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R&D and market size: who benefits from orphan drug regulation?

Simona Gamba, Laura Magazzini () and Paolo Pertile ()

No 09/2019, Working Papers from University of Verona, Department of Economics

Abstract: Since the early 80s, orphan drug regulations have been introduced to stimulate R&D for rare diseases. We develop a theoretical model to study the heterogeneous impact on optimal R&D decisions of the incentives for diseases with different levels of prevalence. We show the mechanisms through which the type of incentives deployed by orphan drug regulations may stimulate R&D more for orphan diseases with comparatively high prevalence, thus increasing inequality within the class of orphan diseases. Using data from the Food and Drug Administration on the number of orphan designations, our empirical analysis shows that, while R&D has increased over time for all orphan diseases, the increase has been much greater for the less rare. According to our baseline specification, the difference between the predicted number of orphan designations for a disease belonging to the highest and the lowest class of prevalence is 5.6 times larger after 2008 than it was in 1983. Our findings support the idea that the type of incentives in place may be responsible for this increase in inequality within orphan diseases.

Keywords: pharmaceuticals; innovation; orphan regulations; market size; inequality (search for similar items in EconPapers)
JEL-codes: C35 I14 I18 O31 O38 (search for similar items in EconPapers)
Date: 2019-06
New Economics Papers: this item is included in nep-com, nep-hea and nep-ino
References: View references in EconPapers View complete reference list from CitEc
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