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Attorney General Bill Lockyer, U.S. Department of Justice Reach $704 Million National Settlement With Company That Illegally Marketed AIDS Drug

Maker Of Serostim To Pay California $215.7 Million And Pleads Guilty to Conspiracy
Monday, October 17, 2005
Contact: (415) 703-5837

(SACRAMENTO) – Attorney General Bill Lockyer today announced that the maker of a drug approved to treat an AIDS-related syndrome will pay more than $704 million to the federal and state governments to resolve criminal charges and civil allegations in connection with illegal schemes to promote, market and sell its drug, Serostim.

The maker of Serostim is Serono Inc., a Massachusetts-based company that entered into the settlement agreements with the U.S. Department of Justice and the Attorneys General of 43 states, including California. The result of Serono’s scheme was that California’s Medi-Cal program paid too much in reimbursement for prescriptions of the drug during a period from 1997 to 2004.

Pursuant to the criminal component of the settlement, Serono entered a guilty plea in federal district court in Boston to criminal charges that the corporation conspired to violate federal Food and Drug Administration restrictions and conspired to pay kickbacks to physicians and pharmacies. Under the plea bargain, Serono will pay $136.9 million as a criminal fine to the federal government.

The settlement is the product of a false claims lawsuit initially filed by a whistle-blower in federal court. Soon afterward in September 2001, Lockyer began working closely with federal prosecutors in reviewing voluminous medical records submitted by Serono to obtain authorization for the drug, interviewing witnesses and issuing subpoenas. California’s share of the settlement totals $215.7 million, of which $108.5 million will be used to reimburse the federal government for its share of the state’s Medicaid funding.

“Instead of promoting the health needs of those diagnosed with AIDS, Serono allowed greed to drive a business agenda that fraudulently ripped off millions from California’s Medi-Cal program,” Lockyer said. “This settlement tells pharmaceutical companies that there is a serious price to pay when they get caught putting the bottomline ahead of quality healthcare.”

Serostim is approved by the FDA to treat AIDS wasting syndrome, which is marked by the involuntary loss of significant body weight and chronic weakness; and other forms of cachexia, a wasting away of body fat and muscle caused by disease. Serostim prescriptions are quite expensive, with a Medicaid reimbursement price of approximately $6,000 per month. The suggested course of treatment is three months, but many recipients use Serostim for much longer.

In his lawsuit, Lockyer alleged that Serono illegally marketed Serostim by:

• Promoting Serostim for uses not approved by the FDA, including for lipodystrophy and body cell mass wasting.
• Using unapproved software as part of tests to determine if patients were appropriate candidates to use Serostim. The states alleged the software resulted in more patients being prescribed the drug than what was appropriate.
• Engaging in illegal kickbacks to pharmacists and physicians in an effort to increase prescriptions. The kickbacks included payments and trips, including to Cannes, France.

The civil settlements with Serono require the company to enter into a Corporate Integrity Agreement with the Office of the Inspector General in the U.S. Department of Health and Human Services to ensure future compliance with the law. Serono is also required to cooperate with California and other states in any related investigations that may ensue.

Serono, Inc. and Serono Laboratories are U.S. affiliates of the Swiss corporation Serono S.A.; both have their principal place of business in Massachusetts. In addition to California, the states of Florida, Maryland, Massachusetts, Missouri and New York led the negotiations with Serono that resulted in the civil settlement.

As Attorney General, Lockyer has made the prosecution of Medi-Cal fraud a top priority. Under his leadership, criminal filings and restitution have increased by 134 percent and 258 percent, respectively. Lockyer’s Medi-Cal enforcement efforts have resulted in more that $330 million in civil and criminal court-ordered restitution and penalties.

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