Genentech Hopes to Settle FDA Fraud Investigation

Hoping to end one of the biggest health-care fraud investigations ever pursued against a drug company, Genentech announced Monday that it has set aside $50 million to settle allegations that it promoted human growth hormone for uses not approved by the Food and Drug Administration.

The South San Francisco-based biotechnology company, in its quarterly earnings report, revealed that it had set aside the money for a potential “settlement in principle” it has negotiated with the U.S. attorney’s office in San Francisco.

No charges have been filed against Genentech or its executives, but the company has disclosed that, since the beginning of a federal grand jury probe in 1995, government prosecutors have targeted the “past clinical, sales and marketing activities associated with human growth hormone.”

In its most recent annual report, filed earlier this year, the company noted that it had received grand jury subpoenas on four occasions from 1995 through 1998.

The company acknowledged Monday that it has reached a tentative settlement with government prosecutors, which could be finalized as early as this week. “We want to put it behind us,” said Genentech spokeswoman Marie Kennedy. “We can stay focused on our goals and objectives.”

The federal probe centered on Protropin, one of the company’s first commercial products and among the first human substances produced in bacteria through genetic engineering.

The drug was approved by the FDA in 1985 for use as replacement therapy in short-statured children whose own pituitary glands were not producing enough of the growth-stimulating hormone.

Doctors are free to use FDA-approved drugs for any condition, but companies are not permitted to promote “off-label uses.”

The company, however, marketed the drug aggressively. And by 1996, health researchers reported that four out of 10 children under treatment did not have the classic symptoms of growth hormone deficiency, and that many undergoing treatment were simply shorter than their peers.

A study published this year in the New England Journal of Medicine indicated that use of the hormone in children without a known hormone deficiency adds an average of two inches to the height of the children. The drug has also been used for other conditions, including severe burns.

The company announced the potential settlement in its report on first-quarter earnings for 1999. Earnings per share, before taking a charge for the settlement, reached 44 cents for the quarter--up 38% over the same period a year ago. Much of the growth came from sales of two new anti-cancer drugs, Herceptin and Retuxan. The settlement reduced earnings to 11 cents a share.

Reaching an agreement with federal prosecutors was a matter of “cleaning up dirty laundry from years back and not a big deal,” said Hambrecht & Quist analyst Richard van den Broek.

Shares of Genentech closed at $87.50 on Monday, up $2.69, on the New York Stock Exchange.