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The Power of the FDA


What exactly happens when the Food and Drug Administration (FDA) issues one of those ominous Public Health Advisories (PHAs) about a pharmaceutical product?  A new paper by Rena M. Conti, Haiden A. Huskamp and Ernst R. Berndt investigates.


From the abstract:

We find firms targeted by an advisory have average stock price declines of 3% in three days and 11% in five days following the advisory release, and in turn appear to decrease total physician-directed promotion spending, journals ads and detailing visits significantly six months following the advisory release; the provision of free samples is unaffected. We find no changes among therapeutic substitutes unaffected by the advisory.

The authors suggest that the FDA “could include the impact of the PHA on firm valuation as part of its risk-based approach. Additionally, our findings imply the FDA should generally anticipate declines in branded promotion when a PHA is released on a patent-protected drug.”

Here’s our question for you, dear readers: is this a good or bad outcome?  Do you think people who might benefit from a drug are missing out because of PHAs?