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Firm Characteristics and the Speed of FDA Approval

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  • Mary K. Olson

Abstract

This paper empirically examines the effect of firm-specific characteristics on the length of time required by the Food and Drug Administration (FDA) to review and approve new-drug applications between 1990 and 1992. The approach treats regulatory decisions as endogenous and explains the variation in regulatory behavior as a function of differences that exist between firms and drugs. Results show that, controlling for drug-specific characteristics, regulators respond to firm-specific characteristics when evaluating new drug applications. For instance, firms that are less diversified and more R&D-inten-sive receive shorter review times for their new-drug applications than more diversified and less R&D-intensive firms. The reason is that most firm characteristics signal information to reviewers about either firm reputation or application quality. This information reduces reviewers' uncertainty about approving a dangerous or ineffective drug and leads to faster review times. The results suggest that regulators respond to the heterogeneities among firms in the pharmaceutical market in systematic ways. Copyright (c) 1997 Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.

Volume (Year): 6 (1997)
Issue (Month): 1 (06)
Pages: 377-401

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Handle: RePEc:bla:jemstr:v:6:y:1997:i:1:p:377-401

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Web page: http://www.kellogg.northwestern.edu/research/journals/JEMS/

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Web: http://www.blackwellpublishing.com/journal.asp?ref=1058-6407&site=1

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Cited by:
  1. Olson, Mary K., 2008. "The risk we bear: The effects of review speed and industry user fees on new drug safety," Journal of Health Economics, Elsevier, vol. 27(2), pages 175-200, March.
  2. Hooker, Neal H. & Teratanavat, Ratapol P. & Salin, Victoria, 2005. "Crisis management effectiveness indicators for US meat and poultry recalls," Food Policy, Elsevier, vol. 30(1), pages 63-80, February.
  3. Chok, Jay Inghwee, 2009. "Regulatory dependence and Scientific Advisory Boards," Research Policy, Elsevier, vol. 38(5), pages 710-725, June.
  4. Philipson, Tomas & Berndt, Ernst R. & Gottschalk, Adrian H.B. & Sun, Eric, 2008. "Cost-benefit analysis of the FDA: The case of the prescription drug user fee acts," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1306-1325, June.
  5. Teratanavat, Ratapol P. & Hooker, Neal H. & Salin, Victoria, 2003. "Exploring Meat And Poultry Recall Data For Policy Lessons," 2003 Annual meeting, July 27-30, Montreal, Canada 22142, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  6. Christopher S. Decker, 2006. "Implementing Environmental Regulation: An Inter-industry Analysis," Eastern Economic Journal, Eastern Economic Association, vol. 32(1), pages 47-66, Winter.

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