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United States Stock Market Response to FDA Approval of New Dermatologic Drugs

June 2020 | Volume 19 | Issue 6 | Original Article | 639 | Copyright © June 2020


Published online May 29, 2020

Rishabh S. Mazmudar BSa,b, Raghav Tripathi Tripathi MPHa,b, Harib H. Ezaldein MDa,b, Jeffrey F. Scott MDa

aCase Western Reserve University School of Medicine, Cleveland, OH bUniversity Hospitals Cleveland Medical Center, Department of Dermatology, Cleveland, OH

Abstract
Background: The Food and Drug Administration (FDA) has approved several new dermatologic drugs in the last decade. The public response to their approval has not yet been evaluated.
Objective: To analyze the United States stock market response surrounding FDA approval of new dermatologic drugs between 2008 and 2018.
Methods: A list of 34 FDA approved dermatologic drugs for publicly traded companies was compiled from the CenterWatch New Dermatology Drugs List and the FDA Annual Reports on New Drugs. Company and stock market data was acquired from the Center for Research in Security Prices (CRSP) United States Stock database. Cumulative abnormal returns (CAR) were calculated as the difference between raw returns and expected value-weighted returns. Data analyses were performed using SAS 9.4 (Cary, NC).
Results: The average CAR for the 21-day window period surrounding FDA approval of new dermatologic drugs was +1.71%. Drugs approved for the treatment of hyperhidrosis (+17.7%), bacterial skin infections (+7.18%), and rosacea (+6.83%) added the most market value. Limitations: The market value added to private or internationally traded companies could not be assessed.
Conclusion: FDA approval of dermatologic drugs generally has a positive market response. Information on market reaction may provide important insights for investors, pharmaceutical companies, and researchers.

J Drugs Dermatol. 2020;19(6): doi:10.36849/JDD.2020.5033

INTRODUCTION

The approval of new drugs by the United States (U.S.) Food and Drug Administration (FDA) is a lengthy process, typically taking between 10-15 years from pre-clinical testing to approval, with the cost of development estimated at $1 billion U.S. dollars (USD) per drug.1-3 Rising prescription drug costs in the U.S., attributed to market exclusivity awarded through FDA approval and patents, are a major concern for patients, physicians, and policy makers.4 Furthermore, rebate revenues and consolidated market share of pharmacy benefit managers have complicated drug pricing. Despite these concerns, drug manufacturers continue to employ pricing strategies to maximize profits.5

The FDA has approved several new dermatologic drugs in the last decade.6 While these drugs have gone through an extensive regulatory process, their value added to companies and the public response to approval has not yet been evaluated. The efficient market hypothesis, a theory of financial economics, states that security prices fully reflect all available information.7

As such, news of FDA approval or rejection is reflected in the stock market and the company value change demonstrates investor sentiment towards a new drug. Previous studies have used this theory to evaluate market responses to positive or negative FDA announcements and found that both were associated with gains or losses, respectively, but market losses from FDA rejections were more prominent.8,9 Although the steps involved in FDA approval and factors associated with pricing of dermatologic drugs are known, the impact of dermatologic drug approval on the stock market response is unknown.10,11

Understanding the financial impact of dermatologic drug approval is important for several reasons. Firstly, research has demonstrated the major role of academic institutions in pre-approval publications, and industry profits often guide investments in research and development.12,13 Furthermore, drugs with significant exposure and marketing alongside approval are likely to be brought up in clinician-patient conversations.14 Finally, the market response to FDA approval of new drugs may help highlight strategies employed by pharmaceutical companies and advise regulatory activity.

The objective of this study is to evaluate the U.S. stock market response to FDA approval of new dermatologic drugs in the