Jun 08, 2023 | Posted in Pharmacy Benefits

What Is the Orphan Drug Act?

The United States is considered a highly medicated country—in 2021, we spent $603 billion on prescription drugs.[1]

With a population in excess of 330 million, drugs for common diseases and conditions have potential patient pools in the tens of millions. For pharmaceutical companies, this equals a compelling profit motive to develop new and more effective products for these patients but creates a gap in treatment for conditions that affect fewer people.

The federal Orphan Drug Act was created to help close the gap and provide additional financial incentive for research and development of drugs that treat rare diseases.

The Orphan Drug Act and Related Programs

The Orphan Drug Act (ODA) was passed in 1983 to champion the development of drugs to treat patients with rare diseases. It provides financial incentives to pharma companies that launch or research rare disease medications. These include:

  • 7 years (instead of 5) of exclusive distribution before generics are allowed to compete
  • Grants available to pharma company or academic-based researchers
  • 50% tax credit for costs related to the therapeutic evaluation of drugs[2]
  • Exemption from FDA user fees

There are a variety of programs in place under the ODA. The Orphan Drug Designation program fulfills the core functions of the ODA noted above. Companies and organizations can also apply for grants and recognition from:

  • Rare Pediatric Disease Priority Review Voucher program
  • Humanitarian Use Device (HUD) program
  • Orphan Products Grants program
  • Pediatric Device Consortia (PDC) Grants program
  • Rare Neurodegenerative Disease Grant program

Orphan drugs can refer to pharmaceuticals left unfinished during research and development once cost exceeds profit potential, but today’s common usage is a drug that treats rare diseases.

What’s Classified as a Rare Disease?

A little clarification to the Orphan Drug Act was needed in 1984, with an amendment that defined “rare diseases” as those that affect fewer than 200,000 people nationwide.

More rare diseases are being identified each day. Currently, there are more than 10,000, up  from 6,084 in 2016.[3],[4] Some you may be familiar with include:

  • Huntington’s disease
  • ALS (Lou Gehrig’s disease)
  • Tourette syndrome
  • Muscular dystrophy
  • Cystic fibrosis
  • Childhood cancers
  • Certain cancers such as mesothelioma
  • Guillain-Barré syndrome
  • Crohn’s disease

In total, rare diseases affect about 30 million individuals, from newborn to elderly, in the United States. Without intervention, many can be debilitating or fatal and some currently have no effective treatments available at all.

What Else Qualifies Under the Orphan Drug Act?

In addition to covering drug development for rare diseases (those affecting less than 200,000 people) the 1984 ODA amendment extended the program to drugs treating select diseases that don’t fall into that category.

If a drug would affect more than 200,000 U.S. citizens but was not commercially viable, it could still qualify under the ODA for tax incentives and benefits to offset development costs.

Commercial viability refers to the lack of profit potential, when the cost of developing a drug and bringing it to market is more than the potential revenue from U.S. sales.

Why Is the ODA Needed?

Bringing new pharmaceuticals to market is a complex and costly process. Proceeding through the multiple stages of research, testing, and clinical trials has a price tag in the millions for each new drug—or even in excess of $2 billion for some. Additionally, only 12% of those drugs become commercially viable, FDA-approved medications.[5]

In addition to missing a large enough pool of potential patients to recoup R&D costs, drugs for rare diseases may also be challenging due to:

  • The lack of prior drug development research to build on
  • Complex and poorly understood diseases
  • Fewer philanthropic funding sources and less interest from investors

Does It Work?

How successful the Orphan Drug Act has been in meeting its goals can vary by opinion and can result in anecdotal responses depending on a unique frame of reference.

No-one can deny that the ODA has boosted rare disease drug development. Consider the number of drugs coming to market under the orphan designation since it was passed in 1983:

  • 1983: 1 orphan drug[6]
  • 1984: 40 orphan drugs
  • 2007: 121 orphan drugs
  • 2017: 429 orphan drugs[7]

On the other hand, critics hold that the ODA has been misused and manipulated by pharmaceutical companies that follow the letter of the law but not the spirit of it. They take advantage of tax incentives and grant dollars by claiming orphan drug status for drugs that were already approved for other diseases, and corner the market to force high-priced medications for patients who were successfully maintained on imported medications.

How BeneCard PBF Can Help

Treating and managing rare and complex diseases can cost thousands per year, or even per month, for plan members and sponsors. Our goal at BeneCard PBF is to reduce the burden to employers and individuals by exploring all avenues of treatment options, alternative funding, and case management.

Contact us today to learn how our clinical program can make all the difference.


[1] U.S. Department of Health and Human Services Office of the Assistant Secretary for Planning and Evaluation (ASPE). Trends in Prescription Drug Spending, 2016-2021. https://aspe.hhs.gov/sites/default/files/documents/88c547c976e915fc31fe2c6903ac0bc9/sdp-trends-prescription-drug-spending.pdf

[2] American Journal of Managed Care. 5 Things About the Orphan Drug Act. https://www.ajmc.com/view/5-things-about-the-orphan-drug-act

[3] Genetic and Rare Diseases Information Center. What Is a Rare Disease? https://rarediseases.info.nih.gov/about

[4] National Organization for Rare Disorders. Orphan Drugs in the United States: Providing Context for Use and Cost. Report by the QuintilesIMS Institute. https://rarediseases.org/wp-content/uploads/2017/10/Orphan-Drugs-in-the-United-States-Report-Web.pdf

[5] Congressional Budget Office. Research and Development in the Pharmaceutical Industry. https://www.cbo.gov/publication/57126

[6] American Journal of Managed Care. 5 Things About the Orphan Drug Act. https://www.ajmc.com/view/5-things-about-the-orphan-drug-act

[7] The IQVIA Institute. Orphan Drugs in the United States: Growth Trends in Rare Disease Treatments. https://www.iqvia.com/insights/the-iqvia-institute/reports/orphan-drugs-in-the-united-states-growth-trends-in-rare-disease-treatments


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