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The Dilemma for Drugmakers

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Spring training is in full swing, and the Supreme Court umpire has left the pharmaceutical industry stuck between the bases. Yesterday's ruling must have drugmakers like Pfizer (NYSE: PFE  ) and Eli Lilly (NYSE: LLY  ) scratching their heads in disbelief.

Diana Levine sued Wyeth (NYSE: WYE  ) , claiming that the drugmaker should have put a stronger warning on the label of its drug that resulted in her arm needing to be amputated, but the drugmaker argued that it couldn't change its label because the Food and Drug Administration regulates the approval.

Unfortunately for Wyeth and the rest of the drug industry, the Supreme Court disagreed. The court basically said that the FDA's actions on drugs could supersede state law, but Congress would need to write that into law like it did for medical devices.

Good luck with that. Medical device makers like Boston Scientific (NYSE: BSX  ) and Intuitive Surgical (Nasdaq: ISRG  ) currently have protection from lawsuits bestowed on them by the FDA after the Supreme Court ruled in favor of Medtronic (NYSE: MDT  ) last year, citing the 1976 Medical Device Amendments.

However, it looks like Congress might take that away -- Congressmen Henry Waxman and others want a law to overturn the Supreme Court ruling. Given that, it looks like it would be an uphill battle to get Congress to protect the pharmaceutical companies in a similar manner.

So, drug companies are stuck with no place to hide. I doubt they'll take action to unilaterally change their labels and risk the FDA pulling rank, so they'll basically be left to potentially be sued for any warning not on their label.

And investors will be left footing the bill. Thanks a lot, Supreme Court.

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Intuitive Surgical is a Rule Breakers selection. Pfizer is a former Income Investor selection and a current pick of the Inside Value newsletter. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Brian Orelli, Ph.D., likes baseball and bashing government entities. He doesn't own shares of any company mentioned in this article. If you read the Fool's disclosure policy while cross eyed standing on your head, it might give you a headache. Consider yourself warned.


Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 05, 2009, at 2:03 PM, bamsus wrote:

    The SJC ruling was correct. Allowing negligent conduct merely because the FDA approved something is rediculous. The FDA doesn't have the resources to determine if drug companies are hiding information when it rules on drugs.

    The solution is simple. Make drug companies ceo's & other officers criminally liable for hiding relevant information from the FDA.

    Furthermore, the notion that the FDA won't allow drug companies to amend warning labels is incomprehensible.

    This must be changed.

    Bamsus

  • Report this Comment On March 06, 2009, at 10:42 AM, chali2na wrote:

    Criminally liable? I'd say that's a little harsh. If a drug is going to cause one or two people harm, that is pretty much impossible to know unless you performed clinical trials on every single person in the world. It's medicine and there is no right or wrong way, like math. It's a shame that this happened to this woman, but unfortunately stuff like this happens. Because I got a splinter building a workbench that got infected should I sue the lumber yard for not sanding the wood down and rounding the edges? Maybe a fine should be levied against these companies when these one off events occur....and then a 3 fines and then you're criminally liable policy. But this sue happy society we live in a one of the big problems we face today. Innovation and entrepreneurialship (is that a word?) are fading away and imposing more and more liablilty make the cost much greater than the benefit, resulting in less innovation & entrepreneurialship and more government mind-control.

  • Report this Comment On March 07, 2009, at 3:50 PM, quiact wrote:

    I cannot believe you had the audacity to end your article with, "Thanks alot, Supreme Court". You suggested investors are of greater importance than the health of others by saying this. You should apologize for taking such a pathological stance regarding others who attempt to ensure the products we consume to restore our health are in fact safe, instead of being a whore for shareholders,

    Dan Abshear

  • Report this Comment On March 08, 2009, at 11:10 PM, wth2009 wrote:

    A win for a legal system controlled and manipulated by tort bar – (WSJ 9/16/08 As voters mull the stakes in this year's election, here's an issue that ought to ring alarms in the ears of serious people: tort reform. After 20 years of state and federal efforts to reform a runaway legal system, the trial bar is reviving the monster. ….). Who really gains from the action taken…..the lawyers. Who made this baseless finding against the drug company representing manufacturers of “anything” ..... the lawyers.

    The gold standard is to provide services and products within the scope of “causing no harm" or "malicious intent"? If there is harm, each case should be handled on it’s merit.

    As for foundation for the suit, there is none. The drug has been safe effective and available for 50+ years with an excellent patient response and treatment history as long as it was used as directed by the package insert (gold standard). What about the nurse/hospital causing the harm?

    The lawyers went after Wyeth not because they deserved punitive action for causing harm and/or malicious intent but they have deep pockets.

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