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FDA's Rigor May Boost Sales

FDA changes to the labeling of drugs are rarely a good thing for the companies that make and sell them -- just look at the black-box warning for GlaxoSmithKline's (NYSE: GSK  ) Avandia as a recent example. But one of the FDA's most recent changes might actually increase sales.

The FDA announced yesterday that it was updating the labeling of Bristol-Myers Squibb's (NYSE: BMY  ) blood-thinning drug Coumadin to indicate that a patient's genetic makeup may affect how he responds to the drug. The manufacturers of generic warfarin will also have to change their packaging.

The new packaging will now recommend to doctors that patients have a genetic test to determine if they carry variations in two specific genes that would predispose them to bleeding caused by warfarin. As many as one-third of patients may have a genetic variation that causes the drug to be metabolized differently than the general population.

In the immediate future, the change might have a negative effect on sales. Many insurers, such as Aetna (NYSE: AET  ) and WellPoint (NYSE: WLP  ) , currently won't pay for the $300-$500 genetic test because it hasn't been proven to be cost-effective. That additional out-of-pocket cost might discourage people from taking the drug. But I think the insurance companies will eventually come around. After all, warfarin is the second-most-likely drug in the U.S. to cause side effects that require a trip to the emergency room. (Insulin is No. 1.)

The large variation in the doses needed to give patients safe and effective treatment has probably already discouraged some doctors from prescribing warfarin. Making the genetic test -- and the formulas to determine proper dosage -- widely available will ultimately give doctors greater confidence to prescribe the drug.

One clear winner in the FDA decision is the lab testing companies, including Laboratory Corporation of America (NYSE: LH  ) , which offers the warfarin genetic test, and Quest Diagnostics (NYSE: DGX  ) , which plans to introduce one soon.

The FDA currently has genetic variation recommendations on four other drugs, including Pfizer's (NYSE: PFE  ) cancer-fighting Camptosar. I think it's likely we'll continue to see increased emphasis by the FDA on personalized medicine. That should be a boon to the lab testing companies, and I don't think it's necessarily bad for the drug companies. After all, patients will need to take some kind of drug for their ailment; the genetic tests will just tell them which drug, and how much of it, to take.

Quest Diagnostics and Pfizer are picks of the Inside Value newsletter. Glaxo was picked by our Income Investor team and Laboratory Corp. was recommended by the Stock Advisor newsletter.

Not sure which newsletter to pick? Click here to take a free 30-day test drive of any of our newsletters.

Fool contributor Brian Orelli, Ph.D., has genotyped more mice than he cares to discuss, but never any humans. He doesn't own shares of any company mentioned in this article. The Fool's disclosure policy is type AB-, the most rare indeed.

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