ABSTRACT Off‐label use regulation has the potential to change pharmaceutical firms' behavior and—consequently—affect patient welfare. We investigate the impact of changes in off‐label regulation on pharmaceutical firms' behavior in seeking formal marketing approval for supplemental uses. In 2012, a US court decision protected truthful off‐label promotion, providing pharmaceutical companies more leeway to promote off‐label uses of their drug. Using a unique data set of pharmaceutical firms' research and development projects, we exploit this regulatory change to understand how firms react to government policies. Results demonstrate that the hazard of approval declined for supplemental uses, relative to original uses, after the policy change. Patent protection, potential market size, and competition are also important determinants of the hazard of approval. These results have implications not only for innovation policy but for the creation of high‐quality data for certain indications.
Dubois et al. (Sun,) studied this question.