At a news conference, Attorney General Eric Holder and Health and Human Services Secretary Kathleen Sebelius made the case a centerpiece of the federal government's crackdown on health care fraud.
AstraZeneca allegedly marketed Seroquel for off-label uses - those not approved by federal drug regulators - including insomnia and psychiatric conditions other than schizophrenia and bipolar disorder.
U.S. Attorney Michael Levy of Philadelphia, where the settlement was filed, said that the company had "turned patients into guinea pigs in an unsupervised drug test."
AstraZeneca, which has its U.S. headquarters in Wilmington, Del., faces more than 25,000 product liability lawsuits over Seroquel, with most alleging that the drug caused diabetes. Seroquel has been on the market since 1997.
AstraZeneca denied the allegations leveled by the government in the civil case settled Tuesday, saying it wanted to avoid the delay, uncertainty and expense of a protracted legal battle.
"The company is committed to meeting the expectations and obligations of a leading biopharmaceutical company, while continuing to provide valuable medicines to millions of patients," Glenn Engelmann, the company's U.S. general counsel, said in a statement.
Partly because of the off-label use of Seroquel, the drug brought in $4.9 billion to AstraZeneca in 2009, making it the company's second-best seller.
The Food and Drug Administration approves drugs for specific uses, but doctors are free to prescribe as they see fit. Such off-label use is a gray area and a long-running controversy when it comes to drug regulation.
Drug companies are supposed to market medications only for uses that the FDA has approved. But salespeople can find lots of ways to get around the restriction. For example, they can let doctors know about research indicating that a given drug shows promise to treat a condition that the FDA hasn't yet cleared it for.
Doctors are eager to get the latest treatments for their patients, especially if other physicians are also prescribing the medication.
Shares of AstraZeneca fell 2 percent, or $1.05, to $43.86 in afternoon trading.
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Associated Press reporter Ricardo Alonso-Zaldivar contributed to this report.
