Serono Sets Aside $725M To Settle Federal Investigation Into Company’s Sales, Pricing Practices
The Swiss biotechnology company Serono on Thursday in a routine earnings release reported that it plans to pay $725 million to settle a federal Department of Justice investigation into the company's sales and pricing practices, the Boston Globe reports (Kerber, Boston Globe, 4/22). In 2001, the U.S. attorney's office in Boston subpoenaed from Serono nearly 10 years' worth of documents pertaining to the companies AIDS wasting drug Serostim -- which is a growth hormone given to HIV-positive patients to treat AIDS-related wasting -- as part of an ongoing grand jury investigation into the company's practices. The company in 2002 received similar requests from authorities in California, Florida, Maryland and New York. The criminal and civil investigations are focused on whether the company violated federal and state false claims acts or antikickback laws, which prohibit drug companies from offering incentives to doctors to prescribe a drug covered by the government. DOJ earlier this month indicted four former Serono executives for bribing physicians to prescribe Serostim, which many HIV/AIDS patients receive through state-federal Medicaid programs that include the medication in their drug formularies (Kaiser Daily HIV/AIDS Report, 4/18).
In the earnings release, Serono cited the $725 million as a "one-time exceptional charge" and said the potential payment caused the company to have a first-quarter loss of $568 million. According to the release, a final agreement with DOJ has not been reached, but talks with prosecutors "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" (Boston Globe, 4/22). Serono said the investigation surrounding Serostim is part of an "industrywide probe" by federal and state governments into various commercial practices and the setting of average wholesale prices, the Wall Street Journal reports. Serono said it "has cooperated fully with the investigation and continues to do so," the Journal reports. Serono CFO Stuart Grant said the company "took the charge now" because it could "reasonably" estimate the amount of the settlement following talks with the U.S. attorney's office, according to the Journal (Greil, Wall Street Journal, 4/25). If the $725 million figure is finalized, it would be one of the largest amounts paid by a drug maker as part of DOJ's increased investigation into the sales and pricing practices of biotechnology and pharmaceutical companies, according to the Globe. Serono and DOJ declined to elaborate on how the $725 million is related to the alleged misconduct of the four former executives (Boston Globe, 4/22). However, Serono spokesperson Renee Connolly said the $725 million is expected to cover costs associated with state investigations, the New York Times reports.
Geoffrey Porges, a Bernstein Investment Research and Management analyst, said, "Bribing a handful of doctors is not enough to justify a $725 million fine," adding that the large amount indicates behavior that is "considerably more egregious" than Medicaid price miscalculations or physician influences. He also said, "Frankly, the parts don't add up right now," adding, "It's very unusual to have this come out of nowhere in terms of announcing a provision of this magnitude." Evan Slavitt, a former assistant federal prosecutor who is representing one of the former Serono executives, said one potential explanation for the $725 million figure is that the government is acting under the False Claims Act, which allows triple the penalty. The case likely will be resolved soon because Serono has accepted the charge, according to Slavitt, the Times reports (Saul, New York Times, 4/23).