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Clinical Trial Transparency is Good for Public Health... and for Investors

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When it comes to life-saving – but also potentially risky – drugs, there is no such thing as too much information. Increasing transparency about clinical trials benefits public health, as a study of US regulation in the pharmaceutical sector shows. The three researchers behind this innovative study argue that transparency and public scrutiny also bring benefits to the investors of pharmaceutical companies.

a doctor handling a bottle of COVID19 vaccine -thumbnail

Photo: ©Leigh Prather on Adobe Stock


Why is it important to monitor the pharmaceutical industry?

The pharmaceutical industry is a crucial sector to human life and health – not to mention a sizeable chunk of the economy (in the U.S., it alone accounts for one-fifth of the economy). While companies are expected to be upfront about a drug’s adverse effect, they ultimately hold all the cards and may choose to withhold information detrimental to drug sales, risking patients’ lives. 


Timely public access to clinical trial results enables medical professionals and public officials to make the right decisions on the right course of action – extremely important today in the current COVID-19 pandemic and the race to find the (best) vaccines and treatments.


Gambling with human lives – wouldn't it be awfully bad publicity?

Yet it has happened in the past. Take the example of Vioxx, a painkiller developed and marketed by Merck & Co. in 1999. One undisclosed side effect was an increased risk of heart attacks. As a result, Vioxx was withdrawn from the market in 2004, but not before causing coronary heart disease in at least 80,000 patients, of whom it is estimated at least 38,000 died (and also not before generating billions of dollars of revenue for Merck). In this regard, France experienced a similar scandal with the Mediator antidiabetic drug. 

the building of Merck company in South San Francisco
Merck & Co building in South San Francisco
(Photo Credits: ©Andrei on Adobe Stock)

Aren't there any public health safeguards?

Sticking to the example of the U.S., the Food and Drug Administration Modernization Act (FDAMA) of 1997 required all clinical trials to be registered with the FDA. In 2000, the government website was launched, giving researchers and pharmaceutical companies a platform to post their studies. However, it was not until the Vioxx scandal that the U.S. Congress passed the Food and Drugs Administration Amendments Act (FDAAA) in 2007, which requires pharmaceutical companies to register all their clinical trials on the website and publish the results of their applicable trials within a year of trial completion. 

What changed after the FDAAA came into force?

We hypothesised that increased disclosure of information would lead to economic and social benefits not only for patients but also for investors. Examining 163 pharmaceutical companies compared to other unaffected companies before and after the FDAAA came into force in 2007, we found reduced information asymmetry between the disclosing pharmaceutical company and capital market participants, the general public, academics, and practitioners after the FDAAA implementation.

Why is a decrease in information asymmetry good news?

Releasing results on clinical trials allows academics and practitioners to crosscheck those results with their own findings and real-life cases. This leads to positive consequences due to a higher level of transparency, measured in our study by increased public attention, a greater number of public complaints reports and recalls for safety reasons.


This leads to positive consequences due to a higher level of transparency, measured in our study by increased public attention, a greater number of public complaints reports and recalls for safety reasons.


Indeed, in our study, we observed an increased number of adverse event and product problem complaint reports to the FDA as well as drug and medical device recalls for affected companies after the FDAAA was implemented. We attributed this finding to increased transparency and public monitoring.

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Why would better access to clinical trial information be of interest to investors?

Information helps capital market participants to assess a company's competitive advantage. In the course of our research, an (anonymous) analyst covering pharmaceutical stocks on Wall Street told us that the disclosure of clinical trial outcomes constitutes a key source of information in forecasting the future revenues of the pharmaceutical companies conducting them.


The disclosure of clinical trial outcomes constitutes a key source of information in forecasting the future revenues of the pharmaceutical companies conducting them.


In our study, we analyzed the capital market responses through the bid-ask spread (a measure of information asymmetry), and our results reveal a significant decrease in bid-ask spreads after the FDAAA for companies affected by the FDAAA compared with other unaffected companies in the same industry or compared with matched similar companies outside the pharmaceutical industry. A lower bid-ask spread is usually linked to lower information asymmetry among capital market participants, which is reassuring for investors. All in all, we show that while the FDAAA is a legal requirement with low enforcement and compliance – only around 40% of applicable clinical trial results get published on the website between 2007 and 2013 – there are still some benefits to be derived from its implementation for both investors and the general public.


Article based on the research "Consequences of Disclosing Clinical Trial Results: Evidence from the Food and Drug Administration Amendments Act” by Thomas Bourveau (Columbia Business School, HEC Paris Ph.D. alumnus), Vedran Capkun (HEC Paris) and Yin Wang (Singapore Management University, HEC Paris Ph.D. alumnus). When a Ph.D. at HEC Paris, Yin Wang was awarded the HEC Foundation Award for the best HEC thesis in 2018.

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