Botox Maker to Pay $600M to Settle Federal Probe

Allergan Inc., the maker of wrinkle-smoothing Botox, says it will pay $600 million to settle a five-year-long federal investigation into its marketing of the top-selling, botulin-based drug.

The company said Wednesday in a statement it will plead guilty to one misdemeanor charge of "misbranding," in which the company's marketing led physicians to use Botox for unapproved uses. Those included the treatment of headache, pain, spasticity and cerebral palsy in children.

Companies are prohibited from promoting drugs for unapproved, or "off-label," uses.

The case was brought by federal prosecutors in Atlanta.

Allergan, based in Irvine, Calif., said it will pay $375 million in connection with the plea. Additionally, the company will pay $225 million in civil fines related to the investigation, although the company denies liability for the civil claims.

Allergan's product sales topped $4.4 billion in 2009, with Botox accounting for more than $1.3 billion of that total.

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The Justice Department's investigation covered Allergan's marketing of Botox from 2000 to 2005, and the settlement fees suggest Allergan made between $20 million and $50 million a year on off-label sales of the drug in that time, Wells Fargo analyst Larry Biegelsen said.

"We view the settlement as a positive for Allergan as it provides cost certainty ... and eliminates additional related litigation cost," Biegelsen wrote in a note to investors.

In recent years, federal investigators have reached multibillion dollar settlements with Pfizer, Eli Lilly and other drug companies over their marketing practices.

Botox is most famous for its ability to smooth frown lines on aging foreheads, but the drug - introduced in 1989 - is also approved to treat neck spasms, eye muscle disorders and excessive underarm sweating.

Last year the drug won approval to treat spasms in the elbows, wrists and fingers. The drug is also widely used off-label to treat cerebral palsy in children as well as in adults, and Allergan says it is in discussions with U.S. health regulators to approve the use of Botox for children with the neuromuscular disorder.

In guidelines published earlier this year, the American Academy of Neurology endorsed Botox as an "effective and generally safe treatment" for children with cerebral palsy. While the use is not approved by the Food and Drug Administration, the guidelines stated that there are more studies supporting Botox than other movement-disorder drugs.

Botox works by blocking the connections between nerves and muscle, temporarily paralyzing muscles that cause wrinkles as well as certain types of spasms. The drug is a purified form of botulinum, one of the most toxic substances in the world.

As part of the settlement, Allergan agreed to drop a lawsuit against the FDA in which the company pressed for greater leeway to discuss off-label uses with doctors.

The company argued it had a First Amendment right to educate doctors about how to safely use Botox, even for uses that are not currently approved. FDA's rules are designed to stop companies from promoting drugs for uses that haven't been federally confirmed as safe and effective.

Some legal experts speculated that Allergan's lawsuit against FDA was primarily aimed at gaining leverage in its negotiations with the Justice Department, which was a separate matter.

Shares of Allergan rose $1.69, or 2.7 percent, to $63.10 in midday trading.