It's one thing to have your drug pulled from the market because of side effects. It's quite another to have it yanked for not being approved in the first place.
The FDA has ordered Baxter (NYSE: BAX ) and Hospira (NYSE: HSP ) to stop making their ophthalmic balanced salt solutions within 60 days. The solutions are used to irrigate eyes during surgery, but they weren't approved by the FDA.
The removal likely won't be a major blow to either company. For instance, Baxter said that the solution had peak annual sales of less than $1.5 million, compared to nearly $12 billion in revenue last year. Alcon (NYSE: ACL ) and Akorn (Nasdaq: AKRX ) , which sell FDA-approved versions, could benefit a little, but the FDA estimates that just 1% of the total sold was unapproved, so not much there.
It's surprising how often drugs get pulled from the market for being unapproved. The agency estimates that about 2% of prescriptions in the U.S. are filled with unapproved drugs.
Fortunately, investors generally don't have to worry about the companies they own losing a major source of revenue by having an unapproved drug banned from the market. It's a little hard to become a major seller without getting noticed.
Sometimes, however, the drugs that get pulled can be bigger than you'd expect. Last year, the agency ordered about 20 companies to stop selling cough medicines that contained timed-released guaifenesin, the active ingredient in Adams Respiratory Therapeutics' Musinex (which is approved). K-V Pharmaceutical (NYSE: KV-A ) failed to comply, and the FDA seized $24 million of the company's drugs last summer.
While the most recent cease-order may not hurt sales at Baxter and Hospira that much, getting a drug pulled because it was never approved does say something about the company. Between unapproved drugs, tainted heparin, and recalls of its infusion pumps, Baxter's management isn't looking too competent right now.
Recall this previous Foolishness: