Product Recalls and New Product Development: Own Firm Distractions and Competitor Firm Opportunities

George P. Ball; Jeffrey T. Macher; Ariel Dora Stern

Working Paper | HBS Working Paper Series | 2020

Product Recalls and New Product Development: Own Firm Distractions and Competitor Firm Opportunities

by George P. Ball, Jeffrey T. Macher and Ariel Dora Stern

Abstract

Product recalls create significant challenges for R&D intensive firms, but simultaneously generate potentially lucrative opportunities for competitors. Using the U.S. medical device industry as an empirical setting, we develop predictions and provide evidence that own firm recalls slow new product development activities, while competitor firm recalls accelerate them. We also examine two firm-level moderators that influence the recall and new product development relationship: product scope and ownership. We find that own firm recalls slow new product development for all firm types: a single own firm recall slows new product development up to 43 days, equating to more than $10 million in revenue lost in this high-margin and highly competitive setting. We also find that competitor firm recalls are associated with accelerated development times, but only for broad (vs. narrow) product scope firms and public (vs. private) firms. A one standard deviation increase in competitor firm recalls for these firm types slows new product development by more than two weeks. Organizational resources and financial incentives thus emerge as key determinants of whether firms can effectively capitalize on the potential market opportunities created by competitor recalls. In post-hoc analyses, we explore whether future product quality is predicted by post-recall submission times, but find no evidence that safer products result from post-recall submission timing. This result suggests that new product development delays following recalls are more likely driven by organizational distractions than by product quality learning, and that firms react strategically and rationally by speeding new products to market after competitor recalls.

Keywords: New Product Development; recalls; product failures; medical devices; FDA; health care; Product Development; Product; Failure; Competition; Opportunities; Medical Devices and Supplies Industry;

Language: English

Format: Print

42 pages

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Citation:

Ball, George P., Jeffrey T. Macher, and Ariel Dora Stern. "Product Recalls and New Product Development: Own Firm Distractions and Competitor Firm Opportunities." Harvard Business School Working Paper, No. 19-028, September 2018. (Revised August 2020.)

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Emerging gene therapy and gene-editing technologies will have a growing impact on patient lives and health-care delivery. We analyzed a decade of data on clinical trials and venture capital investments to understand the likely trajectory of genetically focused therapies in the years ahead. The number of clinical trials and venture capital deals increased substantially from 2006–2017. We observed particularly notable growth in both industry-sponsored trials and trials involving specialty fields of drug development, including oncology, neurology, hematology, ophthalmology, and neurology. As the number of gene-therapy and gene-editing technologies continues to grow, we expect that such therapies will have a significant and heterogeneous impact on health-care delivery, including a shifting of resources from chronic disease management to more intense acute episodic care, an increase in the complexity of required intellectual property and manufacturing know-how, and the potential expansion of biopharmaceutical companies into service-based business models.

Article | JMIR mHealth and uHealth

Assessing the Food and Drug Administration's Risk-Based Framework for Software Precertification with Top Health Apps in the United States: Quality Improvement Study

Noy Alon, Ariel Dora Stern and John Torous

BACKGROUND: As the development of mobile health apps continues to accelerate, the need to implement a framework that can standardize categorizing these apps to allow for efficient, yet robust regulation grows. However, regulators and researchers are faced with numerous challenges as apps have a wide variety of features, constant updates, and fluid use cases for consumers. As past regulatory efforts have failed to match the rapid innovation of these apps, the United States Food and Drug Administration (FDA) has proposed that the Software Precertification (Pre-Cert) Program and new risk-based framework could be the solution. OBJECTIVE: The objective of this study was to determine if the risk-based framework proposed by the FDA's Pre-Cert Program could standardize categorizing top U.S. health apps. METHODS: In this quality improvement study during the summer 2019, the top 10 apps for six disease conditions (addiction, anxiety, depression, diabetes, high blood pressure, and schizophrenia) in the United States Apple iTunes and Android Google Play Store were classified using the FDA's risk-based framework. Data on the presence of well-defined apps features, user engagement methods, popularity metrics, medical claims, and scientific backing were collected. RESULTS: The FDA's risk-based framework classifies an app's risk by the disease condition it targets and what information that app provides. Out of the 120 apps tested, 95 apps were categorized as targeting a non-serious health condition, while only seven targeted a serious condition and 18 apps targeted a critical condition. Since the majority of apps targeted a non-serious condition, their risk categorization was largely determined by what information they provided. The apps that were assessed as not requiring FDA review were more likely than those assessed as requiring review to be associated with the integration of external devices (15/58, 26% vs. 5/62, 8%; P=.03) and health information collection (24/58, 41% vs. 9/62, 15%; P =.008). Apps exempt from review were less likely to offer health information (25/58, 43% vs 45/62, 72%; P <.001), to connect users with professional care (7/58, 12% vs 14/62, 23%; P =.04), and to include an intervention (8/58, 14% vs. 35/62, 55%; P <.001). CONCLUSIONS: The FDA's risk-based framework has the potential to improve the efficiency of the regulatory review process for health apps. However, we were unable to identify a standard measure that differentiated apps requiring regulatory review from those that would not. Apps exempt from review also carried concerns regarding privacy and data security. Before the framework is used to assess the need for formal review of digital health tools, further research and regulatory guidance are needed in order to ensure that the Pre-Cert Program operates in the greatest interest of the public health.

Keywords: mobile health; smartphone; Food and Drug Administration; risk-based framework; Health Care and Treatment; Mobile Technology; Software;

Citation:

Alon, Noy, Ariel Dora Stern, and John Torous. "Assessing the Food and Drug Administration's Risk-Based Framework for Software Precertification with Top Health Apps in the United States: Quality Improvement Study." JMIR mHealth and uHealth 8, no. 10 (October 2020). View Details

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Product Recalls and New Product Development: Own Firm Distractions and Competitor Firm Opportunities

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