Key findings in a nutshell:
Peer Influence on Disclosure: Firms are less likely to disclose trial results when peers have already disclosed results for trials related to the same medical conditions.
Information Asymmetry: High information asymmetry increases the likelihood of disclosure, as firms seek to reduce undervaluation risks.
Competitive Dynamics: In highly competitive situations, firms are less likely to share their trial results if their peers have already done so, unless a firm is more advanced in research.
Phase-Specific Considerations: The decision to disclose varies across different phases of clinical trials. Phase 3 trials, crucial for FDA approval, involve higher costs for keeping information private and offer greater advantages in reducing information gaps.
Enforcement of Disclosure Rules: Despite regulatory requirements and potential monetary sanctions, the enforcement of disclosure rules is lax, making compliance effectively voluntary.
Abandonment of Trials: Peer disclosures, especially when closely related to ongoing trials, may lead to trial abandonment due to perceived market saturation or unfavorable results.
Timing of Disclosure: There is a noticeable peak in disclosures right before the one-year deadline, indicating a possible time-dependent cost of disclosure. Firms are statistically more likely to disclose if fewer peers have disclosed at any point after completion.
Implications for Medication Perception: Disclosure patterns affects how doctors and patients perceive medications, so it is important to understand what makes clinical trial information available.
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The results of clinical trials are valuable to the companies that sponsor them. Not only do these trials represent a crucial part of the drug development process, where innovation and speed are fundamental to success, but they also take place within a fiercely competitive industry where research information is of high value.
Since 2007, when companies carry out clinical trials, there has been a regulatory requirement to disclose their results to the public within one year of the trial end date. However, the quantity of trial results published within this timeframe is surprisingly small.
We know that there are costs and benefits to disclosing trial result data and that firms will act strategically each time they decide whether to break the disclosure rule. One way we would expect them to weigh up their options is by looking carefully at what others are doing.
Reducing information asymmetry
A firm is less likely to disclose its results if the results of more trials relating to the same medical conditions have already been disclosed. This might relate to the trade-off between the cost of disclosure and the benefit of reducing information asymmetry between the firm and its potential investors.
When information asymmetry is high, there is a lack of understanding of the work and why it’s worth investing in, and there is a risk of the firm and its products being undervalued. As a result, firms have more incentives to disclose trial results relative to its cost of disclosing proprietary information (i.e., a positive peer disclosure effect on a firm’s own disclosure).
Conversely, if the information asymmetry is low – i.e., the general level of knowledge around a trial’s topic is already high thanks to the disclosure by peers for trials with the same medical condition – there isn’t much net benefit for a firm to disclose its own results relative to its cost of disclosure (i.e., a negative peer disclosure effect on a firm’s own disclosure).
The strength of the information asymmetry effect changes depending on what a company’s peers are doing, and what stage the research is at. For example, the negative peer disclosure effect gets stronger (i.e., more negative) when there is a higher level of competitive activity among firms.
We identify what determines which pharmaceutical information becomes public, which influences how doctors and patients expect drugs to work, and shapes the future of the pharmaceutical industry.
If a firm is further along in its research than its competitors, this negative effect gets weaker (i.e., less negative), and disclosing is more likely. This relates to the kind of information being generated.
In a Phase 2 clinical trial, the data mostly relates to the safety and basic efficacy; Phase 3 trials involve more participants and are more concerned with establishing the net benefits of the drug. These Phase 3 trials are known as ‘pivotal studies’ and are the last stage before FDA approval. Thus, the disclosure of Phase 3 trial results is likely to be associated with both higher proprietary costs and larger benefits of reductions in information asymmetry compared to other phases, so it is crucial for the firm to decide whether to disclose trial results at this critical stage. Ultimately though, this will vary from case to case depending on the cost and benefit analysis for each firm.
Other factors that could influence disclosure decisions
In addition to the benefit of reducing asymmetry and the cost of revealing proprietary information, you might expect other factors to be in play, such as the firms’ business decisions. If they have decided not to develop and market the drug in question because of peer disclosures, they may simply not take time to disclose the trial results of the abandoned project at all.
The decision to disclose data may affect how investors view the company, and so firms may be swayed towards what investors prefer. We found no strong evidence that this was a significant factor, however.
How strictly are the disclosure rules enforced?
Penalties for failing to disclose results should be an important factor in a firm’s decision. Since the enactment of the FDAAA (Food and Drug Administration Amendments Act) in 2007, firms have been required to disclose information about clinical trials and their results in the government website ClinicalTrials.gov within a year of the trial completion. Otherwise, firms may face possible monetary sanctions. This should have encouraged timely disclosures.
But in fact, the rules and the reality don’t match up. No fines or sanctions were levied in the seven years after disclosure became mandatory, and the guidelines on when and how to disclose remained hazy. As a result, following the rule seems to be effectively voluntary, and its impact on a firm’s decision-making is negligible.
Abandoning ship
If several peer firms disclose trials that are closely related to a trial that is underway, the incomplete trial may be abandoned altogether. This might be because the trial sponsors perceive a crowded market, and their innovation will struggle to compete. It may also be that the results of these similar trials are unfavorable, and the company loses confidence in the whole research area. In some cases, it may be a bit of both.
In these situations, the disclosure of trial data could be useful because it saves resources for redirection towards something more promising.
Waiting to disclose
Of those firms that did disclose before the one-year deadline, there’s a noticeable peak right before the 365-day cut-off point. This led us to wonder whether the cost of disclosure declines with time. For example, disclosure may become less costly once an initially non-disclosing firm has exploited its head start and gained a sufficiently large advantage over its competitors.
We extended our analysis beyond the one-year mark to see whether there was a difference in disclosure patterns after two, three, four and five years, or at any point after a trial’s completion. We found that although the effect is weakened, firms are still statistically more likely to disclose at any time if fewer peers have disclosed.
Given that we know we aren’t getting the full picture of the clinical trial data, our research helps understand what shapes the fraction of information we do get.
