Inducing Compliance with Post-Market Studies for Drugs under FDA’s Accelerated Approval Pathway
In 1992, FDA instituted the accelerated approval pathway (AP) to allow promising drugs to enter the market based on limited evidence, but requiring manufacturers to verify the drugs’ true clinical benefits through post-market studies. However, most post-market studies are not completed due to many incentive issues, and FDA must endure an onerous process to withdraw an unproven drug from the market when a post-market study is uncompleted. The prevalence of this non-compliance problem poses considerable public health risk, compromising the original purpose of a well-intentioned AP initiative. We address this problem by providing an internally consistent and implementable solution through a comprehensive analysis of the myriad complicating factors and tradeoffs facing FDA, including information asymmetry and moral hazard. Specifically, we adopt a Stackelberg framework in which regulator, which cannot observe manufacturer’s private cost information or level of effort, leads by imposing a post-market study deadline. The profit-maximizing manufacturer then follows by establishing its level of effort to invest in its post-market study. We develop a deadline-dependent user fee mechanism that establishes an incentive for manufacturer compliance. We show that effectiveness of the mechanism in inducing compliance depends fundamentally on what we distill as the enforceability of sanction (s), a drug-specific measure that indicates how difficult it is to withdraw a drug from the market, and the drug’s success probability (alpha): The higher is either, the higher is the probability that the mechanism induces compliance. Using data for a real drug, we calibrate our model and quantify the value of such a mechanism and its impact. We also discuss alternatives when such a mechanism is less effective. From public policy perspective, we provide guidance for FDA to increase the viability and effectiveness of AP.