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Tickers in this Article: WYE, PFE, JNJ, ABT, NVS, LLY, XLV
Pharmaceutical makers are anxiously awaiting the results of Wyeth's (NYSE:WYE) product liability case being debated by the U.S. Supreme Court. The question surrounds how broad a spectrum of possible injuries should the company be responsible for if someone suffers harm. While the results of the case could impact the legal responsibility of product makers beyond pharmaceutical companies, investors should note how a ruling could impact Wyeth as an investment option. (To learn how to factor lawsuits into your valuations, read Litigation: Are Your Investments At Risk?)

Warning Labels
Wyeth, the $23 billion drug maker, is the defendant in a case involving a musician who was improperly administered its nausea drug Phenergan and subsequently had an arm amputated. Wyeth argues that its Food and Drug Administration (FDA) approved warning label on the drug is sufficient to protect it from a lawsuit. If the Supreme Court decides in favor of the plaintiff, Wyeth will likely have to payout a multi-million dollar settlement, but the larger risk for Wyeth and other drug makers is the precedent the court will set. Individuals would now have a ruling to support future claims for damages related to the use of their drugs regardless of FDA approved warning labels.

Brand Names
Wyeth's top selling Pharmaceutical drugs for 2008 through the month of September include Effexor (Anti-Depressant), Prevnar (pneumococcal vaccination) and Enbrel (rheumatoid arthritis treatment). Consumer products more people may be familiar with include Centrum, Advil and Robitussin. Enbrel, with $5.4 billion, was the No. 4 top selling drug worldwide in 2007.

Sales Strength
Wyeth's worldwide net revenue increased 5% to $17.5 billion for the first nine months of 2008. On the strength of its growing revenue, Wyeth approved an increase in its common stock dividend to 30 cents per share at the end of September.

The increase in the dividend is a display of management's confidence in the present and future prospects of the company. Part of the future of the drug maker will be to focus drug development on fewer areas such as oncology and neuroscience. The thinking is to expend resources on drugs likely to have the best return and receive clearance from the FDA.

Spread the Risk
Competitors that will also be affected by the court's decision include other top drug makers Eli Lilly & Co (NYSE:LLY), Novartis (NYSE:NVS) and Pfizer (NYSE:PFE). For investors that would rather spread their risk among multiple healthcare providers the Health Care Select Sector SPDR (AMEX:XLV) offers exposure to Wyeth along with other industry leaders including Johnson & Johnson (NYSE:JNJ) and Abbott Laboratories (NYSE:ABT).

Final Thoughts
It's as difficult to predict a Supreme Court decision as it is to determine the direction of the market. While a loss for Wyeth in court will probably have less of a negative effect on the stock than a product recall, it still highlights the risk for investors of being too narrowly invested in any one company or sector.

For more reading on drug stocks, check out Measuring The Medicine Makers.

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