Management Accounting Section Midyear Meeting

FDA Revolving Door—Evidence from New Drug Review

• In Event: Government

Abstract

This study examines the revolving door between FDA reviewers and the pharmaceutical industry. First, I examine the ex-ante incentives created by a revolving door, which occurs when regulatory agency employees are subsequently hired by the industry they regulated. Anticipation of future industry employment could motivate FDA reviewers to be more lenient in the review process for new drugs. Using a comprehensive dataset linking 724 reviewers’ career trajectories and 1,121 drug applications reviewed for the period 2009-2019, I find that FDA revolvers in supervisory positions approve lower-quality new drugs, which is consistent with such revolvers exhibiting leniency. FDA revolvers in more junior positions exert more effort during the review process, consistent with such revolvers’ motivation to provide an ability signal to potential future employers. I also examine the consequences to firms of hiring a former reviewer. Firms that hire junior FDA reviewers have on average higher subsequent drug quality, suggesting junior revolvers deploy their specialized expertise after they join the industry. Senior revolver review experience is positively associated with a greater likelihood of new drug direct approval. Thus, senior revolvers assist firms in navigating the drug approval process. My study contributes by demonstrating that revolving door incentives influence the FDA’s new drug approval process. Policymakers should consider the effects of revolvers when designing revolving door regulations.

Author

• Xue Yang, Michigan State University