Principal Investigators: 

Gary Caton, Ph.D., Associate Professor

Frank Kerins, Ph.D., Associate Professor

Lisa Yang, Ph.D., Assistant Professor

Jake Jabs College of Business & Entrepreneurship



Antimicrobials provide unique value to society and are one of the most important developments of the last century. For a number of reasons, including inappropriate use and limited new antimicrobial development, increasing antimicrobial resistance (AMR) presents significant, immediate and dire consequences for patient care, public health and security. Federal legislation has established several incentive programs to encourage pharmaceutical development: fast track designation (implemented 1988), breakthrough therapy (implemented 2012), accelerated approval (implemented 1992), and priority review (implemented 1992). To encourage antimicrobial market innovation, 2012 legislation established the Qualified Infectious Disease Product (QIDP) provision granting designated drugs priority review, five years of market exclusivity, and eligibility for fast track designation. Since 2007, priority review vouchers provide a marketable asset decreases FDA review times. The objective of this research is to evaluate the efficacy of government anti-infective incentive programs through market valuation changes around program events.  

Specific Aims

The objective of federal incentive programs is to encourage development of desired pharmaceuticals. For example, the identified intent of the QIDP designation is to create significant financial incentives for the development of novel antimicrobials. The principal aim of this work is to assess if regulatory incentives have impact on the market value of firms developing anti-infectives, thereby having impact of the rate of drug innovation. Drug development and discovery is typically a very long and expensive process, often taking over ten years and many tens of millions of dollars to develop one approved drug. Biopharma firms have the incentive to pursue the development of products that have a high probability of approval and large markets, and little incentive to develop products with a low probability of approval or small markets.   

Our hypothesis is that the federal incentives do not materially affect the market value of the firm developing the anti-infective. If, for example, the QIDP financial incentives are material, there will be a positive market reaction to the price of the stock. No market reaction at the announcement indicates either that the incentives provided by the designation are not sufficiently material to affect firm value or that the market does not recognize the value of the incentives created. Existing studies on biopharma innovation examine the efficacy of policy by evaluating the changes in level of drug development (e.g., Outterson et. al. (2015)). The proposed study looks at market reactions to qualifying for an incentive program. The incentives created by these incentives should have immediate impact on the value of the developing firm if the incentives are material. This analysis will have clear implications for the efficacy of regulation encouraging product development. 

Significance of the Project 

This research examines valuation effects for firms developing pharmaceuticals for which the developing firm has applied for and received designation under federal pharmaceutical incentive programs, with particular focus on anti-infective development. If the incentive programs increase the financial viability of novel new pharmaceuticals by providing priority review, a period of market exclusivity, and potential for fast track status, or other incentives, then at least some of the value of those provisions should be imputed into the stock price of the sponsoring firm around the announcement of the incentive designation. This work will provide a measure of the efficacy of regulation intended to encourage development of products identified as beneficial by federal legislators, an objective central to IRAEA’s mission. 

The Center for Disease Control (CDC) and the World Health Organization (WHO) have identified antimicrobial resistance (AMR) as one of the most serious health threats facing the world. The WHO attributes more than 23,000 deaths, 2 million illnesses, and up to $55 billion in direct and indirect societal costs annually in the US to AMR (WHO, 2014). Federal legislation, through the FDA, has supported a number of programs intended to encourage the development of drugs for orphan and neglected tropical diseases. More recently, programs have been developed to address AMR and encourage the development of novel antimicrobials. These programs include: fast track designation to facilitate development of drugs for serious conditions and unmet medical need (first implemented in 1988), breakthrough therapy to facilitate development of drugs which provide substantial improvement over existing therapies (first implemented in 2012), accelerated approval to decrease the studies necessary to bring a drug to market (first implemented in 1992), and priority review which decreases FDA review time (first implemented in 1992). In addition, incentive programs also include market exclusivity and tax rebate programs.  

The Orphan Drug Act passed in 1984 provides firms developing drugs for historically underserved conditions seven additional years of market exclusivity, tax credits for clinical trial costs, and other incentives intended to increase the viability of drug development. This program is regarded as highly successful with 3 orphan drugs being approved in 1984 and 49 orphan drugs being approved in 2014 (FDA Orange Book).  

The Food and Drug Administration Amendments Act (FDAAA) of 2007 provides priority review vouchers (PRV) for firms developing a drug addressing an eligible tropical disease. The voucher decreases the FDA review time for a new drug from 10 months to 6 months. These PRVs can be used either by the firm that received the voucher, or be sold (only once) to another firm. The Rare Pediatric Disease Priority Review Voucher was created by the Food and Drug Administration safety and Innovation Act (FDASIA) in 2012 and is similar to the Orphan Drug voucher except that the voucher may be sold an unlimited number of times. Nine PRVs have been issued by the FDA, three for tropical diseases and six for pediatric diseases. A rare pediatric disease PRV was sold in August 2015 for $350 million (Gaffney and Mezher, 2016), and another was sold in February 2017 for $125 million.  

The Generating Antibiotic Incentives Now (GAIN Act) section of FDASIA in 2012 created the QIDP designation. QIDP designation confers an additional five years of market exclusivity, provides for priority review of products that have QIDP designation, and confers eligibility for fast track designation, which expedites communication in the FDA approval process. At least 65 chemical entities have QIDP designation, and at least six of these entities have achieved FDA approval. 

Regulation to encourage innovation is successful if it meets its objective. For example, the objective of QIDP designation is to make it more financially desirable for firms to develop novel anti-infectives. These financial incentives should manifest themselves immediately in the price of the stock of the developing firm when the QIDP designation is announced and again when the anti-infective is approved by the FDA. If QIDP designation does not materially affect the value of the firm, then it likely does not provide the intended incentives for anti-infective innovation.