LITTLE ROCK, Arkansas (AP) -- The Arkansas Supreme Court on Thursday overturned a $1.2 billion judgment against Johnson & Johnson in a lawsuit challenging the drugmaker's marketing of the antipsychotic drug Risperdal.
The agreement was the third-largest settlement with a drug maker in U.S. history.
The court ruled that the state improperly sued under a law that applies to health care facilities, not pharmaceutical companies.
The ruling comes in an appeal of lawsuit filed by Arkansas against the drugmaker and subsidiary Janssen Pharmaceuticals. The state says the companies didn't properly communicate the drug's risks and marketed it for off-label use, calling the practices fraudulent.
Johnson & Johnson said there was no fraud and Arkansas' Medicaid program wasn't harmed.
Risperdal and similar antipsychotic drugs have been linked to increased risk of strokes and death in elderly patients, along with seizures, weight gain and diabetes.
Risperdal was introduced in 1994 as a "second-generation" antipsychotic drug — and it earned Johnson & Johnson billions of dollars in sales before generic versions became available. The drug is used to treat schizophrenia, bipolar disorder and irritability in autism patients.
Arkansas Attorney General Dustin McDaniel sued the companies in 2007, arguing that they downplayed and concealed risks of the drugs and lied to doctors for years about its side effects. The case is among numerous lawsuits making similar claims.
McDaniel said Thursday that he still believes the Legislature intended the Medicaid fraud law to be applied as he used it in the Risperdal lawsuit.
"I am disappointed that the Court viewed the law differently. Nevertheless, I will keep working to protect consumers against fraud and the kinds of irresponsible and greedy actions shown by Johnson & Johnson and Janssen Pharmaceuticals in their marketing of the drug Risperdal," McDaniel said in a statement released by his office.
McDaniel didn't say whether he would continue to pursue a legal challenge against Johnson & Johnson.
An Arkansas jury found the New Jersey-based companies liable in 2012. Pulaski County Circuit Judge Tim Fox then ordered the companies to pay $5,000 for each of the 240,000 Risperdal prescriptions for which Arkansas' Medicaid program paid during a 3½-year span.
The lawsuit accused the companies of deceptive trade practices and Medicaid fraud and sought repayment for millions paid out by the state's Medicaid program for unnecessary prescriptions. The original lawsuit identified more than 597,000 prescriptions over a 13-year period, but that number was whittled down after challenges from the drug companies during pretrial proceedings.
Fox also fined the companies $2,500 for each of the more than 4,500 letters that Janssen sent to Arkansas doctors that the state said downplayed Risperdal's side effects. That totaled about $11 million.
After the state won the judgment — among the largest in state history — attorneys general in 35 other states joined McDaniel in asking Arkansas' highest court to uphold the ruling.
During oral arguments before the state Supreme Court in February, the companies' attorney argued that there was no fraud or improper reimbursements for Medicaid patients who were prescribed the drug.
In a separate action brought by the U.S. Department of Justice, Johnson & Johnson agreed in November to pay more than $2.2 billion to federal and state governments and in penalties to resolve criminal and civil allegations that the company promoted powerful psychiatric drugs, including Risperdal, for unapproved uses in children, seniors and disabled patients.
Johnson & Johnson and Janssen are also awaiting a ruling by the South Carolina Supreme Court, where the companies have an appeal pending of a $327 million judgment in a similar case. A $330 million verdict against both companies in Louisiana was overturned in January.