Regulatory Approval and Expanded Market Size

Benjamin Berger, Amitabh Chandra and Craig Garthwaite

No 28889, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Regulatory review of new medicines is often viewed as a hindrance to innovation by increasing the hurdle to bring products to market. However, a more complete accounting of regulation must also account for its potential market expanding effects through quality certification. We combine data on FDA approvals for follow-on indications and patient-level data on utilization, and examine whether FDA approval of a follow-on indication increases the use of a drug for that indication. We find 5 facts for the market-expanding role of regulation: (1) follow-on approvals increase the share of patients taking a drug with that indication by 4.1 percentage points, or 40% increase over baseline use, at the time of approval; (2) there is little market learning prior to or following the approval of the follow-on indication, suggesting that such approvals fully certify the new use; (3) the effect of these approvals is larger for uses in a different disease area than previous indications, an increase equivalent to over 4 ½ years of market-learning; (4) it is FDA approval, not the initiation of clinical trials that generate the expansion in market size; (5) the market expansion is consistent with physicians prescribing the medicines more because of higher perceived benefits, not reduced administrative costs.

JEL-codes: I1 I18 O3 (search for similar items in EconPapers)
Date: 2021-06
Note: EH IO PE PR
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Citations: View citations in EconPapers (4)

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