Bloomberg Business Week


Judy Doetterl was a sales representative for Johnson & Johnson (JNJ) in 2004 when federal agents placed a hidden recording device on her and sent her to tape marketing presentations at a national company sales meeting.

U.S. prosecutors wanted to prove claims by Doetterl and others that J&J boosted sales by urging doctors to prescribe its antipsychotic drug Risperdal far beyond its approved use. Doetterl, then earning $150,000 a year, said she fretted for the two days she wore a wire at the meeting in a Dallas hotel.

“I was concerned that I would be found out accidentally and someone would see me go into a room to meet the agent,” Doetterl said. “I had to change battery packs every four hours. I knew in the end I was doing the right thing. They needed to know what was going on.”

The government spent nine more years investigating Risperdal before J&J, the world’s biggest seller of health-care products, agreed Nov. 4 to pay $2.2 billion to resolve criminal and civil probes. Doetterl, prosecutors and other lawyers offered an inside account of a decade-long probe that ended with eight J&J whistle-blowers making more than $20 million each.

The U.S. said J&J marketed Risperdal and two other drugs for off-label uses and paid kickbacks to doctors and pharmacists to boost sales. J&J’s Janssen unit pleaded guilty to misbranding Risperdal. The company also settled civil lawsuits filed under the False Claims Act, which lets citizens file sealed complaints on behalf of the government and share in any recovery.

Six Whistle-Blowers

Doetterl and four other former J&J employees filed such cases. They will each get about $29 million from the U.S. and state governments that claimed they overpaid through Medicare or Medicaid because of J&J’s practices. A sixth whistle-blower, Allen Jones, got $20.3 million last year when J&J paid $158 million to settle with Texas over Risperdal.

Two other whistle-blowers — Joseph Strom, who sued over marketing of the drug Natrecor, and Bernard Lisitza, who alleged kickbacks to Omnicare Inc. (OCR), a nursing home pharmacy — will get about $28 million each, according to the Justice Department. Whistle-blowers typically pay their lawyers about one-third of their award and pay taxes on the rest.

In settling the case, J&J signed a five-year corporate integrity agreement with the inspector general of the Department of Health and Human Services. J&J has “robust compliance programs that have been continually strengthened,” according to a company statement on Nov. 4.

‘Accepts Accountability’

While Janssen “accepts accountability” for the actions described in the misdemeanor plea, the civil settlement “is not an admission of any liability or wrongdoing, and the company expressly denies the government’s civil allegations,” J&J said.

The government investigated the whistle-blower claims and “many of those allegations were not included in the government’s final complaint,” Carol Goodrich, a spokeswoman for New Brunswick, New Jersey-based J&J, said in an e-mail.

The U.S. claimed as part of the civil case that J&J promoted Risperdal for elderly patients and children from 1999 to 2005. Both uses were beyond its approvals at the time for schizophrenia and bipolar disorder.

J&J promoted Risperdal as safe and effective for off-label uses when studies showed it increased the risk of strokes in the elderly and diabetes for all, the U.S. said. The lawsuits claimed the practices caused Medicare and Medicaid to overpay.

Lucrative Payday

Interviews with Doetterl, 43, and Zane Memeger, the U.S. attorney in Philadelphia who oversaw the Risperdal probe, show the lucrative payday for whistle-blowers came after painstaking work by government investigators who battled a company that defended its conduct for almost a decade.

Memeger said his lawyers conducted parallel criminal and civil probes as they juggled other cases and faced multiple law firms defending J&J.

“A lot of times our attorneys are in a David versus Goliath situation,” said Memeger, who took office in May 2010. “You may have one attorney, maybe two attorneys, on the civil side, and maybe the same thing on the criminal side, but you’re facing law firms with teams and teams of lawyers.”

J&J also had to conduct its own investigation, he said.

“It’s high-stakes litigation,” Memeger said. “We’re talking about a significant amount of money. It’s going to take some time. You have attorneys who are very skilled on the government side trying to figure out what’s going on.”

First Lawsuit

The first whistle-blower lawsuit was filed when Victoria Starr, a former Janssen sales representative from Oregon, sued in April 2004, three months after she resigned.

“She quit without a job,” said one of her attorneys, Stephen Sheller. “They were asking her to market the drug for the elderly. She knew that was dangerous. She was told to convince the nursing homes and the residential places” to prescribe the drug, Sheller said.

Lynn Powell, then a sales rep in North Carolina, sued in November 2004. Doetterl and her former boss, Camille McGowan, sued a month later. Their complaints also outlined aspects of the Risperdal off-label marketing plan. McGowan retired in 2005, said her attorney Dan Oliverio, who also represents Doetterl.

While the False Claims Act calls for rewarding the first whistle-blower to file a case, lawyers for those who file later often reach deals to share the award. That’s what happened in the Risperdal case.

Business Plan

Starr claimed J&J promoted Risperdal to children. In its Nov. 4 complaint, the U.S. said J&J’s business plan in 2001 called for $340 million in sales for children, even though the FDA hadn’t approved such uses. J&J also knew Risperdal could cause elevated levels of prolactin, a hormone that stimulates breast development, the U.S. claimed.

Sheller said J&J has settled more than 1,000 claims, including 80 lawsuits, that Risperdal causes gynecomastia, a condition that leads to breast development in boys and requires surgery. About 200 cases are pending in state court in Philadelphia, according to Sheller.

Doetterl had worked in North Carolina for three years, promoting Risperdal for on-label uses to psychiatrists before moving to the ElderCare division in Buffalo, she said. She was then urged to sell Risperdal for dementia, working under a compensation plan that rewarded such off-label sales, she said. Risperdal sales accounted for 70 percent of bonuses. The other 30 percent was allocated for a drug to treat Alzheimer’s disease, Doetterl said.

Sales Force

“I would sit there and think, ‘How could the world’s largest health-care company have a whole sales force selling for dementia?” she said. “How could they get away with that?”

When Doetterl complained to a manager, she said she was told: “‘What are you saying? You can’t do your job?’ I took it to her manager, and it was kind of blown off. I felt betrayed. They were so big and powerful that there was an arrogance that they could do no wrong and do whatever they wanted.”

Doetterl, who left J&J in 2005, was not the only whistle-blower to wear a wire, Oliverio said. All of the whistle-blowers gave investigators thousands of pages of documents, including marketing and training materials, he said.

“We had the testimony that corroborated it,” Oliverio said. “Without the reps, you wouldn’t know what the pitch was.”

Through the years, the whistle-blowers talked to investigators, he said. Agents and prosecutors talked to doctors, corporate executives and sales representatives, while trying to determine whether the sales were legitimate or off-label, Memeger said.

Major Break

The government’s major break came in January 2010 when Kurtis J. Barry, a regional business director who oversaw 60 sales representatives and six managers, filed a whistle-blower case.

Barry, who lives in Colorado and worked at J&J from 1996 to 2009, was the Risperdal product director. He offered far more detailed evidence on corporate strategy and tactics.

Alex Gorsky, a former sales representative, rose to president of the Janssen unit and oversaw Risperdal marketing. Gorsky is now the chief executive officer of J&J. Barry never reported directly to Gorsky, Goodrich said in an e-mail.

“The decision to market, promote and sell Risperdal for off-label purposes to the elderly population was made affirmatively and deliberately by defendants’ executive and management personnel, and carried out under their authority and direction,” Barry claimed in his lawsuit.

‘Competitive Advantage’

The company sought U.S. Food and Drug Administration approval to market Risperdal for dementia, which would have given J&J “a significant competitive advantage” and would “open the flood gates,” he claimed.

When the FDA said no, J&J had already invested “an enormous amount of money, time and energy” in its ElderCare sales force, and it was “not willing to walk away” from the “extremely profitable” elderly population, Barry claimed.

Barry’s entry as a whistle-blower was “critical,” said Assistant U.S. Attorney Charlene Fullmer of Memeger’s office.

“At that point, we had testimony from that product director that this was a marketing plan orchestrated at the highest levels of the company, and that message was passed onto the sales reps to persuade doctors to prescribe the drug off-label,” Fullmer said.

Barry’s corporate knowledge was the linchpin, Memeger said.

‘Deeper Dive’

“What he brought to the table was invaluable,” Memeger said. “It demonstrates that what you’re looking at is accurate and allows you to do a deeper dive.”

Fullmer worked the civil case with another assistant U.S. attorney, Mary Catherine Frye. Assistant U.S. Attorney Albert Glenn handled the criminal case.

Barry also presented prosecutors with evidence about off-label marketing of another antipsychotic, Invega. Beyond his Risperdal award, Barry got $2.2 million for Invega, according to the Justice Department.

Barry couldn’t be reached for comment through his attorney, Thomas Sheridan. Powell’s attorney, John Thurman, didn’t return calls seeking comment.

In 2009, a New Jersey jury heard a lawsuit Powell filed claiming she was fired in 2004 for protesting off-label sales. The judge threw out the case before it went to the jury, saying Powell failed to prove she engaged in whistle-blowing as defined by New Jersey’s Conscientious Employee Protection Act. Powell’s failure to take the witness stand hurt her case, the judge said.

Doetterl, who lives in Buffalo, went on to work for other drugmakers and intends to retire from the industry, she said. She’s still weighing her next steps, she said.

‘Too Young’

“I’m too young to stop working,” Doetterl said. She said she hasn’t decided yet what she’ll do with her new-found wealth.

It hasn’t “hit me yet,” she said.

With several multibillion-dollar settlements and a new law governing interactions with doctors, the industry is “completely different now that it was 10 years ago,” she said.

Drug companies and medical-device makers now must publicly disclose money paid to doctors to make patients aware of conflicts of interest that may affect their health. The regulations, which took effect this year, are part of President Barack Obama’s Affordable Care Act.

“Reps are scared now that they’re out of compliance,” she said. “It’s to the extreme.”

Still, she has faith in the industry she’s leaving.

“We do help patients,” she said. “I don’t think pharmaceuticals is a bad word.”

To contact the reporters on this story: David Voreacos in federal court in Newark, New Jersey, at; Sophia Pearson in federal court in Philadelphia at