Historically, pharmaceutical companies have focused their efforts on developing so-called ‘blockbuster’ drugs, i.e. those drugs that treat common conditions, with large patient populations, and that are expected to generate revenues greater than $1 billion per annum. However, the creation of the Orphan Drug Act has changed the landscape of drug development, and has made the rare disease space more attractive to drug developers.

The Orphan Drug Act was created in response to the efforts of an informal coalition of rare disease patients, their families, and their support networks, who came together to call for legislation that would support the development of drugs to treat rare conditions. Thanks to their efforts, the Act was passed in 1983, and significant financial incentives, explained below, have been promised to companies developing drugs for any disease or condition affecting fewer than 200,000 patients in the US.

  • The first of these incentives is a significant tax break. Any company with an orphan drug designation will receive a 50% tax credit for expenditures incurred during the clinical testing phase. The tax provisions come with a 20-year carry forward, as well as a 1-year fall back provision.
  • The second incentive is the availability of grants, which can be awarded to companies to further off-set the cost of drug development. This is especially important for companies developing drugs for ultra-rare diseases, i.e. diseases that affect fewer than 20 patients per million of the population, as a small patient population makes it extremely difficult for a company to recover R&D costs.
  • The third incentive, and possibly the most important for drug companies, is a 7-year market exclusivity provision. This is a post-approval incentive that prevents any other drug company from commercializing a competitor drug for the same indication. The 7-year exclusivity begins on the date of FDA approval for the drug.

Most people would claim that, because of these incentives, the Orphan Drug Act has been a great success. Since the Act was passed, more than 575 drugs have been developed for rare diseases. Compare that to the fewer than 10 rare disease drugs that came to market between 1973 and 1983, and you can see that the number of drugs has sky-rocketed.

And yet, some worry that this program, intended to help desperate patients, has actually been abused by drug companies over the years to help unjustifiably maximize profits and protect niche markets. These companies have been using the Act to their advantage by (a) charging astronomical prices for their drugs during their 7-year market exclusivity period, and (b) applying for orphan drug status for drugs that are already approved, meaning the companies have no R&D costs to recover.

For patients who have gained access to novel new drugs, thanks to the incentives provided by the Orphan Drug Act, this issue can seem of little importance. However, the concerns raised about how pharma companies have been playing the system, so to speak, should be taken seriously by industry leaders like the US Food and Drug Administration (FDA).