Current issue of Turnaround Letter has an article discussing market response to lawsuits (discussing Columbia and AHP, but not IPIC). Author argues that the market generally overreacts with respect to government interventions (e.g. Columbia), but underreacts with respect to product liability lawsuits (e.g. AHP). To quote "In the recent AHP case, there was a fairly dramatic announcement, but we still think the market has not properly allowed for the potential magnitude of the problem. Given the large number of people who apparently took the diet drugs, coupled with the power of the plaintiff's bar to magnify the effects of such problems, we think that the forthcoming litigation could put serious long-term pressure on the stock."
IPIC may be a special case because 1) the info I've seen doesn't implicate Redux when taken alone, yet, 2) Redux was on market a short time - perhaps too short to really cause problems, (in US) and 3) IPIC only did very limited marketing of Redux. Nevertheless, the "plaintiff's bar" issue creates a significant risk here that is hard to value.
There is both information risk and legal risk. If it turns out (in the studies now being conducted) that Redux is in fact a cause of heart abnormalities in some cases, the company's liability risk increases dramatically. So any current investor is exposed to the risk of the unknown outcome of that research. Secondly, there is the risk that, even if Redux was not a problem, the plaintiff's bar will still make things hot for IPIC (as in the breast implant litigation - where scientific research seems to be showing there is not causal relation, and yet the company involved went Chapter 11). |
