What Is a Side Effect?

A side effect is an undesirable physical symptom caused by taking a drug or undergoing medical treatment or 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.

Understanding a Side Effect

Side effects are a key risk aspect of a drug. While most drugs and therapies have side effects, if the positive benefits to the patient outweigh its risks, then the risk-to-benefit ratio of the drug is favorable. The drug or treatment may receive Food and Drug Administration (FDA) approval for marketing. Side effects may also be 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.

Key Takeaways

  • Side effects are undesirable after-effects of drug ingestion or therapy; side effects constitute a key risk for pharmaceutical companies.
  • The U.S. Food and Drug Administration requires clinical trials or testing of drugs to determine their adverse side effects and proper labeling of the results to inform consumers.
  • If a drug is recalled—or removed from the market—it can adversely impact a pharmaceutical company's bottom line (and stock prices), depending on the drug's contribution to the company's overall sales.

Patients should 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 because 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. 

Clinical trials that focus on side effects are required by the FDA for a drug to get approval. This focus continues even after approval, in the form of post-marketing studies. These studies can reveal unexpected side effects that may not have been exposed in earlier clinical trials. If there are side effects that are revealed to be severe enough, the drug may be removed from the market by the FDA or the creator of the drug itself. This process is called a drug recall.

Impact of a Drug Recall on Stock Prices

Investors may be curious 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. If a company's best-seller drug is withdrawn from circulation, then it will have a massive impact on the company's bottom line. However, if the drug was recently introduced and has not racked up substantial sales, then a drug recall will have a substantially lower effect on the company's profits.

Example of a Side Effect and a Drug Recall

The debacle involving COX-2 inhibitors, a class of non-steroidal anti-inflammatory drugs (NSAIDs) 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, studies revealed they increased the risk of heart attack and stroke. These findings led to the withdrawal of Merck’s Vioxx and Pfizer’s Bextra, in 2004 and 2005, respectively.

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.