What Is Orphan Drug Status?

Orphan drug status gives companies researching cures for rare diseases a seven-year window of tax reductions and the exclusive right to develop a cure for a specific condition. Orphan drug status can be granted for new drugs, already approved drugs, or drugs that are already on the market. However, if the drug is already approved, the sponsor must submit a plausible hypothesis on how the drug is clinically superior to previous drugs or undeveloped drugs.

Key Takeaways

  • Orphan drug status gives companies exclusive marketing, and development rights along with other benefits to recoup the costs of researching and developing drugs to treat rare diseases.
  • The Orphan Drug Act was designed to encourage companies to develop drugs for rare diseases.
  • The FDA can revoke orphan drug status.
  • Pharmaceutical companies, however, prefer to treat less expensive diseases and conditions versus expensive and rare ones.

Understanding Orphan Drug Status

In 1982, the U.S. Food and Drug Administration (FDA) recognized the lack of incentive for pharmaceutical companies to develop cures for rare diseases. From this realization, the Orphan Drug Act of 1983 was born. The plan was to target diseases affecting fewer than 200,000 people in the U.S. 

The Office of Orphan Products Development (OOPD) encouraged companies to exercise the rights provided under the Orphan Drug Act of 1983. The OOPD develops and awards grants for companies, biologists, clinicians and researchers that want to develop products and drugs to treat these rare diseases. The law refers to these groups of people as sponsors.

The Orphan Drug Act was amended in several times to include products other than drugs such as biologics, medical devices, and medical foods (mostly prenatal foods).

Special Considerations 

It’s well known that pharmaceutical companies are businesses first and healers second. Pharmaceutical companies shell out billions of dollars annually for R&D. As an example, Pfizer (PFE) earned $41.908 billion in revenue in 2020. R&D spending was about $9.4 billion for the year. That equates to 22.4% of revenue spent exclusively R&D. 

Developing new drugs is also a risky business if a company fails to receive a patent. There’s also stiff competition from counterfeits and generics or similar medicines. Many businesses go where it’s relatively easy to make money. 

Orphan Drug Status Advantages and Disadvantages

In addition to exclusive rights and tax credits for research, the FDA will help with technical assistance for orphan drug applications, possible reductions in waiting period approval, and discounts on registration fees. The status also offers a 25% tax credit on the cost of clinical trials. 

Orphan drug status is not designed for sponsors to recuperate all the costs of drug development but rather as a cost reduction and regulatory streamlining mechanism. The FDA can revoke orphan drug designations easily. Common reasons include: any untrue statements or omitted information in your request for designation, or if the FDA believes the disease or condition will affect more than 200,000 people in the future. 

Developing drugs to treat the vast number of diseases in the world is a line of business that can lead to big fortunes. However, in pharmaceuticals the greatest fortunes are often made by developing drugs that become the standard for curing common diseases. From a business perspective, having a large market ensures that a company can quickly recuperate the cost of development, realizing the largest possible gain.