Why Do Bigger Firms Receive Faster Drug Approvals?

Abstract

We test several explanations for the commonly observed pattern that larger firms receive shorter FDA approval times for the drugs they submit. Candidate explanations include capture and rent-seeking and “external-signals” accounts. Analyses of 766 new molecular entities submitted to the FDA from 1979 to 2000 suggest that large-firm advantage in pharmaceutical regulation is primarily due to two factors: (1) enhanced regulator familiarity with large firms by virtue of their submission histories (an effect augmented when firms merge), and (2) regulatory favor for “early entrants” to a disease market, which is induced from disease-specific consumer pressure for approvals. Our analyses show that as much as 70% of observed large-firm advantage in expected FDA approval times can be attributed to these factors, 30-55% to familiarity alone. We find no consistent support for rent-seeking or “political clout” explanations.