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

Nicholas  Bagley; Benjamin  Berger; Amitabh  Chandra; Craig  Garthwaite; Ariel Dora Stern

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

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

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;

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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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Article | Health Affairs | July 2020

Lessons From The Impact Of Price Regulation On The Pricing Of Anticancer Drugs In Germany

Victoria D. Lauenroth, Aaron S. Kesselheim, Ameet Sarpatwari and Ariel Dora Stern

Worldwide spending on prescription drugs has increased dramatically in recent years. Although this increase has been particularly pronounced in the US, it remains largely unaddressed there. In Europe, however, different approaches to regulating drug prices have been implemented. Under the 2011 German Pharmaceutical Market Restructuring Act (Arzneimittelmarktneuordnungsgesetz, or AMNOG), for example, manufacturers freely set the prices of newly authorized drugs during their first year on the market. Benefit assessments are carried out during this year and then used in price negotiations between manufacturers and representatives of the country’s statutory health insurers. Using data on fifty-seven anticancer drugs launched in Germany from 2002 to 2017, we found that implementation of AMNOG was associated with drug prices being more closely aligned with clinical benefit. Introducing price negotiations led to a 24.5 percent decrease in negotiated prices relative to launch prices. We did not find evidence that manufacturers responded by setting higher launch prices. AMNOG is an example of how government price negotiation can be designed to better align prices with clinical benefit without delaying patient access.

Keywords: Pharmaceuticals; prescription drug costs; drug pricing; Access to care; cost reduction; Health Care and Treatment; Price; Governing Rules, Regulations, and Reforms; Cost Management; Germany;

Citation:

Lauenroth, Victoria D., Aaron S. Kesselheim, Ameet Sarpatwari, and Ariel Dora Stern. "Lessons From The Impact Of Price Regulation On The Pricing Of Anticancer Drugs In Germany." Health Affairs 39, no. 7 (July 2020): 1185–1193. View Details

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

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