The Signaling Effects of the US Food and Drug Administration Fast-Track Designation

Pharmaceutical firms are reluctant to disclose proprietary information about a drug's likelihood of approval by the U.S. Food and Drug Administration (FDA) for fear of losing their competitive advantage. Instead, firms may use signals, like the FDA fast-track designation, to indicate to investors the likelihood of a drug's approval. This analysis uses an event study methodology, with stock and market data from the Center for Research in Security Prices. The results show that the fast-track designation is a strong, positive signal to investors (1998-2015), but its strength has markedly decreased over time. Results also show that the signal is strongest for the smallest firms. Copyright (C) 2016 John Wiley & Sons, Ltd.