Working Paper
Kao J. Working Paper. “Charted Territory: Evidence from Mapping the Cancer Genome and R&D Decisions in the Pharmaceutical Industry [Job Market Paper]”.Abstract

This paper explores how publicly available scientific information shapes the quantity and profitability of private-sector research. I examine the impact of large-scale cancer genome mapping studies, which systematically map the genetic abnormalities in cancer, on research productivity in the pharmaceutical industry. Using a newly-constructed dataset from cancer genome mapping studies and clinical trials, I find that mapping information increases private-sector investment in clinical trials by nearly 50 percent. Considering the types of private-sector research investments, I find that cancer mapping significantly increases trials evaluating drugs previously approved or tested for one disease in an additional disease. Using trial results reported in abstracts submitted to a major cancer conference, I also find that cancer mapping information increases the profitability of firms' research decisions: when genetic information is known, firms are more likely terminate drug investments that are unlikely to be successful in the long run and to continue investment projects that are most likely to generate promising clinical results. This evidence suggests that publicly available, detailed scientific maps can increase and improve private research efforts.

Azoulay P, Heggeness M, and Kao J. Working Paper. “The Impact of Health Care Financing on Research Outcomes: Evidence from Academic Medical Centers”.Abstract

Academic medicine—comprising medical schools, teaching hospitals, and their affiliated teaching physicians, residents, and students—plays an important role in the American system of biomedical research and innovation. This paper considers how changes in the level of health care financing affect research productivity within academic medical centers (AMCs). We examine the role of the Balanced Budget Act of 1997, which changed the formula used to reimburse Medicare inpatient claims and teaching hospital subsidies, on research outcomes within AMCs. We compare AMCs' relative exposure to the reform and how these differences affect their researchers' ability to attract scientific grant funding and produce scientific publications. Further, we examine heterogeneity across principal investigator types, grant novelty, and publication type. We find that in response to the BBA, research activity falls by 4 percent among the average teaching hospital and nearly 7 percent among major teaching hospitals. We find little evidence of a concurrent change in clinical outcomes. Our estimates offer insight into how changes in reimbursements to health care providers can shape the rate and direction of scientific progress within biomedical research.

Kao J. Working Paper. “Pharmaceutical Regulation and Off-Label Uses”. Publisher's VersionAbstract

Pharmaceutical regulation and off-label drug use has meaningful implications for private research investments. In this paper, I provide a starting point for researchers interested in pharmaceutical regulation and off-label use by reviewing empirical evidence from the health economics and health policy literature. First, off-label use is defined and the rationale for government regulation is reviewed. The subsequent sections bring evidence from the literature to bear on pharmaceutical regulation, promotion, and private investments. I conclude with a discussion of data resources for future research.

In Preparation
Kao J. In Preparation. “Competition and Disclosure Incentives: Evidence from the Pharmaceutical Industry”.Abstract

This paper studies the relationship between market structure and firms’ voluntary disclosure of product quality information. Using a dataset of 16,000 clinical trials over a 17-year period, I examine the relationship between competition and pharmaceutical firms’ incentives to disclose clinical information about drug safety and efficacy in the public trials database, ClinicalTri- I find evidence suggesting that greater competition spurs firms to positively influence consumers’ perceptions of drug quality through investments in well-designed and more specialized trials. Further, I find that firms experiencing more competition are 24% more likely to disclose trial results, even after controlling for drug and firm characteristics. The results suggest that investment in perceived product quality and the subsequent disclosure of quality information is an important firm strategy for market entry.

Chandra A, Kao J, Miller K, and Stern AD. In Preparation. “Regulatory Incentives for Pharmaceutical Innovation: the FDA's Breakthrough Therapy Designation”.Abstract

Incentives for biopharmaceutical firms to commercialize drugs are strengthened by shorter development and approval periods, and reduced by uncertainty around clinical development and regulation. We evaluate a recent policy change to private incentives for drug development in the United States, the FDA’s Breakthrough Therapy Designation (BTD). Eligibility for the BTD requires clinical evidence that a drug may provide substantial improvement over existing therapies and the subsequent benefits of the program are designed to make the clinical development and regulatory approval processes faster and more transparent for innovator firms by increasing feedback and communication between the developer and regulators during product development. We use two different methods to identify a set of synthetic controls for breakthrough drugs, (1) algorithmic matching using similar drugs from the pre-BTD period and (2) regulatory expert judgement about which pre-BTD drugs would have been eligible for the designation. We use these to measure the effect of the program on time-to-market and post-approval safety risks to patients. We find that the BTD shorted clinical development times by more than 30 percent but did not affect regulatory review times, consistent with the program’s design, which focuses on the period of clinical development. We do not find evidence of a difference in the ex post safety profile of drugs with (vs. without) the BTD, suggesting that the program’s features may allow products to come to market more quickly without compromising patient safety. These findings have important implications for the allocation of resources by regulators, who have a mandate to promote public health through both the timely approval of new therapies as well as ensuring the safety and efficacy of products brought to market. Our results also have implications for resource allocation by pharmaceutical firms, which face large opportunity costs of capital on investment projects, and for patients and health care providers, who may benefit from accessing important therapies sooner.