DEFINITION of 'Side Effect'

Undesirable symptoms caused by taking a drug or undergoing a therapy. Side effects can range from relatively minor symptoms such as drowsiness or an upset stomach, to serious effects such as liver damage, and sometimes even life-threatening or potentially fatal effects. Side effects present a key risk aspect of a drug. While most drugs and therapies have side effects, if the benefit outweighs the risk, then the risk/benefit of the drug is favorable and it may receive FDA approval for marketing. Also called “adverse reactions” or “adverse effects,” patients and consumers should be thoroughly familiar with the side effects of their prescribed medication, which can be found on the drug label or the medication’s package insert.

BREAKING DOWN 'Side Effect'

Patients should also discuss the medication’s side effects with their pharmacist or healthcare provider, and should also learn about its safety concerns on the FDA’s “Index to Drug-Specific Information” online portal.

Side effects can also arise when two or more medications are taken by the patient, as they may interact in different ways than if a patient only takes one of the drugs individually. Such side effects when medications are taken in combination are also listed on the drug labeling and package insert. In certain cases, if the side effects of medicines take in combination are too severe, the drug labeling may strongly advise against taking one or the other drug(s) in the combination.  

Side effects are an ongoing focus of clinical trials before a drug is approved by the FDA, and even after it receives marketing approval, in the form of postmarketing studies. These studies can reveal unexpected side effects that may have not been exposed in earlier clinical trials.

The debacle involving COX-2 inhibitors, a class of non-steroidal anti-inflammatory drugs (NDAISs) that were introduced to combat the pain of arthritis while having fewer gastrointestinal side effects than other products, is a classic example of popular medications that had unforeseen side effects. A few years after these products received FDA approval, they were found to increase the risk of heart attack and stroke, leading to the withdrawal of Merck’s Vioxx and Pfizer’s Bextra in 2004 and 2005 respectively.

What about the impact on the stock price of companies whose drugs have to be withdrawn because of previously unknown side effects? It really depends on the importance of the drug within the company’s product portfolio.

For example, since the Vioxx drug was central to Merck’s long-term prospects, on the day its withdrawal was announced, Merck lost about $27 billion or 27% of its market capitalization. But because the drug Bextra only had sales of $1.3 billion in 2004, accounting for 2.5% of Pfizer’s total sales that year, its withdrawal in April 2005 had little impact on Pfizer’s stock. As another example, Ariad Pharmaceuticals plunged 40% in October 2013, after it halted a study aimed at expanding use of its only approved drug Iclusig, due to a higher risk of blood clots.

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