TRENTON, N.J. — Drug-maker Schering-Plough Corp. said Friday it is the target of a federal grand jury investigation into its marketing practices, whether it overcharged the government for medicines and possible obstruction of justice.
Schering-Plough received a letter Wednesday from the U.S. Attorney's Office for the District of Massachusetts informing it of the investigation, which focuses on the subsidiary running U.S. operations, Schering Corp., said spokeswoman Denise Foy.
The Kenilworth-based company said it believes the letter shows that the government plans to pursue a criminal indictment and likely has substantial evidence supporting an indictment.
"The company is continuing to cooperate with the U.S. Attorney's Office on this matter," Foy said.
Samantha Martin, spokeswoman for the U.S. Attorney's Office in Boston, said the office would neither confirm nor deny the investigation.
Shares in Schering-Plough fell 45 cents, or nearly 2.4 percent, to close at $18.45 in trading on the New York Stock Exchange. That's down from about $60 two years ago.
Schering-Plough had previously disclosed that federal prosecutors in Boston were probing its practices regarding sales, marketing and funding for testing of its medicines on people. The new letter from the U.S. Attorney's Office there states that Schering-Plough is a target of a criminal investigation on four fronts.
The company said those allegations are:
Providing remuneration to physicians, managed-care organizations and others to induce them to purchase or prescribe its pharmaceutical products under federal health-care programs. The remuneration being investigated includes providing drug samples, grants for patient testing of drugs, known as clinical trials, and other items or services.
Selling drugs for conditions for which the Food and Drug Administration has not specifically approved their use.
Giving the government false or incomplete information on average wholesale pricing of its drugs, inflating prices paid for those drugs by the Medicaid program.
Destroying documents and obstructing justice relating to this investigation.
Schering-Plough said it has implemented "certain changes to its sales, marketing and clinical trial practices and is continuing to review those practices to ensure compliance with relevant laws and regulations."
It also said the U.S. Attorney's Office has advised the company that it will have an opportunity to submit evidence and legal arguments responding to the allegations.
The U.S. Attorney's Office originally subpoenaed Schering-Plough in the case in March 2001, seeking documents about pricing and marketing practices for hepatitis drugs Intron A and Rebetron, and Temodar for brain tumors.
The company said in a recent filing with the Securities and Exchange Commission that the investigation could result in substantial fines, penalties or injunctions. The filing noted that the U.S. Departments of Justice and Health and Human Services also are investigating company practices on wholesale pricing.
Other legal and financial problems facing Schering-Plough include:
A sharp drop in revenues since last year due to conversion of its once-blockbuster allergy drug Claritin to nonprescription status and more competition for its hepatitis drugs. First-quarter profits were down 71 percent, and revenues fell 19 percent.
A record $500 million fine levied by the Food and Drug Administration in 2001 for deficiencies at four manufacturing plants in New Jersey and Puerto Rico. The FDA had been warning the company about deficient paperwork and inadequate testing of drugs since 1998.
Schering-Plough has been upgrading the plants but faces shareholder lawsuits accusing company officials of failing to disclose that information and breaching their fiduciary duty.
An SEC inquiry into meetings that recently retired chief executive officer Richard Jay Kogan had with some investors last September.
An investigation by the U.S. Attorney's Office in Philadelphia into whether the company broke federal anti-kickback laws by giving deeply discounted drugs or services to managed-care organizations and prescription-benefit managers to get or keep major products on their formulary of covered drugs. That case began in October 1999.
In February, the company added $150 million to its litigation reserves because of the federal cases in Boston and Philadelphia.