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The effects of drug safety warnings on drug sales and share prices

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  • Jędrzej Białkowski
  • Jeremy Clark

Abstract

Current regulations require that when seeking approval for new drugs, pharmaceutical companies must demonstrate their short‐ but not long‐term safety and efficacy. Instead, post‐approval, clinicians report adverse reactions to regulators, who may issue additional safety warnings. We investigate the incentives this creates for pharmaceutical companies to seek approval for new drugs with unknown long‐term effects. We first construct models predicting that (1) long‐run effects can be reasonably approximated from observational follow‐up of short‐term randomized control trials, and (2) companies will trade‐off short‐term sales against possible later adverse demand effects. We then test whether regulator warnings over diabetic, analgesic, analeptic, or psychoanaleptic drugs sold in the US and UK hospital and retail sectors affect the sales of individual drugs or the share prices of companies that sell them. With some exceptions, we find that pharmaceutical companies generally face no adverse market reaction in sales or share price from newly issued warnings in these four drug categories.

Suggested Citation

  • Jędrzej Białkowski & Jeremy Clark, 2022. "The effects of drug safety warnings on drug sales and share prices," Health Economics, John Wiley & Sons, Ltd., vol. 31(1), pages 174-196, January.
    • Handle: RePEc:wly:hlthec:v:31:y:2022:i:1:p:174-196
    DOI: 10.1002/hec.4440
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    1. Mayank Aggarwal & Anindya S. Chakrabarti & Chirantan Chatterjee, 2023. "Movies, stigma and choice: Evidence from the pharmaceutical industry," Health Economics, John Wiley & Sons, Ltd., vol. 32(5), pages 1019-1039, May.

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