SERONO LABS Pleads Guilty to the Illegal Marketing of AIDS Drug, Reports U.S. Attorney

BOSTON, Dec. 15 /PRNewswire/ — The U.S. subsidiary, SERONO LABORATORIES, INC., of Swiss Corporation SERONO, S.A., pleaded guilty and was sentenced today in federal court on criminal charges 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.

In October, SERONO, S.A., together with its U.S. subsidiaries, SERONO, INC., SERONO HOLDING, INC., SERONO LABORATORIES, INC. and related entities (“SERONO”) reached a global resolution with the United States in which it agreed to pay a total of $704,000,000 to resolve the criminal charges and civil liabilities in connection with the several illegal schemes to promote, market and sell Serostim. This 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 today that SERONO LABS entered its guilty plea before U.S. District Judge Reginald C. Lindsay. After accepting the plea, Judge Lindsay immediately sentenced the company and ordered SERONO LABS to pay a $136,935,000 criminal fine. As part of its agreement with the government, SERONO will also pay a total of $567,065,000 to settle civil liabilities. This global resolution 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.

At today’s plea hearing, SERONO LABORATORIES, INC. (“SERONO LABS”) pleaded guilty to two counts of criminal conspiracy. 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.

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 pleaded guilty charged 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 scheduled to be sentenced in 2006.

SERONO LABS pleaded 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 shortfall 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.

As part of the plea agreement, the Court required, and SERONO has agreed, to notify physicians who prescribe Serostim and known AIDS advocacy groups of the guilty plea and the global resolution of this case.

In December 2004, the Regional Director for Sales in New York pleaded guilty to his role in the marketing Conspiracy. He is scheduled to be sentenced in March 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.

Under its agreement to settle its federal civil False Claims Act liabilities, 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.

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 the 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 this resolution, the five whistleblowers will share in approximately 17% of the civil recovery, or approximately $51.86 million.

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.

U.S. Attorney

CONTACT: Samantha Martin of the U.S. Attorney’s Office, +1-617-748-3139

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