The Economics of Orphan Drug Policy in the U.S.

Can the Legislation Be Improved?

Published In: PharmacoEconomics, v. 8, no. 5, Nov. 1995, p. 374-384

Posted on RAND.org on December 31, 1994

by John Peabody, Allen Ruby, Peter Cannon

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Uses an economic model to review the U.S. Orphan Drug Act (ODA) of 1983. An orphan drug is one that is used to treat diseases that affect fewer than 200,000 people. It is believed that, because of the small population to which they apply and because there is no reasonable expectation of recouping development and marketing costs through sales revenue, these drugs would not be developed without some official act by the U.S. Congress. The article concludes that a guarantee of market exclusivity, which plays an essential role in encouraging firms to pursue the development of orphan drugs, should be retained. In addition, the authors recommend that tax credits, research grant programs, and targeting of priority diseases should be expanded. They conclude that, although the ODA has been a valuable legislative initiative, it could be strengthened with some simple extensions of its current incentives.

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