Plastic is polyethylene, which is a long chain of repeating ethylene molecules. To make it biodegradable they just put starch molecules in the chain every so often.
A lot of plastic is polyethylene, but nowhere near all of it. There are plenty of polymers that can break down naturally, mostly polyesters like PLA (which breaks down into lactic acid, the same naturally produced compound that causes muscle soreness after workouts). A lot of work is being put into making PLA have better material properties so it can replace more of the conventional plastics. It's also generally made from corn and can be pretty close to carbon-neutral. So long story short some biodegradable plastics are worse, but some have legitimate applications and are genuinely better than current options.
The penalty is for all revenue made, not all profit made. So they still lost money on this product with R&D, production, etc. expenses.