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Google Said to Be Investigated by FDA for Drug Advertising

Google Inc. (GOOG) is being investigated by U.S. regulators including the Food and Drug Administration over whether it knowingly accepted advertisements from online pharmacies that may violate the law, according to a person with knowledge of the matter.

The person declined to be named because the inquiry hasn’t been made public. Google, based in Mountain View, California, said earlier this week that it had set aside $500 million for the resolution of an investigation of its ad business.

“Although we cannot predict the ultimate outcome of this matter, we believe it will not have a material adverse effect on our business, consolidated financial position, results of operations or cash flows,” Google said in a filing May 10.

The investigation, which involved the Justice Department, centered on Google ads by “certain advertisers,” the company said at the time, without giving further details. Google gets almost all its revenue from online ads, which run on its search engine and sites such as YouTube.

Aaron Zamost, a spokesman for the company, declined to comment on the FDA probe. The investigation was previously reported by the Wall Street Journal.

The investigation is examining whether Google allowed pharmacies to advertise that weren’t verified by PharmacyChecker.com, a certification service, the New York Times reported today. PharmacyChecker didn’t immediately return phone and e-mail messages from Bloomberg News seeking comment.

Slipped Through

PharmacyChecker was founded in 2003 to check the credentials of online pharmacies and help consumers compare prices. Google used the site from mid-2006 to February 2010 to vet pharmacies before they could advertise. Still, companies that weren’t verified made it onto Google’s Web pages, Gabriel Levitt, vice president of White Plains, New York-based PharmacyChecker, said in a blog posting today.

“Rogue online pharmacies that never applied to our program found a way to advertise on Google,” he said on the blog. “We were never the gatekeepers for Google; that remained their job.”

Google ceased to work with PharmacyChecker when the Internet-search company began excluding all non-U.S. pharmacies from advertising on its domestic websites, Levitt said.

“It stopped working with us, as we do not exclude reputable and safe Canadian and other international pharmacies,” he said on the blog.

VIPPS Program

Google announced in February 2010 that it would only accept U.S. and Canadian ads from pharmacies certified by the National Association of Boards of Pharmacy’s Verified Internet Pharmacy Practice Sites program, known as VIPPS, and the Canadian International Pharmacy Association.

“After this change, rogue online pharmacies apparently continued to advertise on Google,” Levitt from PharmacyChecker said today on the blog.

In December 2010, Google joined Microsoft Corp. (MSFT), Yahoo! Inc. and other companies in helping establish a nonprofit to fight illegal Internet pharmacies. Counterfeit drug sales account for about $75 billion in global sales, the National Association of Boards of Pharmacies said at the time. An estimated 1 percent to 2 percent of drugs in North America are counterfeit, according to the group.

Google’s shares fell $5.50, or 1 percent, to $529.55 today in Nasdaq Stock Market trading. They have declined 11 percent this year.

To contact the reporters on this story: Molly Peterson in Washington at mpeterson9@bloomberg.net; Brian Womack in San Francisco at bwomack1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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