The Orphan Drug Act at 35: Observations and an Outlook for the Twenty-First Century

Nicholas Bagley, Benjamin Berger, Amitabh Chandra, Craig Garthwaite and Ariel D. Stern

Innovation Policy and the Economy, 2019, vol. 19, issue 1, 97 - 137

Abstract: On the thirty-fifth anniversary of the adoption of the Orphan Drug Act (ODA), we describe the enormous changes in the markets for therapies for rare diseases that have emerged over recent decades. The most prominent example is the fact that the profit-maximizing price of new orphan drugs appears to be greater today than it was in 1983. All else equal, this should reduce the threshold for research and development (R&D) investment in an economically viable product. Further, the small size of patient populations for orphan drugs, together with the increasing prevalence of biologics among orphan drugs, have created a set of natural monopoly-like markets in which firms face little competition, even after the end of formal periods of patent protection and market exclusivity. Additionally, the evolving technologies of drug development--in particular, the increasingly common use of auxiliary endpoints in clinical trials and the use of biomarkers for patient selection for treatment--now allow manufacturers to target smaller populations. Taken together, these changes raise doubts about whether the ODA encourages the development of products that otherwise would not have been brought to market--or whether, instead, it simply rewards the producers of inframarginal products. After presenting empirical support for our claims of an evolving marketplace, we discuss the tradeoffs associated with reshaping the ODA for the twenty-first century.

Date: 2019
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