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Doctors get kickbacks to promote drugs

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Serono to Pay $704 Million, Resolve Charges Over Drug (Update3)

Oct. 17 (Bloomberg) -- Serono SA agreed to pay $704 million, the third-largest health fraud settlement in U.S. history, and plead guilty to criminal charges over the promotion of its drug Serostim, used to fight physical wasting caused by AIDS.

The settlement includes a $137 million criminal fine and $567 million in civil suits against Geneva-based Serono, Europe's biggest biotechnology company. It recoups money paid by Medicaid from 1996 to 2004 as a result of the Swiss drugmaker's illegal activities, U.S. Attorney General Alberto Gonzales said.

Serono agreed to plead guilty to conspiring with a medical device maker to use a diagnosis that wasn't approved by the U.S. Food and Drug Administration, the government said. Employees of Geneva-based Serono administered the tests to induce doctors to prescribe Serostim and get Medicaid to pay for it.

``Serono abused the system of testing and approval and put its desire to sell more drugs above the interest of patients,'' Gonzales said at a press briefing today in Washington.

Serostim is used to treat patients with AIDS wasting, a disorder that causes the loss of muscle, organ tissue and blood cells. The drug costs $21,000 for a 12-week course of treatment. The FDA granted accelerated approval for Serostim in 1996 solely for use in treating the condition, at the time a leading cause of death among AIDS patients.

`Brief Period'

``This settlement concludes a four-year government investigation into commercial practices related to Serostim, and we are pleased to put the matter behind us,'' said Thomas G. Gunning, Serono's general counsel. ``The activities described in the settlement were confined to one unit in our U.S. operations over a brief period in our history.''

The investigation leading to today's global settlement began in Massachusetts in 2000, when a former Serono employee sued the company under the federal False Claims Act. Four other employees later filed similar actions in Connecticut and Maryland.

The law allows private citizens to sue for fraud on behalf of the government and be rewarded with part of any money recovered. The Justice Department investigates and decides whether to join the suit, as it did against Serono. The whistleblowers will share about $51.8 million from the settlement.

``The more we learned, the more troubling the conduct became,'' said Michael Sullivan, the U.S. attorney for Massachusetts.

Serono agreed to plead guilty to offering physicians an all- expense-paid trip to a medical conference in Cannes, France, in return for writing as many as 30 new prescriptions apiece for Serostim.

April Indictments

In April, four former sales and marketing executives at Serono were indicted by a U.S. federal grand jury, accused of conspiring to offer and pay kickbacks to doctors. No doctors have been charged in the investigation, Sullivan said.

As a result of its criminal conviction, the company's Serono Labs unit will be excluded from all federal health-care programs until at least 2010. Serono's U.S. subsidiary, Serono Holding, and all U.S. affiliates will also be subject to a Corporate Integrity Agreement for five years.

Under such agreements, companies say they will step up internal compliance monitoring, usually by developing written standards and policies, training employees and hiring compliance officers.

Money Set Aside

HCA Inc., the biggest U.S. hospital chain, agreed to pay $1.7 billion in 2002 to settle lawsuits over health-care fraud in the largest such settlement in U.S. history. Abbott Laboratories and Takeda Chemical Industries Ltd. paid $875 million in 2001 to settle charges their TAP Pharmaceutical Products joint venture defrauded Medicare and Medicaid.

Serono said in April that it had set aside $725 million to cover the settlement. The company said today that will be enough to cover all related expenses.

Founded in 1906, Serono first specialized in extracting lecithin from egg yolks to create plastina, a treatment for various forms of the blood disease anemia. In the 1960s, the company pioneered infertility treatments based on urine collected from post-menopausal nuns.

In 2003, Chief Executive Ernesto Bertarelli helped finance and was a member of Team Alinghi, which won the America's Cup, sailing's oldest competition.

Sales of Serostim fell 2.2 percent to $86.8 million last year as potent new drugs kept the virus in check and cut the number of patients with AIDS wasting. Serono posted net income of $494 million on sales of sales of $2.18 billion in 2004.

Shares of Serono, whose biggest product is the multiple sclerosis drug Rebif, fell 10 Swiss francs to 833 francs ($646) today in Zurich. They have risen 11 percent this year.

Last Updated: October 17, 2005 15:39 EDT

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