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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.

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Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool's disclosure policy sparkles.

Read/Post Comments (4) | Recommend This Article (2)

Comments from our Foolish Readers

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  • Report this Comment On September 24, 2008, at 6:12 PM, fool4myelan wrote:

    Competency issues? I'll agree with you in the case of infusion pumps. Heparin? Hmm. Contaminant very similar chemically to Heparin. Tough call given possible criminal deception on the part of the supplier. BSS solutions? They have been on the market since the late 60's - 40 years. The FDA moved on Alcon in the mid 90's only when they had issues with their solutions. FDA then waited 12 years to move on Baxter. Why? Alcon's complaint letters to FDA may have caused the action against Baxter. FDA then gives Baxter till the end of the year to stop selling. Why not now? If a product has a serious problem you stop selling immediately, as in Alcon's case. Doesn't sound like this was high on FDA's list and therefore not high on Baxter's list. An aggressive regulatory strategy, maybe. Competence issue, no.

  • Report this Comment On September 24, 2008, at 6:46 PM, reply1 wrote:

    The article on Baxter is not entirely factual.

  • Report this Comment On September 24, 2008, at 6:55 PM, reply1 wrote:

    And Baxter made product for Alcon in the 80s and 90s. Sounds like Alcon does not want Baxter in the market. Good strategy; but for the customers now only one supplier.

  • Report this Comment On September 24, 2008, at 7:53 PM, reply1 wrote:

    And maybe you should write an article about why Alcon's and others "tears" solution is so expensive to an average consumer and is over the counter? The FDA does not look at that. Now Alcon will be the sole producer... how much will they charge surgery centers in the future? way to go FDA.

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