William McSwain.

Lehigh Valley Technologies, an Allentown-based pharmaceutical company, has entered into a $4 million agreement with the government to settle claims that it schemed to avoid paying certain FDA fees, Philadelphia-area U.S. Attorney William McSwain announced Friday.

In the False Claims Act case filed in the U.S. District Court for the Eastern District of Pennsylvania, prosecutors accused the company of attempting to duck fees for new drug applications (NDA) to the Food and Drug Administration required by the Prescription Drug User Fee Act. The revenue from fees is used to fund the drug approval process.

The FDA grants a waiver of the fee to a small business submitting its first application. In deciding whether to grant the waiver, the agency considers whether an affiliate of the company, including large businesses, have already received the fee waiver. McSwain said the purpose of the fee waiver is to level the playing field for small businesses that submit an application by eliminating an otherwise prohibitive cost for a first-time business.

In this case, prosecutors alleged that Lehigh Valley Technologies already received a waiver for a previous new drug application and was ineligible for a second. The cost for the new drug applications would have been $2 million.

Lehigh Valley allegedly paid two other companies to submit new drug applications for it in order to bypass the fees.

“As alleged, the sole purpose of the arrangement was for those companies to serve as a front and allow LVT to avoid the FDA fees that the FDA otherwise would have required it to pay,” McSwain said in a statement issued Friday. “The arrangement was illegal. Like we did today, we will hold companies accountable that scheme to avoid the fees that enable the FDA to carry out its vitally important drug approval process.”

FDA Criminal Investigations special agent Mark S. McCormack was the agent in charge of the investigation.

“The FDA laws and accompanying regulations for funding drug approvals are designed, in part, to encourage companies, even small businesses, to create new drugs,” McCormack said. “When companies attempt to game the system to avoid paying these critical fees, we will bring them to justice.”

According the settlement agreement, half of the payout was designated for restitution. The government also tacked on 4 percent interest accruing from December. The two $2 million installments must be paid within nine months of the agreement.

Lehigh Valley is represented by Mark A. Rush of K&L Gates in Pittsburgh.

“As set forth in the settlement agreement, acknowledged and executed by the government, LVT disputes the government's contention that the False Claims Act was violated,” Rush said in an email. “Having said that, LVT is a good corporate citizen committed to cooperating with the FDA and believes it was in the best interest of all to resolve the dispute in the matter set forth in the settlement agreement. This resolution ends a point of contention between the FDA and LVT so that both parties can move forward in a cooperative fashion.”