updated 5/13/2004 10:35:26 AM ET 2004-05-13T14:35:26

Pfizer Inc. has agreed to plead guilty to charges that its Warner-Lambert flouted federal law by promoting non-approved uses for one of its drugs, a source familiar with the deal said.

Under the agreement to be announced Thursday by the U.S. Attorney's office in Boston, Pfizer, the world's largest pharmaceutical company, has agreed to plead guilty to violating the Food and Drug Cosmetic Act and pay an undisclosed amount to settle the case, said the source, who spoke on condition of anonymity.

Company officials had previously said they were setting aside at least $400 million for the settlement.

The Wall Street Journal, citing sources familiar with the matter, reported Thursday that Pfizer will pay about $430 million in fines in one of the largest Medicaid-fraud settlements.

The penalty would be broken down into a $240 million criminal fine and $152 million in civil fines to be shared among state and federal Medicaid agencies and a whistleblower who first reported the marketing abuses to authorities. Another $38 million would go to state consumer-protection agencies, the Journal said.

A spokeswoman for the U.S. Attorney's office declined to comment on the settlement.

The case began in 1996, when microbiologist David Franklin filed a whistleblower lawsuit against Parke-Davis, and its parent company, Warner-Lambert, alleging the company ignored federal law in the 1990s with an illegal marketing plan used to drive up sales of the anti-seizure drug Neurontin. Pfizer bought Warner-Lambert four years ago.

The lawsuit alleged that Parke-Davis adopted a plan to step up publicity about Neurontin's effectiveness for uses that were not approved by the Food and Drug Administration, including relieving pain, headaches, bipolar disorder and other psychiatric illnesses. While doctors can prescribe drugs for any use, the promotion of drugs for these so-called "off-label uses" is prohibited by the Food and Drug Cosmetic Act.

In the 1990s, Neurontin was approved only as an epilepsy drug to be used in conjunction with other drugs.

Pfizer has repeatedly noted that the activity alleged in Franklin's lawsuit and charged by prosecutors was made before it bought Warner-Lambert in 2000 and assumed the company's liability in the case.

Franklin, who worked as a Parke-Davis medical liaison for about four months in 1996, alleged that the company's publicity plan for Neurontin included paying doctors to put their names on ghostwritten articles about Neurontin and to fly them to lavish resorts as "educational" trips. He said the company also paid doctors hefty speakers' fees as part of its promotion.

One doctor received almost $308,000 to speak at conferences about the drug.

Neurontin's sales soared from $97.5 million in 1995 to nearly $2.7 billion in 2003.

Shares of Pfizer fell 29 cents to $35.42 in morning trading on the New York Stock Exchange.

Copyright 2004 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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