Regulatory Incentives for Pharmaceutical Innovation: the FDA's Breakthrough Therapy Designation


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.

Last updated on 11/12/2018