Impact of Food and Drug Administration (FDA) Paediatric Antidepressant Warnings on Stock Prices of Pharmaceutical Manufacturers

Document Type

Peer-Reviewed Article

Publication Date



Objectives: The objective was to investigate the impact of the Food and Drug Administration (FDA) paediatric antidepressant warnings in 2004 on the magnitude and the systematic risk associated with stock returns of antidepressant manufacturers.

Methods: Center for Research in Security Prices (CRSP) daily stock-price data for 2003–2006 were used to examine the FDA warning impact. The beta coefficient from the capital asset pricing model was used as a measure of systematic risk. The CRSP New York Stock Exchange 500 value-weighted daily return was used as the market return. A multivariate regression model framework was employed in which an equation was estimated simultaneously for each of the five firms (Eli Lilly, Forest Laboratories, GlaxoSmithKline, Pfizer and Wyeth) affected by the warnings. The periods 2 February to 23 March 2004 and 14 September to 18 October 2004 were defined as the warning periods. A seemingly unrelated regression model was used with daily stock return as the dependent variable and warning period as the primary independent variable. The unit of analysis was each trading day between 1 January 2003 and 31 December 2006.

Key findings: In the period of uncertainty and warnings (2003–2004) the beta coefficient increased by an average of 0.296 (95% confidence interval 0.103, 0.489) across the five firms. The FDA warnings had no significant impact on the magnitude of the stock returns.

Conclusions: The 2004 FDA warnings on antidepressant use in children led to an increase in the systematic risk associated with antidepressant drug manufacturers' stocks with no corresponding change in stock returns, suggesting that investors did not change their perception of the value of these firms, but did perceive increased risk. This increase in risk makes it more costly for the manufacturers to raise capital.