States, Congress passed the Orphan Drug Act in 1983 to provide incentives for industry investment in treatments for such rare conditions.3

The Orphan Drug Act provided manufacturers with three primary incentives: (1) federal funding of grants and contracts to perform clinical trials of orphan products; (2) a tax credit of 50 percent of clinical testing costs; and (3) an exclusive right to market the orphan drug for 7 years from the date of marketing approval. The market exclusivity incentive protects orphan drug manufacturers from competition for 7 years, which allows greater discretion in pricing.4 Additional benefits available to sponsors of orphan-designated products include close coordination with the Food and Drug Administration (FDA) throughout the drug’s development, priority FDA review, and a waiver of drug application fees. (The first two benefits may also be available to sponsors of nonorphan drugs for serious or life-threatening conditions and unmet needs.) The legislation initially targeted drugs for which there was “no reasonable expectation” that sales in the United States could support development of the drug. Because that criterion was difficult to assess and manufacturers were wary of showing the government their internal financial projections,5 an amendment in 1984 defined a rare disease as a condition affecting fewer than 200,000 people in the United States.

The act empowered the FDA to review and approve requests for orphan drug status, coordinate drug development, and award research grants. The FDA created the Office of Orphan Product Development (OOPD) to help manage this regulatory function. Although the initial legislation permitted manufacturers to apply for orphan product designation at any time, a 1988 amendment required sponsors to apply for orphan designation before submitting applications for marketing approval.

From 1983 through 2009, a total of 2,112 orphan designations were assigned by the OOPD. Of those designations, 347 (16 percent) had been approved by the FDA as of the end of 2009. In contrast, 34 drugs that were approved from 1967 to 1983 would have qualified under the Orphan Drug Act based on their approval for a rare condition. Some authors have regarded the act as crucial in the development of certain important products. For example, an effective treatment for infant botulism, a rare neurological disease affecting about 100 U.S. children per year, was described as being developed due to concerted efforts of the California Department of Health

3

21 USC 360bb(a)(2) (2008).

4

Prices for orphan drugs can reach more than $400,000 per year. Health plans may cover these drugs, but many require substantial patient cost sharing. See Appendix C. See also Walsh B. The tier IV phenomenon—shifting the high cost of drugs to consumers. March 9, 2009. Available at http://assets.aarp.org/rgcenter/health/tierfour.pdf.

5

Asbury CH. The Orphan Drug Act: the first 7 years. JAMA 1991;265(7):893-897.



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