OBJECTIVE： To analyze the research and development （R&D） of orphan drug in China from the respect of economics， and to provide suggestions for the development and policy formulation of orphan drug in China. METHODS： The theories of external economy and transaction costs were adopted to analyze the reasons about no enthusiasm in orphan drug R&D， and find some appropriate solutions for them. RESULTS： Orphan drug was still lack of identification standard in China. The external economy， much of transaction costs in orphan drug and R&D risk aggravated the economic burden on pharmaceutical enterprises， combated R&D and production enthusiasm of pharmaceutical enterprises. CONCLUSIONS： Chinese pharmaceutical enterprises can take part in orphan drug cooperative R&D， and play the advantage of TCM treatment so as to reduce R&D cost. The government should establish and develop orphan drug system， play the role of taxation and health insurance， accelerate approval， give market exclusivity for pharmaceutical enterprises and encourage cooperative R&D.