Market incentives and pharmaceutical innovation
Journal of Health Economics 27(4): 1060-1077
ISSN/ISBN: 0167-6296 PMID: 18395277 DOI: 10.1016/j.jhealeco.2008.01.002
I study the impact of the Orphan Drug Act (ODA), which established tax incentives for rare disease drug development. I examine the flow of new clinical drug trials for a large set of rare diseases. Among more prevalent rare diseases, the ODA led to a significant and sustained increase in new trials. The impact for less prevalent rare diseases was limited to an increase in the stock of drugs. Tax credits can stimulate R & D; yet because they leave revenue margins unaffected, tax credits appear to have a more limited impact on private innovation in markets with smaller revenue potential.