When the FDA Freaks Out About a Drug, So Does the Stock Market


Turns out, when the Food and Drug Administration (FDA) releases an official warning about a drug, it's not very good for the company's stock price. Who knew? A new National Bureau of Economic Research working paper quantifies the extent to which FDA bureaucrats hold drug company stock prices in the palms of their hands:

We find firms targeted by an advisory have average stock price declines of 3% in three days and 11% in five days following the advisory release, and in turn appear to decrease total physician-directed promotion spending, journals ads and detailing visits significantly six months following the advisory release; the provision of free samples is unaffected. We find no changes among therapeutic substitutes unaffected by the advisory.

Another post-warning effect, drug companies stop touting their products to physicians as much:

In response to FDA-required labeling changes, firms appear to decrease drug-specific promotion to physicians.

Read more on the potential negative side effects of the FDA's black box warnings.

Via the Freakonomics blog.

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  1. I wonder if the SEC is looking for potential short-selling in advance of an FDA announcement?

    Because there is obviously a shit-ton of money to be made if you know somebody who knows when an advisory is coming out.

    1. Yes. In fact, they arrested an FDA chemist earlier this year.

    2. He pleaded guilty about a week ago to the $2.8 million charge.

    3. oh, don’t get me started on medical stocks. Back when I used to play with ’em, I lost some dough because of FDA not approving, killing the value of the stock. At least back then, the ‘Obama-era’ FDA started to approve less and less drugs and devices. Not so sure about now.

      Hmmm… odd random thought – perhaps this is a side-effect of Obamacare, reducing medical choices in order to ‘save costs.’

  2. Interesting that it drops a further 8% even after the news is out; seems to go agains efficient market theory. I bet the 8% decline is an anomaly – maybe there is more bad news in days 4 and 5.

  3. Really? A regulator/insider making money off the Pharma Pump & Dump scheme?! Tell me it isn’t so.

    On a side note: Hospital projects make stadiums seem like small peanuts.

    1. On a side note: Hospital projects make stadiums seem like small peanuts.

      With all of the same abuses: strong-arming the neighbors, including ED; tax incentive abuse; re-development slush. Doctors though get as much good press as athletes, so it usually isn’t controversial.

  4. I have a friend who used to work at the FDA. He says it was an open secret within the agency that drug approvals were the survival of plenty of companies.

  5. lol, the stock market is such a joke. A playground for the rich, to get richer at everyone elses expense.


  6. The stock market is such changes a lot, but I believe that U.S. authorities can handle it well.

  7. Drug approvals are really starting to be cracked down on. The U.S. FDA regulates drugs products intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease or intended to affect the structure or any function of the body of humans or animals.
    Registrar Corp provides Registration, U.S. Agent, and Compliance Assistance for U.S. and Non-U.S. Companies in the Drug Industry.

    1. Registrar Corp does provide FDA labeling assistance. I found the current U.S. FDA Drug Regulations http://www.registrarcorp.com/fda-drugs/?lang=en

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