Pfizer to pay record $2.3B penalty for drug promotions

WASHINGTON -- Federal prosecutors hit Pfizer Inc. with a record-breaking $2.3 billion in fines Wednesday and called the world's largest drugmaker a repeating corporate cheat for illegal drug promotions that plied doctors with free golf, massages, and resort junkets.

Announcing the penalty as a warning to all drug manufacturers, Justice Department officials said the overall settlement is the largest ever paid by a drug company for alleged violations of federal drug rules, and the $1.2 billion criminal fine is the largest ever in any U.S. criminal case. The total includes $1 billion in civil penalties and a $100 million criminal forfeiture.

Authorities called Pfizer a repeat offender, noting it is the company's fourth such settlement of government charges in the last decade. The allegations surround the marketing of 13 drugs, including big sellers such as Viagra, Zoloft and Lipitor.

As part of its illegal marketing, Pfizer invited doctors to consultant meetings at resort locations, paying their expenses and providing perks, prosecutors said.

"They were entertained with golf, massages and other activities," said Mike Loucks, the federal prosecutor in Massachusetts.

Loucks said that even as Pfizer was negotiating deals on past misconduct, they were continuing to violate the same laws with other drugs.

To prevent backsliding this time, Pfizer's conduct will be specially monitored by the Health and Human Services Department inspector general for five years.

In an unusual twist, the head of the Justice Department, Attorney General Eric Holder, did not participate in the record settlement, because he had represented Pfizer on these issues while in private practice.

Associate attorney general Thomas Perrelli said the settlement illustrates ways the Justice Department "can help the American public at a time when budgets are tight and health care costs are rising."

Perrelli announced the settlement terms at a news conference with federal prosecutors and FBI, and Health and Human Services Department officials.

The settlement ends an investigation that also resulted in guilty pleas from two former Pfizer sales managers.

Officials said the U.S. industry has paid out more than $11 billion in such settlements over the past decade, but one consumer advocate voiced hope that Wednesday's penalty was so big it would curb the abuses.

"There's so much money in selling pills, that there's a tremendous temptation to cheat," said Bill Vaughan, an analyst at Consumers Union, the nonprofit publisher of Consumer Reports.

"There's a kind of mentality in this sector that (settlements) are the cost of doing business and we can cheat. This penalty is so huge I think consumers can have some hope that maybe these guys will tighten up and run a better ship."

The government said the company promoted four prescription drugs, including the pain killer Bextra, as treatments for medical conditions different from those the drugs had been approved for by federal regulators. Authorities said Pfizer's salesmen and women created phony doctor requests for medical information in order to send unsolicited information to doctors about unapproved uses and dosages.

Use of drugs for so-called "off-label" medical conditions is not uncommon, but drug manufacturers are prohibited from marketing drugs for uses that have not been approved by the Food and Drug Administration. They said the junkets and other company-paid perks were designed to promote Bextra and other drugs, to doctors for unapproved uses and dosages, backed by false and misleading claims about safety and effectiveness.

Bextra, for instance, was approved for arthritis, but Pfizer promoted it for acute pain and surgical pain, and in dosages above the approved maximum. In 2005, Bextra, one of a class of painkillers known as Cox-2 inhibitors, was pulled from the U.S. market amid mounting evidence it raised the risk of heart attack, stroke and death.

A Pfizer subsidiary, Pharmacia and Upjohn Inc., which was acquired in 2003, has entered an agreement to plead guilty to one count of felony misbranding. The criminal case applied only to Bextra.

The $1 billion in civil penalties was related to Bextra and a number of other medicines.

A portion of the civil penalty will be distributed to 49 states and the District of Columbia, according to agreements with each state's Medicaid program.

Pfizer's top lawyer, Amy Schulman, said the settlements "bring final closure to significant legal matters and help to enhance our focus on what we do best -- discovering, developing and delivering innovative medicines."

In her statement, Schulman said: "We regret certain actions taken in the past, but are proud of the action we've taken to strengthen our internal controls and pioneer new procedures."

In financial filings in January, the company had indicated that it would pay $2.3 billion over the allegations.

The civil settlement announced Wednesday covered Pfizer's promotions of Bextra, blockbuster nerve pain and epilepsy treatment Lyrica, schizophrenia medicine Geodon, antibiotic Zyvox and nine other medicines. The agreement with the Justice Department resolves the investigation into promotion of all those drugs, Pfizer said.

The government said Pfizer also paid kickbacks to market a host of big-name drugs: Aricept, Celebrex, Lipitor, Norvasc, Relpax, Viagra, Zithromax, Zoloft, and Zyrtec.

The allegations came to light thanks largely to five Pfizer employees and one Pennsylvania doctor, who will now share $102 million of the settlement money.

FBI Assistant Director Kevin Perkins praised the whistleblowers who decided to "speak out against a corporate giant that was blatantly violating the law and misleading the public through false marketing claims."

To rein in the abuses, the government's five-year monitoring will force Pfizer to notify doctors about Wednesday's agreement, encourage them to report any similar behavior, and publicly post any payments or perks it gives to doctors.

Under terms of the settlement, Pfizer must pay $1 billion to compensate Medicaid, Medicare, and other federal health care programs. Some of that money will be shared among the states: New York, for example, will receive $66 million, according to the state's attorney general, Andrew Cuomo.

When Pfizer originally disclosed the settlement figure, it also announced plans to acquire rival Wyeth for $68 billion. That deal, which would bolster Pfizer's position as the world's top drugmaker by revenue, is expected to close before year's end.

Shares of Pfizer dropped 14 cents to $16.24 in midday trading.

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AP Business Writer Linda A. Johnson in Trenton, N.J., contributed to this report.