Rationale: Economic evaluations of pharmaceuticals require that health outcomes include adverse as well as beneficial effects of therapy. When the incidence and/or severity of adverse drug reactions (ADRs) result in an unfavourable risk/benefit profile, regulatory authorities such as the EMEA and FDA, contain risks by imposing restrictions (for instance on dose, to specific patient sub-groups, or use of concomitant medications) or withdrawing the drug from the market. Decisions made by regulatory authorities are not based upon the expected utility theory, and as a result, drugs that are deemed harmful appear to be cost-effective in economic evaluations. Objectives: To review the health economic literature for drugs that have since been withdrawn for safety reasons. To assess the cost-effectiveness of the non-sedating anti-histamine, terfenadine (withdrawn in 1998 for its cardiotoxicity) compared with chlorpheniramine, a sedating anti-histamine which is still available. Methods: Literature searches of economic evaluations of drug that have been withdrawn since 1980 were conducted using PubMed. A decision analysis comparing terfenadine with chlorpheniramine for the management of seasonal allergic rhinitis was developed. Data on clinical effectiveness were obtained from an RCT that compared both drugs. Observational data were obtained for estimates of the incidence of ventricular dysrythmias, the incidence of serious injuries as a consequence of sedation with chlorpheniramine, and the risk of death resulting from arrhythmias or serious injuries. Health state utilities were obtained from published sources. A 12-month time horizon was adopted, with probabilistic sensitivity analysis and threshold analyses conduced to assess the impact of uncertainty in parameter estimates. Results: Examples of published cost-effectiveness analyses included troglitazone (PPAR activator, withdrawn in 2000 for hepatotoxicity), and rofecoxib (COX-2 inhibitor, voluntarily withdrawn in 2004 for cardiotoxicity). Despite including ADRs in the analyses, both drugs were deemed cost-effective. For troglitazone, the authors stated inclusion of liver failure in the model leads to a decrease of 0.01% in LYG. The analysis of treatments for allergic rhinitis revealed that, in fact, chlorpheniramine had a less favourable risk/benefit ratio than terfenadine, with a mean difference of 3.6 QALYs per 1000 patients (95% credible interval, -0.4, 8.3). Threshold analysis suggested that it would require the relative risk of serious injury with terfenadine, compared with chlorpheniramine, to increase from 45% to 85%, or for the efficacy of terfenadine to reduce from 60% to 34% for the decision to be reversed. Conclusions: The inclusion in economic evaluations of ADRs that are deemed too hazardous to warrant market authorisation by regulators, may lead to counter-intuitive estimates of cost-effectiveness. This may be the fault of regulators for not adopting decision analytic models, or reflect a lack of risk aversion in economic evaluations. Alternative explanations are explored, including: Imprecision in the analyses (including the assumption of 'class effect' for sedating anti-histamines), the strength of causality (the link between terfenadine and cardiotoxicity is better established than accidents resulting from sedation with chlorpheniramine) and regulatory risk aversiveness (regulatory authorities consider avoidable risks differently from unavoidable risks).