Market response to FDA announcements

This study investigates announcement effects at four points in the Food and Drug Administration (FDA) review process and explores conditions that may impact final approval. We show that investors adjust expectations through the approval process, and most uncertainty is resolved by final approval. While smaller firms reap benefit from the approval, the market penalizes first movers. We do not find additional gain for pioneering research, implying that these firms may be able to reduce R&D spending.