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Security market reaction to FDA fast track designations
Christopher W Anderson1, Ying Zhang
1University of Kansas School of Business, Lawrence, Kansas, USA. cwanderson@ku.edu
Journal of Health Care Finance
|February 8, 2011
Summary
The Food and Drug Administration's (FDA) fast track program for drug development boosts investor recognition of pharmaceutical firm value. This designation leads to increased trading volume, stock returns, and analyst attention, especially for smaller firms.
Area of Science:
- Pharmaceutical industry
- Financial markets
- Drug development
Background:
- The Food and Drug Administration (FDA) offers a 'fast track' designation to expedite drug research and development.
- This designation aims to accelerate clinical trials and regulatory review for new drugs.
- Understanding the market's reaction to this designation is crucial for investors and pharmaceutical companies.
Purpose of the Study:
- To investigate the security market reaction to FDA fast track designations.
- To determine if fast track designation enhances investor recognition of firm value.
- To analyze the impact on trading volume, stock returns, institutional ownership, and analyst attention.
Main Methods:
- Analysis of over 100 fast track designations between 1998 and 2004.
- Examination of abnormal trading volume and excess daily stock returns.
- Assessment of changes in institutional ownership and analyst coverage.
Main Results:
- Fast track designation is associated with abnormal trading volume and excess daily stock returns.
- The designation leads to increased institutional ownership and analyst attention.
- Market response is more significant for smaller firms, those without marketed products, and those with low institutional ownership.
Conclusions:
- FDA fast track designation positively impacts firm value by enhancing investor recognition.
- The program signals potential value, attracting greater market and analyst interest.
- Smaller, earlier-stage companies experience a more pronounced positive market reaction.
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