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Serono may pay $725m to end probe: Federal investigation targets AIDS treatment
  By Ross Kerber
Boston Globe
April 22, 2005
Swiss drug maker Serono SA yesterday said it took a $725 million charge aimed at resolving a federal investigation into the marketing of its Serostim treatment for AIDS wasting.
If the figure cited by the parent company of Serono Inc. of Rockland is finalized, it would be one of the largest amounts paid by any drug maker as the Justice Department steps up its scrutiny of the sales and pricing practices of the pharmaceutical and biotechnology industries.
A week ago prosecutors brought bribery and conspiracy charges against four former Serono executives, alleging they offered doctors free trips to a medical conference in France if they prescribed certain amounts of Serostim.
Attorneys for the individuals said they deny wrongdoing. Neither the company nor the Justice Department would elaborate on exactly how the $725 million provision related to the alleged misconduct by the individuals.
But Evan Slavitt, an attorney representing a fifth executive who has pleaded guilty in the investigation, said prosecutors are likely looking to hold Serono itself accountable for the same actions that led to the bribery and conspiracy charges against the individuals partly because those charged included two vice presidents. ''They were senior enough people so that in any meaningful sense, they knew, so the company knew," Slavitt said.
Serono mentioned the $725 million as a ''one-time exceptional charge" in a routine earnings release yesterday, saying it caused the company to report a first-quarter loss of $568 million.
Serono said it is cooperating with the investigation by the office of Michael J. Sullivan, US attorney for Massachusetts. Prosecutors there reached a record $875 million settlement with TAP Pharmaceutical Products Inc. in 2001 over its tactics promoting a cancer drug, though a jury later acquitted individual defendants.
Serono said in its earnings release that although it hasn't reached a final agreement with prosecutors, talks ''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 SA of Geneva is best-known for its multiple sclerosis drug Rebif, sales of which rose 13 percent in the first quarter to $293 million.
Rebif's fortunes have been boosted by recent health risks shown for the rival MS drug Tysabri, made by Biogen Idec Inc. and its partner, Elan Corp.
Serono also produces and sells the growth hormone Serostim, once a key treatment for rapid weight loss in AIDS patients. By 1999 new drug combinations had sharply reduced Serostim sales, however.
The charges brought by prosecutors last week named four former Serono executives, including two vice presidents, John Bruens of San Diego, and Mary Stewart of North Andover.
According to prosecutors, at a 1999 meeting Bruens and Stewart and another executive advised other employees to ''dig their way out" of the sales crisis by targeting certain high-profile doctors. Those who prescribed certain amounts of Serostim would get a company-paid trip to an AIDS conference held in Cannes, France.
At least one doctor objected to the program, according to the indictment. Asked if Serono's senior leadership knew about the sales program, Tracy Miner, an attorney for another of the four defendants, Marc Sirockman of New Jersey, responded that ''any offers were pursuant to company programs."
In a telephone interview yesterday, Serono Inc. president Fereydoun Firouz declined to discuss exactly how much the company knew about the activities of the employees charged last week. Citing the ongoing talks with prosecutors, Firouz and Stuart Grant, Serono SA chief financial officer, also declined to be more specific about possible charges the company might face or the timetable of a settlement.
"When it's finished, it's finished," Grant said.
Firouz said the company set up an internal ethical-compliance program in 2000 or 2001 amid investigations of other drug makers, but declined to say if it was also motivated by the actions of the four people. ''We're committed at Serono to meeting the highest standards of ethical behavior," he said.
Paying $725 million won't affect Serono's business strategy, said Grant, since the company holds $1.9 billion in cash and equivalents.
Thomas E. Peisch, a Boston defense attorney not involved in the case, said Serono has a much greater incentive to settle the charges than do the individuals, since prosecutors could seek even stiffer penalties such as barring the company from programs like Medicare that pay for many of its sales.
"That makes these kinds of situations practically indefensible," Peisch said.
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