Financial and Economic Implications of Orphan Drugs: The Canadian Economy in Perspective

Abstract

In a free market, the pricing of prescription drugs is set by supply and demand. Under these conditions, low demand for orphan drugs (drugs used to treat rare diseases) would have prohibitively high prices for buyers and discourage investment in research and development for new orphan drugs by pharmaceutical manufacturers. However, orphan drug legislation designed to encourage the development and distribution of these drugs in various international jurisdictions has supported the financial profitability of the pharmaceutical manufacturing industry. In many developed economies owing to government intervention, health care does not always behave as a normal good. Consequently, these interventions have been made to provide access to orphan drugs while balancing recognition of the investments made in research and development by pharmaceutical manufacturers.

Using Canada as a base case and expanding the analysis to several other developed economies, the authors first demonstrate that currently, there is no legislation to regulate the pricing of orphan drugs in Canada. Accordingly, the financial and economic implications of orphan drug pricing are significant from the perspectives of suppliers and buyers, as well as the federal and provincial governments in Canada, as well as several other countries.

Keywords: Pricing of prescription; prohibitively high prices; Orphan drugs

JEL Classification: D43; H51; I12; O51