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Schering a target of criminal probe

Drug firm accused of giving kickbacks

Saturday, May 31, 2003

BY DAVID SCHWAB

Star-Ledger Staff

Schering-Plough, the drug maker already hurt by government investigations and declining sales, said yesterday it expects to be indicted on charges stemming from a criminal investigation by federal prosecutors in Massachusetts.

The probe centers on allegations the Kenilworth company paid doctors and health care plans to get them to prescribe its medicines and then later destroyed documents and obstructed the government inquiry, according to a statement.

Schering-Plough, best known as the manufacturer of the allergy medicine Claritin, said it received a letter this week from the U.S. Attorney's Office in Boston saying it is a "target" of a criminal investigation. The letter means the government intends to seek an indictment and has "substantial evidence," the company said.

"When you are a target, it means the government is looking to indict you," said John Fahy, a criminal defense attorney in Hackensack and a former federal prosecutor.

An indictment and conviction could mean hundreds of millions of dollars in fines and probably means employees could face charges, experts said.

The sales and marketing practices of several top pharmaceutical companies have been the subject of various government investigations and lawsuits by consumer groups. But it is unusual for these investigations to result in an indictment like the one Schering-Plough is facing.

"Everybody is being investigated. These guys just stepped to the front of the line," said Richard Evans, a senior research analyst at Sanford C. Bernstein & Co. in New York.

Denise Foy, a Schering-Plough spokesman, declined comment other than to say the company is cooperating with prosecutors. The company employs 6,800 in New Jersey.

Samantha Martin, a spokeswoman for the U.S. Attorney's Office in Boson, declined comment.

On Wall Street, Schering-Plough shares fell 45 cents, or 2.4 percent, to $18.45 in heavy trading.

The looming indictment is the latest setback for Schering-Plough.

Just last month the company hired a new chief executive officer -- Fred Hassan, formerly the CEO at rival Pharmacia Corp. -- in an effort to reverse a downward spiral over the past two years that prompted former CEO Richard Kogan to step down.

Last year, Schering-Plough agreed to pay a record $500 million in fines to the Food and Drug Administration to resolve manufacturing problems. Meanwhile, it faces other investigations while trying to revive a business significantly hurt by the expiration of Claritin's patent and the introduction of cheaper generic versions.

In its statement, Schering-Plough said the investigation focuses on whether it provided drug samples, research grants or other "items of value" to physicians or managed-care organizations to get them to prescribe Schering-Plough medicines.

Investigators are also reviewing whether Schering-Plough improperly promoted medicines for uses other than those approved by the FDA and submitted false pricing information to the government.

The federal government is involved in this latest investigation because Medicaid, the government health program for the poor, eventually paid for the medicines.

In other similar cases, drug companies have been accused of providing doctors with free samples of medicines and telling them how to get reimbursed by Medicaid. Companies have been also accused of paying kickbacks or offering free trips to get them to prescribe their medicines.

"They not only get kickbacks to prescribe a certain company's drugs, but the drug company is not even paying the kickback -- the taxpayers are," said Ahaviah Glaser, director of Prescription Access Litigation in Boston, which has filed a number of lawsuits against major pharmaceutical companies, including Schering-Plough.

In November, Schering-Plough said it received subpoenas from the U.S. Attorney's Office in Boston related to sales of Intron A and Rebetron, two hepatitis C medicines, and Temodar, an oral chemotherapy agent for brain tumors.

David Schwab can be reached at dschwab@starledger.com or (973) 392-5835.

Copyright 2003 The Star-Ledger. Used by NJ.com with permission.