I’m going to take a look at rare diseases from the economic lens of three market failures.
Negative Externalities
Rare diseases impose significant negative externalities on society and healthcare systems. Consider this statistic –
In Europe about 30 million people (1 in 17) suffer from a debilitating rare disease
Now take a minute to review the cost imposed on healthcare systems, cost imposed on families and caregivers of people with rare conditions and you’ll see the ripple effect of rare conditions and the significant externalities associated with it . These costs include financial, health and opportunity costs.
Failure in forming a market
The rare nature of the diagnosis leads to possible market size being too small to be deemed viable. Governments have taken this into consideration and brought up regulations to encourage more companies to focus on needs on this segment. More on these interventions later.
Time inconsistency
Understanding rare diseases is difficult given the significant data gaps. To add to this, any medical treatment for rare diseases would involve significant upfront costs in R&D, with an uncertain guarantee of recuperating this investment down the line, given the small market size.