Funding of Clinical Trials and Reported Drug Efficacy

Clinical trials are a key determinant of drug approvals and also influence prescription decisions. In recent years, an increasing share of clinical trials have been funded by pharmaceutical firms, as opposed to by the public sector. This paper estimates the effect of financial sponsorship on reported drug efficacy, leveraging the insight that the exact same sets of drugs are often compared in different randomized control trials conducted by parties with different financial interests. In principle, randomized control trials comparing the same drugs should yield comparable estimates, regardless of the interests of the trial’s funders. In practice, I use newly assembled data on hundreds of psychiatric clinical trials to estimate that a drug appears 0.15 standard deviations more effective when the trial is sponsored by that drug’s manufacturer, compared with the same drug in the same trial without the drug manufacturer’s involvement. Observable characteristics of trial design and patient enrollment explain little of this effect. In contrast, sponsored papers with non-positive results are more likely to remain unpublished. Back-of-the-envelope calculations suggest this publication mechanism can account for nearly half of the sponsorship effect. The sponsorship effect decreases over time as pre-registration requirements were implemented, which is suggestive, though not definitive, that pre-registration may be effective in overcoming sponsorship bias. ∗I am very grateful to Amy Finkelstein, Heidi Williams, and Jim Poterba for their invaluable advice and guidance. I would like to extend a special thanks to Pierre Azoulay, Jonathan Gruber, Frank Schilbach, and Scott Stern for helpful comments and support. This paper also benefited greatly from discussions with Sarah Abraham, David Autor, Ivan Badinski, Jane Choi, Joe Doyle, Colin Gray, Ryan Hill, Allan Hsiao, Simon Jaeger, Madeline Mckelway, Parinitha Sastry, Cory Smith, Carolyn Stein, Sean Wang, Michael Wong, and several anonymous clinical trial managers. Audrey Pettigrew provided excellent research assistance. This material is based upon work supported by the National Institute on Aging under Grant Number T32-AG000186 and the National Science Foundation Graduate Fellowship Program under Grant Number 1122374. †MIT Department of Economics. Email: oostrom@mit.edu