The economics of orphan drug policy in the US. Can the legislation be improved?

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.