Generic-drug makers are stuck between a rock and a hard place, and the only one that can bail them out at this point is the Supreme Court.
The high court will hear arguments tomorrow in a consolidated lawsuit in which two patients are suing generic-drug makers Teva Pharmaceuticals
Of course the generic-drug makers couldn't edit the label. Food and Drug Administration regulations state that generic drugs must have the same label as the branded counterpart because they don't offer anything new. Teva and Actavis didn't do any new clinical trials other than those required to prove their drugs were equivalent, so how could they add to the efficacy or safety information originally performed by Wyeth? In fact, if the branded label changes, the generic-drug companies are required to change theirs as well.
That didn't stop lower courts from ruling in the patients' favor. Now the generic-drug companies will have to hope the Supreme Court can see the absurdity of the situation and bail them out.
The Supreme Court ruled in 2009 that brand-name drugmakers could be sued for not having warnings on their labels, but at least they have the ability to petition the FDA to change the label; generic-drug makers don't have that option.
The ruling doesn't just affect Teva and Actavis, if the high court finds in favor of the patients, the entire generic-drug industry -- Novartis
The generic-drug makers could just stop selling generic drugs that might have side effects that aren't on the label, leaving the branded-drug makers on the hook. But depending on where you draw the line on potential risk of a lawsuit, that could be a vast majority of generic products.
If the Supreme Court does leave generic-drug makers in their tight spot, they'll likely end up raising prices to cover the lawsuits and buy their way out of this tough predicament.
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Pfizer is a Motley Fool Inside Value selection. Novartis and Dr. Reddy's Laboratories are Motley Fool Global Gains recommendations. The Fool owns shares of Teva Pharmaceutical Industries. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.