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

Author

Listed:
  • Mary K. Olson

    (Department of Economics and the Murphy Institute, Tulane University Author email: molson3@tulane.edu)

  • Nina Yin

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

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.

Suggested Citation

  • Mary K. Olson & Nina Yin, 2018. "Examining Firm Responses to R&D Policy: An Analysis of Pediatric Exclusivity," American Journal of Health Economics, University of Chicago Press, vol. 4(3), pages 321-357, Summer.
  • Handle: RePEc:ucp:amjhec:v:4:y:2018:i:3:p:321-357
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    References listed on IDEAS

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    8. Amy Finkelstein, 2004. "Static and Dynamic Effects of Health Policy: Evidence from the Vaccine Industry," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(2), pages 527-564.
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    10. Eric Budish & Benjamin N. Roin & Heidi Williams, 2015. "Do Firms Underinvest in Long-Term Research? Evidence from Cancer Clinical Trials," American Economic Review, American Economic Association, vol. 105(7), pages 2044-2085, July.
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    Cited by:

    1. Yin, Nina, 2023. "Pharmaceuticals, incremental innovation and market exclusivity," International Journal of Industrial Organization, Elsevier, vol. 87(C).
    2. Hermosilla, Manuel, 2024. "Regulating ethical experimentation: Impacts of the breakthrough therapy designation on drug R&D," Journal of Health Economics, Elsevier, vol. 94(C).
    3. Agarwal, Ruchir & Gaule, Patrick, 2022. "What drives innovation? Lessons from COVID-19 R&D," Journal of Health Economics, Elsevier, vol. 82(C).
    4. Mary K. Olson & Nina Yin, 2021. "New clinical information and physician prescribing: How do pediatric labeling changes affect prescribing to children?," Health Economics, John Wiley & Sons, Ltd., vol. 30(1), pages 144-164, January.
    5. Christopher Ody & Matt Schmitt, 2019. "Who cares about a label? The effect of pediatric labeling changes on prescription drug utilization," International Journal of Health Economics and Management, Springer, vol. 19(3), pages 419-447, December.

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    More about this item

    Keywords

    innovation policy; market incentives; pharmaceuticals; pediatric exclusivity; FDA regulation;
    All these keywords.

    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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