Saturday, April 23, 2005
Serono S.A., the large biotech company, indicated in an SEC filing that it is preparing to settle an investigation of its U.S. subsidiary, Serono Inc., related to its sales of Serostim, a drug used to treat AIDS wasting, by reserving $725 million. Serostim is a human growth hormone, and can be used -- and abused -- by athletes. An earlier post (here) discussed the indictment of four former Serono sales executives related to alleged kickbacks given to doctors to entice them to write prescriptions for Serostim, a drug which costs $21,000 for a full treatment cycle. The sales push was dubbed "$6 Million in Six Days" -- catchy, but perhaps a little hard to justify under the anti-kickback rules. Serono S.A.'s Form 6-K (the foreign private issuer financial disclosure form here) states:
The company has taken a provision of $725.0m, in connection with the previously reported Serostim investigation. The group’s principal US subsidiary, Serono, Inc., received a subpoena in 2001 from the US Attorney’s office in Boston, Massachusetts requesting that it produce documents for the period from 1992 to the present relating to Serostim. As part of an ongoing, industry-wide investigation by the states and the federal government into the setting of average wholesale prices and commercial practices, other pharmaceutical companies have received similar subpoenas. These investigations seek to determine whether such practices violated any laws, including the Federal False Claims Act or the US Food, Drug and Cosmetic Act or constituted fraud in connection with Medicare and/or Medicaid reimbursement to third parties. Serono has cooperated fully with the investigation and continues to do so. Although no final agreement has been reached, the company’s discussions with the US Attorney’s office have advanced to a point where it is now appropriate to take a provision that management believes will be sufficient to cover resolution of the investigation related to Serostim. Serono is committed to meet the highest standards of ethical behaviour. The company participated in the setting of industry-wide codes of conduct, and has in place a rigorous compliance program.
A global settlement would likely involve both civil penalties, a criminal fine, and reimbursement of federal health care programs. The $725 million figure, if that turns out to be the final amount, would be among the largest settlements in the healthcare fraud area. The size of Serono S.A.'s reserve indicates that the case is much broader than the "$6 Million in 6 Days" program, and may involve inflated billings, a broader array of kickbacks, or other healthcare fraud violations. The U.S. Attorney's Office in Boston has specialized in these types of cases, including the $875 million penalty assessed TAP Pharmaceuticals related to the marketing of Lupron. Individual defendants from TAP Pharmaceuticals were found not guilty in the criminal prosecution. Let's hope Serono's ethical "behaviour" improves, too. (ph)