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R&D policy, agency costs and innovation in personalized medicine

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  • Yin, Wesley

Abstract

The Orphan Drug Act (ODA) was designed to spur the development of drugs for rare diseases. In principle, its design also incentivizes pharmaceutical firms to develop drugs for "rare" subdivisions of more prevalent diseases. I find that in response to this incentive, firms develop drugs for ODA-qualifying subdivisions of non-rare diseases. The impact in these tailored drug markets represents half of the total R&D response to the ODA. I also find that 10-percent of the innovation in subdivided disease drugs induced by the ODA would have been conducted without the policy. While modest in size, this inefficiency suggests that agency problems should be considered when designing innovation policy.

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  • Yin, Wesley, 2009. "R&D policy, agency costs and innovation in personalized medicine," Journal of Health Economics, Elsevier, vol. 28(5), pages 950-962, September.
  • Handle: RePEc:eee:jhecon:v:28:y:2009:i:5:p:950-962
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    7. Pierre Dubois & Olivier de Mouzon & Fiona Scott-Morton & Paul Seabright, 2015. "Market size and pharmaceutical innovation," RAND Journal of Economics, RAND Corporation, vol. 46(4), pages 844-871, October.
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    9. Olga Bruyaka & Hanko Zeitzmann & Isabelle Chalamon & Richard Wokutch & Pooja Thakur, 2013. "Strategic Corporate Social Responsibility and Orphan Drug Development: Insights from the US and the EU Biopharmaceutical Industry," Journal of Business Ethics, Springer, vol. 117(1), pages 45-65, September.
    10. Simona Gamba & Laura Magazzini & Paolo Pertile, 2019. "R&D and market size: who benefits from orphan drug regulation?," Working Papers 09/2019, University of Verona, Department of Economics.
    11. Elissa P. Gentry & Benjamin J. McMichael, 2020. "Responses to Liability Immunization: Evidence from Medical Devices," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 17(4), pages 789-819, December.
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    15. Carl Blankart & Tom Stargardt & Jonas Schreyögg, 2011. "Availability of and Access to Orphan Drugs," PharmacoEconomics, Springer, vol. 29(1), pages 63-82, January.

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