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By Susan Heavey

WASHINGTON, April 15 (Reuters) - The contamination of Baxter International Inc's <BAX.N> recalled blood thinner heparin likely was done for economic reasons, the head of the U.S. Food and Drug Administration said on Tuesday.

"It was apparently, we suspect, done by virtue of economic fraud," FDA Commissioner Andrew von Eschenbach told a Senate hearing.

Baxter recalled most of its heparin products in February after reports of allergic reactions and deaths. An FDA investigation later uncovered a heparin-like substance in some batches of the drug's active ingredient, which is made in China.

The contaminant was identified last month as a modified form of chondroitin sulfate, a chemical FDA officials have said is likely cheaper to make than real heparin, which is derived from pig intestines.

Speaking to reporters after the hearing, von Eschenbach said the altered chemical would not have occurred during any normal processing. While the agency has no specific evidence of fraud, "the concern is that it had to be by design," he said.

Von Eschenbach added that the FDA is not investigating the motive, but would leave that to Chinese officials.

Baxter and its ingredient supplier, Scientific Protein Laboratories, have said the contamination occurred earlier in the supply chain before the raw heparin reached either company.

Baxter still is investigating how and why the contaminant was introduced into raw heparin ingredients, company spokeswoman Erin Gardiner said on Tuesday.

"We know that over-sulfated chondroitin sulfate costs less than heparin. What we don't know is whether or not this was the motivation behind introducing a material that shouldn't be in the product," she said.

SPL spokesman Wayne Pines said on Tuesday it was "clear that the raw materials were contaminated and so if there was any economic motivation ... to contaminate it, it occurred before SPL received the materials."

In China, raw heparin from pig intestines is often collected from small, mostly unregulated farms. Some heparin makers have also obtained the ingredient from within the United States and other countries.

Shares of Baxter fell 57 cents, or 0.95 percent, to $59.33 on the New York Stock Exchange. (Additional reporting by Lisa Richwine, editing by Dave Zimmerman, Richard Chang)

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