Gamba Simona, Magazzini Laura, Pertile Paolo (2019)
R&D and market size: who benefits from orphan drug regulation? Working Paper Series, Department of Economics, University of Verona.
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
Jel Code: : I14; I18; O31; O38; C35