FORTUNE -- Allergan launched a marketing campaign to promote Botox for treating migraines, despite the fact that the FDA never gave it the green light. As punishment, the company received a bill for $600 million -- in the form of a fine and settlment -- from the Department of Justice.
Yet the buzz about the Botox could help the company. A New York Times story features a woman who benefitted from off-label uses of Botox for her migraines. The fine for "mislabeling" -- which is what Allergan ultimately admitted to doing -- is low. Allergan estimated that with its own legal fees, the total bill will wind up being around $610 million to $615 million.
That shouldn't be too hard to come up with, given that Allergan had $4.5 billion in revenue last year. According to the company's most recent quarterly report, Allergan (AGN, Fortune 500) predicts almost $1.4 billion in net sales from Botox in 2010. Investors don't seem to view the fine as a problem -- Allergan's stock has gone up since the announcement.
Allergan won't face harsh repercussions partially because there's no legal problem with doctors prescribing Botox off label. Once drugs gain FDA approval, doctors can prescribe them for any kind of use they want. The drug is currenty approved for non-cosmetic treatment of certain eye conditions, abnormal head and neck spasms and severe underarm sweating. The problem was that it's illegal for Allergan or any drug maker to promote their drugs for uses besides those approved by the FDA.
And Allergan definitely did that. Whistleblowers filed complaints against the company citing clear-cut evidence of off label promotion. According to claims, Allergan employees attended workshops where they completed role-playing exercises to practice marketing Botox to doctors for migraine treatment. Employees were also instructed to distribute a video about Botox, called "Focus on Headache," to physicians. The company helped back a shill website for the "Neurotoxin Institute" touting the drug's benefits.
In the most recent quarterly report, Allergan CEO David Pyott explained the need to educate doctors about off-label uses.
"This isn't the kind of category where you make product available day one and people in masks start injecting day two or three. It's just not like that. You need to go out and train people appropriately, and then they have to start incorporating the product into their practice.
Obviously, we need to spend some more money to increase awareness of the treatment, and also we need to spend money on training."
It's not intuitive to use Botox to treat migraines. For years, researchers thought that migraines were caused by blood vessels constricting in the brain, but now scientists think that they're caused by irregular activity in some brain cells. Overall, migraines are a poorly-understood medical condition.
Botox injections work by preventing muscles from constricting. The Mayo Clinic website lists Botox injections as a preventative treatment for migraines. This means that patients would periodically receive multiple injections around the head and neck to try to dull future headache symptoms.
It's thought the drug keeps muscles from painfully constricting during migraines, or reduces inflammation in those muscles, but the muscular component of migraine pain hasn't been thoroughly studied. Allergan has applied to the FDA to allow this use of Botox, but it's unclear what action the agency may take now that the company has admitted to putting the cart before the horse.
But pushing Botox as a treatment for migraines is a smart move. Almost 30 million Americans suffer from migraines, according to the National Headache Foundation, and they can be debilitating. There's no sure-fire way to treat them. In all the press surrounding Allergan, people suffering from migraines will probably hear about Botox as a potential cure, and less about how Allergan was taken to the woodshed for helping to create that association.
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