This paper investigates the role of efficacy evidence produced in randomised controlled trials (RCTs) on demand for cancer drugs. Rebecca McKibbin uses the unique setting of off-label prescribing, where it is possible to observe demand for a drug for a particular cancer both before and after a trial result is released. Using a new data set that combines information from scientific articles, FDA data, and Medicare claims, she estimates the effect of the release of results from an RCT on demand for off-label uses of a drug. By exploiting variation in the timing of the release of results across off-label uses of drugs, she finds that off-label prescriptions of drugs increases on average by 150 per cent if the RCT finds a statistically significant increase in overall survival. In contrast, there is no change in the absolute level of demand if the trial result is inconclusive. She estimates the effect of market and drug characteristics on the firm’s decision to invest in an RCT for a potential off-label use. The results suggest that trials are not selected based on efficacy. A back of the envelope welfare calculation suggests that firms have an incentive to invest in trials that are not socially efficient on the margin. However, on average the RCTs conducted for off-label uses of drugs are worth more to consumers than they cost the firm. A key lesson for drug regulation is that efficacy data produced in RCTs plays an important role in the adoption of new drugs into medical practice.

Rebecca McKibbin is a PhD candidate in economics at Yale University. Her research examines how doctors use information in decisio-making and how policy effects firms’ incentive to supply this information. She also studies public health insurance systems and drug pricing in the United States. Prior to beginning her PhD, Rebecca worked at Access Economics and the Reserve Bank of Australia.
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This event is hosted by the Tax and Transfer Policy Institute (TTPI) and the ANU Centre for Social Research and Methods (CSRM).