Johnson & Johnson has agreed to pay $158 million to settle a lawsuit in Texas which claimed the healthcare giant and its Janssen unit defrauded the state's Medicaid programme through illegal promotion of the antipsychotic Risperdal.

The case stems from a whistleblower lawsuit filed in 2004 which revealed that J&J launched a campaign promoting Risperdal (risperidone) as the superior drug of choice, while downplaying harmful side effects. The company was accused of improperly urging physicians to prescribe Risperdal to children and the elderly for schizophrenia and dementia, despite the fact that the antipsychotic had not been approved by the US Food and Drug Administration for these uses at the time.

Texas attorney general Greg Abbott said the agreement "sends a strong message that the state will pursue those who defraud Texas taxpayers". He added that J&J’s "scheme to profit from the Medicaid programme by overstating the safety and effectiveness of an expensive drug and improperly influencing officials ended up costing taxpayers millions of dollars". The state had originally sought a settlement of $579 million.

The 10-day trial was halted early as a settlement was reached but testimonies heard in court have hurt J&J's image. For example, it was claimed that the company buried three studies showing some patients using Risperdal developed diabetes and that it repeatedly disregarded warnings from the US Food and Drug Administration not to market Risperdal off-label.

J&J said it has agreed to the settlement to avoid “potentially lengthy and costly appellate activities”, adding that it is "committed to ethical business practices and has policies in place to ensure its products are only promoted for their FDA-approved indications".

The Texas case comes amid rumours that J&J is on the verge of paying out $1 billion to settle a US government investigation into Risperdal marketing practices. Last June, the firm was told to pay over $327 million to South Carolina for "unfair or deceptive acts" regarding its selling of the drug.

Vioxx cases resolved in Canada

Meantime, Merck & Co has entered into an agreement to resolve all claims related to its now-withdrawn painkiller Vioxx (rofecoxib) in Canada.

The US drugs major will pay at least C$21.8 million (about $21.5 million) but not more than C$36.9 million. Merck noted that claims for myocardial infarction and sudden cardiac death linked to use of Vioxx "will be evaluated on an individual basis by an independent administrator" based on criteria including duration of Vioxx use, age and presence of risk factors. Individual awards for ischemic stroke claims "will be a uniform amount not to exceed C$5,000".

Merck said its decision to resolve this litigation "is based upon the specifics of the Canadian lawsuits and the Canadian legal system" and has no impact on pending litigation in any other country. The company added that "the evidence shows the company acted responsibly with Vioxx, from the careful study in clinical trials involving about 10,000 patients...through the careful safety monitoring while Vioxx was on the market, right up through the decision to voluntarily withdraw the medicine in September 2004.

In November, Merck said it would pay $950 million, which has already been set aside, to settle criminal and civil charges with the US government regarding off-label promotion of Vioxx.