By Jonathan Stempel

(Reuters) - Johnson & Johnson on Thursday won a reversal by the Arkansas Supreme Court of a $1.2 billion judgment imposed after a jury concluded that the drugmaker improperly marketed its anti-psychotic drug Risperdal and concealed its risks.

The penalty had been imposed in April 2012, one day after a jury in Little Rock, Arkansas, found that Johnson & Johnson and its Janssen Pharmaceuticals unit violated state laws governing Medicaid fraud and deceptive trade practices.

Arkansas' highest court, however, said the jury verdict and subsequent award could not stand because Arkansas had relied on the wrong law to sue Johnson & Johnson, using a law covering healthcare facilities rather than drug companies.

"Janssen is indisputably not a healthcare facility and applying for certification or re-certification as described in the statute," Associate Justice Karen Baker wrote for the court. "Hence, the statutory provision is not applicable."

The decision was unanimous, though three of the Supreme Court's seven justices dissented from some of the reasoning. The Arkansas court also threw out an order directing Johnson & Johnson to cover the state's $181 million in attorney's fees.

Arkansas Attorney General Dustin McDaniel in a statement said he still believes the state legislature meant the Medicaid fraud law to apply to companies such as Johnson & Johnson, which is based in New Brunswick, New Jersey.

"I am disappointed that the court viewed the law differently," he said. "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."

Pamela Van Houten, a Janssen spokeswoman, in a statement said the unit is pleased with the decision, and "remains strongly committed to ethical business practices."

The jury verdict came after a 12-day trial.

In late afternoon trading, Johnson & Johnson shares were up 40 cents at $93.99 on the New York Stock Exchange.

OTHER CHALLENGES

Risperdal was launched in 1994, and is used to treat conditions including schizophrenia, bipolar disorder, and irritability in people with autism.

The drug and other anti-psychotic treatments have also been linked to side effects such as strokes, diabetes and weight gain. Generic versions are available.

Following the jury verdict, Pulaski County Circuit Court Judge Tim Fox ordered Johnson & Johnson to pay $1.19 billion for violating Arkansas' Medicaid fraud law, or $5,000 for each of nearly 238,900 violations, plus $11.4 million for violating the deceptive trade law.

Johnson & Johnson is awaiting a ruling by South Carolina's Supreme Court on whether to overturn $327 million of penalties in a similar case. The Louisiana Supreme Court overturned a $258 million award in a similar case in January.

In November, Johnson & Johnson agreed to pay $2.2 billion to federal and state governments to settle criminal and civil allegations that it promoted Risperdal and other drugs for unapproved uses.

It was accused in that case of promoting Risperdal for uses including the controlling of aggression and anxiety in older patients suffering from dementia, and treating behavioral disturbances in children and disabled people.

The case are Ortho-McNeil-Janssen Pharmaceuticals Inc et al v. Arkansas, Arkansas Supreme Court, Nos. 12-1058, 13-468.

(Reporting by Jonathan Stempel in New York; Editing by David Gregorio and Phil Berlowitz)