The Economics of Orphan Drug Policy in the US

Abstract

This review of the US Orphan Drug Act (ODA) 1983 outlines how the ODA is intended to stimulate orphan drug research and development of drugs for rare diseases. We also evaluate the effectiveness of the ODA in the past decade and provide recommendations for ODA improvements in the future. The economic incentives embedded in the ODA are presented in a simple economic model, in which a guarantee of market exclusivity plays a central role in encouraging firms to pursue the development of orphan products. Some evidence suggests that this provision has been a major impetus for the rise in orphan drug applications and designations in the last decade. Market exclusivity is the key incentive for orphan drug research, and should be retained. Concerns about a limited number of highly successful 'blockbuster' orphan drugs should be evaluated in terms of the useful economic incentives. In the future, exceptionally high profits could be limited by more precise evaluation of disease prevalence, elasticity of demand, and the other uses of orphan compounds. We further recommend an expansion of the ODA tax credits and research grants programme and targeting of 'priority' diseases. We conclude that the ODA has been a valuable legislative initiative, but it can be strengthened with some simple extensions of the current incentives that it contains.

Incentives for orphan drug research and development in the United States

“…Other factors may explain the increase in the number of orphan drugs. First, public and private investment in pharmaceutical R&D increased during the same period [ 17 ]. This increase in R&D could facilitate the discovery and development of orphan drugs per se and as a byproduct of research for non-orphan diseases and conditions [ 18 ].…”

Open-source approaches for the repurposing of existing or failed candidate drugs: learning from and applying the lessons across diseases

“…In such cases, the authors contend that old pharmaceutical agents could potentially benefit from drug-development incentives as later orphan drugs and demand higher market prices, even though these pharmaceutically active agents were once available either as branded or generic drugs 37. To the suggested list of reforms comprising price regulation, subsidy paybacks for profitable drugs, the establishment of an international orphan drug office to harmonize regulations across markets, and reforms to the US Orphan Drug Act should be added the establishment of an oversight function for drug repurposing targeting orphan diseases 36–39. While the intention of this article is to review models of open-source drug repurposing, with the possibility of downstream commercial value creation, oversight beyond data management and access will become paramount.…”

An Empirical Review of Major Legislation Affecting Drug Development: Past Experiences, Effects, and Unintended Consequences

“…For example, orphan drugs can produce substantial profits for their manufacturers. One early study determined that the eleven top‐selling orphan drugs each earned more than $200 million within five years of being marketed (Peabody, Ruby, and Cannon 1995). A recent analysis also showed that orphan drugs faced less profit‐reducing generic competition overall than did nonorphans (Seoane‐Vazquez et al 2008).…”