Seminar  |  03/13/2019 | 12:00 PM  –  01:30 PM

Brown Bag Seminar: Market Effects of Adverse Regulatory Events: Evidence From Drug Relabeling

Matthew Higgins (Georgia Tech, Scheller College of Business)

Max Planck Institute for Innovation and Competition, Munich, Room 313

The FDA maintains post-approval safety surveillance programs to monitor the safety of drugs. As adverse events are reported, they may choose to intervene and change the safety labeling associated with a drug. How do markets respond to these regulatory changes? We provide causal evidence that these regulatory interventions have a negative impact on aggregate demand for pharmaceuticals. We find that aggregate demand declines by 16.9 percent within two years of a relabeling event. After accounting for all plausible substitution patterns by physicians along with competitor actions, aggregate demand declines by 4.7 percent. Critically, this decline represents consumers that leave the market. The overall effect appears to be driven by ‘high-intensity’ markets or those with significant relabeling activity. Results control for the level of advertising and are robust to variation across types of relabeling, market sizes, and levels of competition. Implications for upstream innovation and public policy are highlighted (joint work with Xin Yan and Chirantan Chatterjee).

Contact: Michael Rose, Ph.D.