Patents are expiring on a host of blockbuster drugs, leading pharmaceutical companies to scour the ranks of smaller drug companies for takeover candidates that can help replenish their product pipelines.

So it's no wonder that six of the nation's top drugmakers -- Pfizer Inc., Merck & Co., Eli Lilly & Co., Johnson & Johnson, Novartis AG and Wyeth -- are among more than 200 companies and organizations fighting a proposed accounting rule that could make mergers more expensive.

The Financial Accounting Standards Board in June announced it was thinking about changing its rule FAS 5 -- Accounting for Contingencies -- by requiring companies to disclose estimated costs of all ongoing litigation, including defective drug lawsuits faced by pharmaceutical companies. The big drugmakers say such a change would be "futile, costly, and unlikely to provide meaningful information for investors."

The rule's revision would also affect the contingent losses that companies must disclose under FAS 141, which applies in mergers and acquisitions. If approved, FASB's proposed changes would be effective for fiscal years ending after Dec. 15, 2008, and interim and annual periods in the following years.

In a recent round of comments to FASB, many companies said they will be forced to make wild guesses at their potential litigation exposure. Worse, any disclosures of large, eye-popping estimates could drive down their stock prices. For acquirers, a lower stock price would require them to use more shares when paying for an acquisition in stock. Buyout targets might fetch lower prices if they have huge potential legal liabilities on their books.

Current rules require companies to disclose estimated legal costs only after the progress of litigation leads them to believe they will lose a case. FASB however, contends that those disclosures come too late for investors to make informed decisions.

But the U.S. Chamber of Commerce, the nation's largest business lobby, says the rule would force companies to provide immaterial or confidential information and boost plaintiffs' lawyers' ability to pressure companies into settlements. The chamber is urging FASB to abandon the revisions, which it says would "add uncertainty, complexity, new liability, and a great deal of cost while compelling companies to provide potentially unreliable, and often immaterial, information about pending litigation."

"Outcomes can vary widely from court to court and state to state," the chamber argues. Also, unpredictable juries "are capable of awarding $2.9 million for a spilled cup of coffee." The group notes that existing Securities and Exchange Commission rules already provide much of what FASB intends.

The drugmakers point to Merck's recent travails with litigation over its painkiller Vioxx to illustrate the potential instability FASB's proposal carries.

Reversing an earlier judgment that the widow of Bob Ernst was entitled to $250 million in damages, a Texas court in May ruled there was no evidence his death was caused by a Vioxx-triggered blood clot. "That one case ranged in 'value' from over $250 million at the time of the [initial] verdict to its current value of $0 and is but one of many tens of thousands of similar cases," the companies say. Lawsuits against Wyeth's obesity drugs used in the diet-drug cocktail fen-phen also indicate litigation costs can be pegged too low.

Although Wyeth offered to settle the national mass tort case for about $3.75 billion, it has since reserved or paid out more than $21 billion to cover legal fees, judgments and settlements for that case and its related suits.

However, supporters of the rule change, a minority of FASB's commenters, say a company's shareholders are often left guessing about the possible hit from pending litigation or regulatory sanctions.

The California Public Employees' Retirement System, or CalPERS, believes improved disclosure practices should ensure that investors and other users of financial statements are not surprised. "Improvement in contingent liabilities disclosure will assist in promoting the integrity, efficiency and transparency of the capital markets," says the big pension fund.

Donna Block covers accounting regulation for The Deal.