Ethical Experimentation and Regulatory Flexibility in Drug Development

Abstract

This article investigates patterns of pharmaceutical development activity around the 2012 creation of the Breakthrough Therapy Designation (BTD), a regulatory award administered by the Food and Drug Administration in the United States. The program was motivated by a series of early-stage (Phase 1 or 2) clinical trials conducted in the 2000s, where tested therapies showed exceptionally promising efficacy gains. In these unique cases, subsequent late-stage (Phase 3) trials could be problematic on the grounds that patients in the control group would be significantly less likely to survive than patients in the treatment group. The BTD introduced regulatory flexibility aimed at helping to avoid these ethically challenging situations. We argue that this flexibility indirectly created substantial incentives for the industry to pursue the designation. Accordingly, our main empirical results link the program's creation with a robust increase in the flow of new therapies entering early-stage trials, which provide the data required by BTD applications. An additional analysis is motivated by the BTD's high qualification standards, which suggest that a small fraction of therapies pursuing the designation ultimately obtain it. Consistent with this observation, we find that therapies comprising the introductions surge of our main results exhibit lower rates of follow-up development. These results suggest that BTD incentives could negatively impact pharmaceutical productivity.

Note:
Funding Statement: There is no funding to report.

Declaration of Interests: The author declares no competing interests.

Keywords: Pharmaceuticals, R&D, Technological change, Ethics, FDA, Regulation, Health Policy

JEL Classification: I18, L5, L65, O3