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THE DRUG SAFETY DEBATE

Drug Stocks Slip Slightly Amid FDA Controversy

November 20, 2004|Denise Gellene and Josh Friedman | Times Staff Writers

The broadening concern over drug safety is the latest controversy to hit an industry that is already in Wall Street's doghouse.

AstraZeneca, GlaxoSmithKline, Roche Holding, Abbott Laboratories and Pfizer Inc. each have a drug that was described at a congressional hearing this week as potentially harmful and in need of more scrutiny -- a nightmare scenario for any drug maker.

The companies disputed the allegations, issuing statements citing the history of testing that the firms said showed the benefits of the drugs outweighed the risks. The Food and Drug Administration, which regulates the pharmaceutical industry, said it stood by its original decision that the drugs were "safe and effective."

The swift response by the companies and the FDA appeared to blunt the reaction of investors, with drug stocks showing modest declines on Wall Street.

The most recent trouble began Thursday when Dr. David J. Graham, associate director for science at the FDA's Office of Drug Safety, told the Senate Finance Committee that five drugs now on the market -- the acne drug Accutane, the pain reliever Bextra, the cholesterol-lowering drug Crestor, the anti-obesity drug Meridia and the asthma drug Severent -- needed to be closely examined because of their serious side effects.

Later in the hearing, Graham's superiors at the FDA dismissed his comments as "junk science" and "irresponsible."

After the hearing, AstraZeneca shares fell almost 10% and GlaxoSmithKline lost 4% in overnight trading in London. But the strong statements of support from the FDA and the companies helped stabilize the stocks when trading opened in New York.

By day's end, shares of Abbott Labs were down 62 cents, or 1.4%, to $42.75 and Pfizer was off 54 cents, or 1.9%, at $27.23 in New York Stock Exchange trading. The New York-traded shares of AstraZeneca fell 91 cents, or 2.3%, to $39.43, while Glaxo- SmithKline lost 82 cents, or 1.9%, to $42.77, and Roche dipped $1.70, or 1.6%, to $106.30, both in New York trading.

The losses came in the midst of a tough day for the overall market, which was rattled by downbeat comments by Federal Reserve Chairman Alan Greenspan.

Still, the public dispute over the safety of the five medications is bad news for the embattled pharmaceutical industry, whose image has been tarnished in recent weeks by Merck & Co.'s recall of its Vioxx painkiller and Chiron Corp.'s problems with its flu vaccine.

In fact, some money managers said pharmaceutical stocks would have fallen harder Friday if they hadn't already taken a beating this year. The Standard & Poor's pharmaceutical index has sunk 49.2%, compared with a gain of 5.3% for the overall S&P 500.

"The drug stocks are past the public relations tipping point in terms of safety issues, politics and pricing concerns," said Bob Streed, manager of the Northern Select Equity fund in Chicago. "They're on people's bad list."

Even so, industry analysts said the companies, which include some the largest in the industry, should be able to withstand the latest storm.

Of the five drugs cited by Graham, only Pfizer's Bextra is a strong seller in the U.S. For example, U.S. sales of Meridia are projected to be $70 million this year, compared with Abbott's anticipated worldwide sales of more than $20 billion.

But the impact doesn't stop with the five drugs. Graham's comments "are a black eye for pharmaceutical companies in general," said Lou Colasuonno of Westhill Partners, a consulting firm with headquarters in New York. "Obviously, it doesn't mean all Americans are going to stop buying drugs tomorrow. I do think the industry has to be concerned any time a respected reviewer -- a guy who's right there at ground zero -- says the FDA isn't doing its job."

Graham's allegations could also provide fodder for lawyers eyeing the drug makers as lawsuit targets.

"There is a fear that big pharma might be the next sector to face a tobacco-style debacle in the form of class-action lawsuits," said Tom Hanson, manager of the Pacific Advisors Growth fund in Glendale.

"And in the back of people's minds there is a fear of Eliot Spitzer," Hanson said, referring to the crusading New York attorney general whose investigations in recent years have socked Wall Street brokerages, mutual fund managers and, most recently, insurance providers.

Graham's testimony "validates a lot of the theories the plaintiffs' lawyers have been trying to put across to judges," said Michael Hugo, a Boston lawyer active in litigation against pharmaceutical companies. He said judges "can say, 'Maybe the FDA didn't have the whole story when it approved that drug. They only gave them the good stuff, the good spin.' "

Some of the five drugs have been the subject of lawsuits, though not all the legal actions were successful. For instance, a federal judge in Ohio dismissed 113 cases against Abbott over Meridia in July.

But lawyers who go after the drug industry now may have a new weapon: videotapes of Graham's testimony. They can say, "See, this is what the FDA is like," Hugo said.

Times staff writers Lisa Girion and Myron Levin contributed to this report.

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