Working Paper: NBER ID: w24957
Authors: Matthew J. Higgins; Xin Yan; Chirantan Chatterjee
Abstract: We provide causal evidence that regulation induced product shocks significantly impact aggregate demand and firm performance in pharmaceutical markets. Event study results suggest an average loss between $569 million and $882 million. Affected products lose, on average, $186 million over their remaining effective patent life. This leaves a loss of between $383 million and $696 million attributable to declines in future innovation. Our findings complement research that shows drugs receiving expedited review are more likely to suffer from regulation induced product shocks. Thus, it appears we may be trading off quicker access to drugs today for less innovation tomorrow. Results remain robust to variation across types of relabeling, market sizes, and levels of competition.
Keywords: Regulation; Pharmaceuticals; Innovation; Demand Shocks
JEL Codes: I18; L51; L65
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| FDA drug relabeling (D18) | aggregate demand (E00) |
| FDA drug relabeling (D18) | firm performance (L25) |
| FDA drug relabeling (least severe) (D18) | aggregate demand (E00) |
| FDA drug relabeling (most severe) (D18) | aggregate demand (E00) |
| FDA drug relabeling (D18) | aggregate demand (accounting for substitution) (E00) |
| FDA drug relabeling (D18) | economic losses (F69) |
| FDA drug relabeling (D18) | direct losses in sales (F69) |
| FDA drug relabeling (D18) | declines in future innovation (O39) |