Promoting innovation in small markets: Evidence from the market for rare and intractable diseases

• Published in: Journal of health economics Vol. 54; pp. 56 - 65
• Main Authors: Iizuka, Toshiaki, Uchida, Gyo
• Format: Journal Article
• Language: English
• Published: Netherlands Elsevier B.V 01.07.2017; Elsevier Sequoia S.A
• Subjects: Clinical research; Clinical trial; Clinical trials; Clinical Trials as Topic - economics; Clinical Trials as Topic - statistics & numerical data; Companies; Cost Sharing; Demand; Demand analysis; Demand-side policy; Diseases; Empirical analysis; Health administration; Health care; Health care industry; Health Care Sector - economics; Health Care Sector - organization & administration; Health economics; Health Policy - economics; Health Services Needs and Demand - economics; Health Services Needs and Demand - statistics & numerical data; Humans; Impact analysis; Innovation policy; Innovations; Japan; Market shares; Markets; Medical research; Nonprofit organizations; Patient cost sharing; Precision medicine; Private sector; Pull policy; Rare and intractable disease; Rare diseases; Rare Diseases - economics; Rare Diseases - therapy; Therapies, Investigational - economics; Therapies, Investigational - statistics & numerical data; Tropical diseases; Japan; Demand-side policy; Patient cost sharing; O38; Pull policy; I11; Clinical trial; Innovation policy; O31; Rare and intractable disease
• ISSN: 0167-6296; 1879-1646
• DOI: 10.1016/j.jhealeco.2017.03.006

•We study the impact of a demand-side innovation policy onto small medical markets.•A change in cost sharing policy on rare/intractable diseases is exploited.•We construct unique clinical trials data taken from public registries.•Firm-sponsored clinical trials substantially increased when covered by the policy.•Demand-side policies can be an important tool in innovations in small markets. In many medical care markets with limited profit potential, firms often have little incentive to innovate. These include the market for rare diseases, “neglected” tropical diseases, and personalized medicine. Governments and not-for-profit organizations promote innovation in such markets but empirical evidence on the policy effect is limited. We study this issue by analyzing the impact of a demand-side policy in Japan, which reduces the cost sharing of patients with some rare and intractable diseases and attempts to establish and promote the treatment of those diseases. Using clinical trials data taken from public registries, we identify the effect of the policy using a difference-in-difference approach. We find that the demand-side policy increased firms’ incentive to innovate: firm-sponsored clinical trials increased 181% (0.16 per disease per year) when covered by the policy. This result indicates that the demand-side policy can be an important part of innovation policies in markets with limited profit potential.