Examining Firm Responses to R&D Policy: An Analysis of Pediatric Exclusivity

American Journal of Health Economics, vol. 4, issue 3, Summer 2018, pp. 321-357

Posted: 29 Aug 2018

See all articles by Mary K. Olson

Mary K. Olson

Tulane University

Nina Yin

Central University of Finance and Economics (CUFE) - China Center for Human Capital and Labor Market Research; Tulane University

Date Written: August 20, 2018

Abstract

Policies that offer extensions of market exclusivity are becoming an increasingly common strategy to incentivize pharmaceutical research, but the policy design may affect incentives in some unforeseen ways.Our paper investigates this issue for the Food and Drug Administration’s pediatric exclusivity policy, which offers drug sponsors a six-month exclusivity extension for conducting additional pediatric studies of marketed drugs. Policy makers wanted to encourage pediatric studies for drugs that are medically important for children. However, since the exclusivity extension covers all indications and its private value increases with total sales, firms may have greater incentives to study drugs with large adult markets rather than drugs that are medically important to children.We use data from IMS Health,Medical Expenditure Panel Surveys, and the FDA to investigate the determinants of the FDA’s demand and firms’ supply of pediatric studies. We find that firms are more likely to conduct pediatric studies for drugs with larger sales markets, but little evidence that the likelihood of conducting the study relates to a drug’s medical importance to children. Firms also conducted pediatric studies for older drugs with less remaining patent life over newer drugs. Our results provide evidence of incentive distortions from the policy design.

Keywords: Innovation Policy, Market Incentives, Pharmaceuticals, Pediatric Exclusivity, FDA Regulation

JEL Classification: I18, L5, O3

Suggested Citation

Olson, Mary K. and Yin, Nina, Examining Firm Responses to R&D Policy: An Analysis of Pediatric Exclusivity (August 20, 2018). American Journal of Health Economics, vol. 4, issue 3, Summer 2018, pp. 321-357, Available at SSRN: https://ssrn.com/abstract=3235501

Mary K. Olson (Contact Author)

Tulane University ( email )

Department of Economics
306 Tilton Hall
New Orleans, LA 70118
United States
504 862-8342 (Phone)
504 865-5869 (Fax)

Nina Yin

Central University of Finance and Economics (CUFE) - China Center for Human Capital and Labor Market Research ( email )

Room 609 Academic Hall
39 South College Road
Beijing, 100081
China

Tulane University ( email )

6823 St Charles Ave
New Orleans, LA 70118
United States

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