Orphan Drug Status

What Is Orphan Drug Status?

Orphan drug status, a status designated by the Food and Drug Administration (FDA), gives companies researching cures for rare diseases a seven-year window of exclusive marketing rights post-approval, reductions in certain application fees, and tax incentives (50% tax credits for cost award). 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 (designated by the FDA) gives a company exclusive marketing rights for a seven-year period, 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.
  • Because the market for orphan drugs is small and the cost to develop them is often very high, pharmaceutical companies generally develop drugs with widespread usage.

Understanding Orphan Drug Status

In 1982, the U.S. 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 several times to include products other than drugs such as biologics, medical devices, and medical foods (mostly prenatal foods).

Special Considerations 

Pharmaceutical companies are businesses that must cover their expenses and provide a profit to their investors. However, there is great risk involved in developing drugs with few users. If disease drugs were priced to cover the cost of development, most users would not be able to afford them. As a result, the policy to provide incentives was created. 

Developing new drugs is a risky business—especially 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 is a line of business that can lead to outsized profits. 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.

Article Sources
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  1. Electronic Code of Federal Regulations. "Title 21, Chapter 1, Subchapter D, Part 316—Orphan Drugs."

  2. U.S. Food and Drug Administration. "The Story Behind the Orphan Drug Act."

  3. U.S. Food and Drug Administration. "Office of Orphan Products Development."

  4. U.S. Food and Drug Administration. "Orphan Drug Act—Relevant Excerpts."

  5. Internal Revenue Service. "Form 8820, Orphan Drug Credit," Page 3.

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