Information Disclosure and Drug Development: Evidence from Mandatory Reporting of Clinical Trials

Using Section 801 of the Food and Drug Administration Amendments Act of 2007 (FDAAA) that requires drug developers to disclose clinical trial plans and results publicly, we provide novel evidence for the effect of information transparency on drug development. We find significantly more suspensions in industry-sponsored clinical trials after the FDAAA, which has a causal interpretation based on a difference-in-differences analysis that compares the suspension rates of industry-sponsored and academic clinical trials before and after the FDAAA. Further evidence supports peer learning as a mechanism that helps explain increased suspension decisions after the FDAAA. Finally, we analyze the social welfare implications of increased information transparency; while the FDAAA helps improve drug quality, it leads to more suspensions of potential new drugs that could have reduced mortality and morbidity.