Allergan will record nonrecurring pretax charges of $610 million to $615 million in its third fiscal quarter related to the settlement.
Worldwide sales of Botox were $691 million for the first half of 2010 for both therapeutic and cosmetic uses, although the settlement only involves its non-cosmetic version.
As part of the settlement, the company will plead guilty to a single misdemeanor misbranding charge covering the period 2000 through 2005, and pay $375 million in criminal penalties and forfeiture, the Justice Department said.
News of the agreement sent Allergan shares up almost 3 percent and is the latest settlement involving the misbranding of drugs by pharmaceutical companies. Pfizer agreed to pay $2.3 billion in a similar case.
For nearly a decade Allergan illegally promoted Botox for uses that were not approved as safe and effective by the FDA (Food and Drug Administration), said Tony West, assistant attorney general for the Justice Department's civil division.
He said the department would continue to aggressively pursue such cases and the Allergan case served as a deterrent in the industry.
The DOJ accused Allergan of a concerted effort to promote Botox for certain therapeutic uses not approved by the FDA, paying kickbacks to encourage doctors to prescribe it and teaching them how to bill for off-label uses.
Allergan also agreed to pay $225 million to resolve civil claims asserted by the Justice Department under the civil False Claims Act. The company will also enter into a corporate monitoring program that will include publicly detailing payments to doctors.
Wells Fargo analyst Larry Bieglesen said in a research note that he viewed the resolution positively for the company.
It provides cost certainty, allows Allergan to shift resources/focus to other matters and eliminates additional related litigation cost. Importantly, the resolution removes an overhang/concern for investors, he wrote.
He said the settlement appears to be reasonable, adding: The figure puts to rest any investor concerns about a more onerous financial burden following Pfizer's $2.3 billion Bextra settlement with the DOJ in 2009.
As part of the settlement, Allergan agreed to drop its own lawsuit against the FDA challenging its authority to restrict off-label uses.
NEW USES AND APPROVALS
As part of its plea, Allergan acknowledged that between 2000 and 2005, its marketing of Botox resulted in uses to treat headaches, pain, spasticity and juvenile cerebral palsy.
Those were considered off-label uses for which Botox had not been approved, and the labeling for Botox did not contain directions for those uses. At the time, Botox had only been approved for treating various muscle contractions, crossed eyes, and excessive sweating.
In March 2010, the U.S. Food and Drug Administration approved Botox for the treatment of increased muscle stiffness in the elbow, wrist and fingers in adults with upper limb spasticity. The label now includes directions for that use, the company said.
Based on positive late-stage clinical trials announced in September 2008, Allergan has filed for FDA approval of Botox for the treatment of chronic migraine headaches and expects a ruling before the end of 2010.
Allergan is also in advanced trials investigating the use of Botox for treating neurogenic and idiopathic overactive bladder.
The drugmaker said it is in discussions with the FDA regarding additional clinical development for juvenile cerebral palsy in the United States. It is already used to treat that condition in other countries.
Allergan shares rose 2.65 percent, or $1.63, to $63.05 in midday New York Stock Exchange trading. They have traded as high as $66.95 and as low as $53.32 during the past 52 weeks.
(Additional reporting by Susan Heavey and Jeremy Pelofsky in Washington; editing by John Wallace and Maureen Bavdek)