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  • 2018
  • Chapter
  • Innovation Policy and the Economy, Volume 19

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

By: Nicholas Bagley, Benjamin Berger, Amitabh Chandra, Craig Garthwaite and Ariel Dora Stern
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Abstract

On the 35th 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 being 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 21st century.

Keywords

Health Care and Treatment; Laws and Statutes; Research and Development; Investment; Markets; Monopoly

Citation

Bagley, Nicholas, Benjamin Berger, Amitabh Chandra, Craig Garthwaite, and Ariel Dora Stern. "The Orphan Drug Act at 35: Observations and an Outlook for the Twenty-First Century." Chap. 4 in Innovation Policy and the Economy, Volume 19, edited by Josh Lerner and Scott Stern, 97–137. University of Chicago Press, 2018.
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About The Authors

Amitabh Chandra

Technology and Operations Management
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Ariel D. Stern

Technology and Operations Management
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  • Hello Heart: The Next Generation of Chronic Disease Management Apps By: Ariel Dora Stern and Kumba Sennaar
  • Biogen and the Aduhelm Melee By: Amitabh Chandra and Lauren Gunasti
  • Building the Business Case for an Inclusive Approach to Digital Health Measurement with a Web App (Market Opportunity Calculator): Instrument Development Study By: Mitchell Tang, Yashoda Sharma, Jennifer C. Goldsack and Ariel Dora Stern
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