-June 27, 2005
The drug industry has been the focus of great criticism in recent months as news of drug recalls have developed into lawsuits and accusations that companies are more focused on financial windfalls than patient safety. Still, some experts believe drug companies continue to be desirable investments.
Eli Lilly & Co. recently established a $690 million fund for plaintiffs agreeing to settle Zyprexa related claims. Its antipsychotic drug has been accused of causing diabetes-related conditions. The company has also settled dozens of lawsuits involving its antidepressant drug Prozac.
Despite the lawsuits tied to its popular, name-brand drugs, Eli Lilly’s stock barely changed upon news of its Zyprexa settlement. The reason for the minimal stock change, according to some analysts, is because investors are more concerned with company cash flow than single events.
Merck & Co. is also facing issues of liability over its now withdrawn arthritis painkiller Vioxx. Since Vioxx was taken off the market last September, over 2,000 cases have been filed against the company, and some experts estimate potential liability could reach as high as $18 billion. Despite this, some analysts have not backed away from Merck’s stock regardless of the potentially damaging financial situation the Vioxx cases can have on the company.
Among analysts still recommending Merck, some believe Vioxx’s liability has been overestimated, meaning the company’s stocks are trading at discount compared to its competitors. Because of the controversy surrounding the Vioxx recall and the potential liability it has created for Merck as a result, analysts think it can be easy not to be able to see past present problems to possible financial successes.
Some argue the many problems that have arisen with drugs in recent years and the legal activity because of it can be beneficial for the industry in the future because it has forced a greater focus on the companies to take emphasis off of marketing and place more on research and development productivity. The companies have to regain public confidence and are dealing with political pressures, which is why some analysts are still recommending drug stocks in the midst of lawsuits and negative press.
In any event, drug companies will continue to be closely watched as cases develop and actual liability can be better estimated. The first Vioxx cases to go to trial can set the pace for future cases, and many interested parties will be interested in seeing how they develop.
Pfizer Inc. will also be watched – it’s drug Bextra belonged to the same family of drugs as Vioxx before it was recalled as well. The FDA is also studying its erectile dysfunction drug Viagra to determine if the drug may cause blindness. Wyeth is also in talks to settle lawsuits over its diet drugs, and Abbott Laboratories’ weight-loss drug Meridia is being closely watched by the FDA after it was linked to increased blood pressure and heart rate in some patients.
For more information on drug recalls and safety problems, please contact us to confer with an attorney.
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