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
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
