purdue agreed to a $270 million settlement before the trial began in May, while Teva agreed to pay $85 million.

If J&J loses, Balkman will have to decide how long the company will be paying Oklahoma’s opioid-related costs. If the state gets all it’s asking for, J&J could owe more than $765 million annually over 30 years. The money would go towards treatment, school-education programs targeting young kids in more than 4,900 Oklahoma classrooms, and transportation services to get addicts to doctors and care facilities.

J&J has said the plan calls for funding for some dubious treatment options, including meditation and acupuncture, while seeking more for duplicate prevention programs. The state is asking Balkman to force J&J to pay for “a grab-bag of untested programs,” Sparks said.

The case is State of Oklahoma v. Purdue Pharma LP, CJ-2017-816, Cleveland County, Oklahoma, District Court (Norman).

--With assistance from Riley Griffin.

To contact the reporter on this story: Jef Feeley in Wilmington, Delaware at jfeeley@bloomberg.net

To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Steve Stroth, Heather Smith

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