SERONO to Pay $704 Million for the Illegal Marketing of AIDS Drug, Reports U.S. Attorney

18 October 2005

Swiss corporation SERONO, S.A., together
with its U.S. subsidiaries, SERONO, INC., SERONO HOLDING, INC., SERONO
LABORATORIES, INC. and related entities ("SERONO") have agreed to pay a total
of $704,000,000 to resolve criminal charges and civil liabilities in
connection with several illegal schemes to promote, market and sell its drug,
Serostim, used to treat AIDs wasting, a condition involving profound
involuntary weight loss in AIDS patients. Today's global resolution is the
third largest health care fraud recovery by the United States.
Attorney General Alberto Gonzales; Assistant Attorney General for the
Department of Justice's Civil Division Peter D. Keisler; United States
Attorney for the District of Massachusetts Michael J. Sullivan; United States
Attorney for the District of Maryland Rod J. Rosenstein; and United States
Attorney for the District of Connecticut Kevin J. O'Connor, announced that
SERONO LABS will pay a $136,935,000 criminal fine and a total of $567,065,000
to settle civil liabilities. Today's global resolution also ensures that the
federal Medicaid program and each of the State Medicaid agencies who paid any
claims for Serostim during the time frame of the investigation, 1996 through
2004, will recoup every dollar paid.
"Americans who need medical care depend on health care companies to have
their medical devices and drugs thoroughly evaluated and approved before use,"
said Attorney General Alberto R. Gonzales. "Serono abused the system of
testing and approval, and put its desire to sell more drugs above the interest
of patients. Today's settlement will repay with interest the losses to
federal and state Medicaid programs incurred by Serono's conduct, and would-be
wrongdoers are on notice that we will not tolerate attempts to profit at the
expense of the ill and needy in our society."
"The American people, as both taxpayers and consumers, expect our health
care system to be free from fraud and corruption," stated U.S. Attorney
Michael J. Sullivan for the District of Massachusetts. "The pharmaceutical
industry has an obligation to ensure that all rules, regulations and laws are
complied with. To do less erodes public confidence, compromises the patient
physician relationship and adds costs to important government programs.
Without the assistance of concerned citizens illegal conduct on government
programs would go undetected."
To resolve the criminal charges, SERONO LABORATORIES, INC. ("SERONO LABS")
has agreed to plead guilty to two counts of criminal conspiracy and to pay the
$136,935,000 criminal fine. As a result of its criminal conviction, SERONO
LABS will be excluded from all federal health care programs for at least five
years. SERONO, INC. and all other U.S. subsidiaries of SERONO, S.A., will also
be subject to a stringent Corporate Integrity Agreement for the next five
years.
SERONO has also agreed to settle its federal civil False Claims Act
liabilities for a total of $567,065,000. Specifically, SERONO will pay
$305,077,000, plus interest, to the United States in civil damages for losses
suffered by the federal portion of the Medicaid program, the Veteran's
Administration, the Department of Defense and the Federal Employees Health
Benefits program as a result of SERONO LABS' fraudulent drug promotion and
marketing misconduct. SERONO will also pay a total of $261,988,000, plus
interest, to settle its civil liabilities to the fifty states and the District
of Columbia for losses the state Medicaid programs suffered.
"This plea agreement and settlement reflect an exemplary coordinated use
all of the appropriate anti-fraud weapons available to us," said Assistant
Attorney General Peter Keisler of the Department's Civil Division. "This
settlement sends the unequivocal message to the health care industry that
American taxpayers should not pay for prescriptions induced by unproven
medical tests and improper payments to doctors and pharmacies."
In 1996, the FDA granted accelerated approval for SERONO's drug Serostim
solely for use in treating AIDS wasting, which at the time was the leading
cause of death among AIDS patients. Serostim came on the market at the same
time as protease inhibitor drugs. These drugs, when used in combination with
one another as an "AIDS cocktail," dramatically curtailed the proliferation of
the AIDS virus. As a result, the incidence and prevalence of AIDS wasting
began to markedly decline among those AIDS patients taking the AIDS cocktail
drugs. In turn, the demand for Serostim began to drop significantly
immediately following its launch in the Fall of 1996. SERONO LABS then began
engaging in a multifaceted marketing and sales campaign to redefine AIDS
wasting and create a market for Serostim.
The first Conspiracy count to which SERONO LABS will plead guilty charges
that, from as early as September 1996, through at least January 2002, SERONO
LABS conspired with medical device manufacturer RJL Sciences, Inc., ("RJL") to
introduce on the market bioelectrical impedance analysis ("BIA") computer
software packages for use in calculating body cell mass and diagnosing AIDS
wasting. The software devices were adulterated in that approval from the FDA
had not been obtained for these uses before the software was disseminated.
SERONO LABS conspired with RJL to increase the market for the body cell mass
calculation devices/software, which in turn, would increase the market for
Serostim. Additionally, SERONO LABS employees directly administered BIA tests
to patients to induce doctors to prescribe Serostim and to get Medicaid
agencies and other payors to reimburse for the drug. RJL and its president,
Rudolph J. Liedtke, pled guilty to their roles in the conspiracy in April
2005, and are awaiting sentencing.
SERONO LABS will plead guilty to a second Conspiracy count charging that,
from March 1999, through December 1999, SERONO LABS conspired to pay illegal
remuneration to physicians to induce them to prescribe Serostim for which
payments were made by the Medicaid program. In March and April 1999, in an
attempt to reverse the severe short fall in sales of Serostim, SERONO LABS
offered physicians an all expenses paid trip to a medical conference in
Cannes, France in return for the physicians writing up to 30 new prescriptions
of Serostim. The sales strategy was part of a campaign referred to as the
"$6m-6 Day Plan." Each prescription encompassed a twelve week course of
therapy that cost $21,000, thus the value of 30 scripts to be written by each
doctor was $630,000. The SERONO LABS marketing department announced within
the company that 10 physicians were "U.S. Invitees" to the Cannes conference
with all expenses paid for them and a guest to attend. The 30 prescriptions
each doctor was expected to write meant a total value of approximately $6.3
million in sales.
In December 2004, the Regional Director for Sales in New York, pled guilty
to his role in the marketing Conspiracy. He is scheduled to be sentenced in
January 2006. In April 2005, four SERONO LABS sales and marketing executives
were indicted on charges of Conspiracy and Offering to Pay Illegal
Remunerations. These charges are still pending.
The civil settlement resolves allegations that SERONO knowingly caused the
submission of false and/or fraudulent claims for Serostim that were not
eligible for reimbursement. These included claims, (1) based on testing using
the unapproved BIA software devices; (2) for treating supposed loss of body
cell mass; and (3) for treating lipodystrophy, a separate condition involving
weight gain in the mid-section and weight loss in the extremities. The civil
settlement also resolves allegations that SERONO knowingly caused the
submission of false and/or fraudulent claims by inducing pharmacies to sell
Serostim by paying rebates and discounts to those pharmacies. Finally, the
civil settlement resolves allegations that SERONO knowingly caused the
submission of false and/or fraudulent claims to federal programs for Serostim
by inducing physicians to prescribe the drug by giving them free BIA devices
and software, free trips to Cannes, France and other kickbacks.
The investigation leading to today's global resolution was commenced in
the District of Massachusetts in 2001 after a former SERONO LABS employee
filed a civil False Claims Act ("FCA") suit as a result of her concerns about
the illegal marketing practices of the company. Four other employees with
similar concerns filed civil suits in Maryland and Connecticut. The civil FCA
provides that the Government is entitled to recover up to treble damages on
any fraudulent claims filed. The FCA also provides that private individuals
who file whistleblower suits can share in recoveries of any successful
resolution of their claims. As a part of today's resolution, the five
whistleblowers will share in approximately 17% of the civil recovery, or
approximately $51.86 million.
"Today's announcement should send a strong message to the health care
industry and to those who conduct business with it that the OIG will continue
to zealously investigate any allegations of illegal conduct. Serono's
improper conduct ultimately affected the pockets of the American taxpayer and
the recipients of Federal programs and cannot be tolerated," said Health and
Human Services Inspector General Daniel R. Levinson.
"When drug and device manufacturers deceive physicians into providing a
drug to patients based upon unapproved diagnostic tests, they inadvertently
subject their patients to all of the drug's risks without any assurance that a
benefit will be provided," stated Margaret O'K. Glavin, FDA Associate
Commissioner for Regulatory Affairs. "This places patient safety secondary to
the desire to sell more drugs."

The investigation was conducted by the Federal Bureau of Investigation;
the Food and Drug Administration's Office of Criminal Investigations; the
Department of Health and Human Services' Office of Inspector General, Office
of Investigations; the Department of Labor's Employee Benefits Security
Administration, Boston Regional Office; and the U.S. Postal Service's Office
of Inspector General. Assistance in the investigation was also provided by
Patrick Lupinetti, Director of the New York State Attorney General's Special
Projects and Medicaid Fraud Control Unit who coordinated the National Medicaid
Fraud Units; Mark Thomas, Chief Deputy Attorney General and David Lewis,
Senior Deputy Attorney General of the Medicaid Fraud Control Unit in Florida's
Attorney General's Office, John Krayniak, Supervising Deputy Attorney General
and Chief of the Medicaid Fraud Section of the New Jersey Attorney General's
Office; and Suzanne Giorgi, Deputy Attorney General in the California
Department of Justice. The investigation and settlement were handled by
Assistant U.S. Attorneys Mary Elizabeth Carmody, Jennifer Boal and Patricia
Connolly of the District of Massachusetts, and Department of Justice Trial
Attorneys Sondra Mills and Suzette Smikle in the Office for Consumer
Litigation and Carol Wallack in the Fraud Section of the Civil Division.
Assistant U.S. Attorneys Roann Nichols of the District of Maryland and Richard
Molot of the District of Connecticut also assisted in the investigation. The
Corporate Integrity Agreement was negotiated by Senior Counsel Mary Riordon in
the Office of General Counsel in the Department of Health and Human Services,
Office of Inspector General.