Inside the Orphan Drug Act: Incentives Fueling Rare Disease Therapies
- The Rare360 Editorial Team
- Jul 21
- 7 min read
Living with a rare disease often means facing unique medical, emotional, and financial challenges. Many individual rare diseases affect only a small number of people, which makes developing treatments for each of them complex and costly. Without support, pharmaceutical companies often have little financial incentive to create medications for these small patient populations.
Imagine, for example, a rare condition that causes a person’s skin to turn red and blister whenever they are exposed to sunlight — unusual, but let’s say only 100 people in the world have this condition. Now imagine you’re a scientist determined to develop a medicine to help those 100 people live less debilitating lives. Developing that medicine could cost millions of dollars, but with so few patients needing it, there’s almost no way to recover the costs.
Here’s the challenge: developing new medicine is incredibly expensive—often costing millions of dollars. If only 100 people need the treatment, it becomes almost impossible for the scientist or company to recover these costs, leaving those 100 people without any effective treatment options.
This is exactly the kind of situation the Orphan Drug Act was created to address. Enacted in the United States in 1983, the Orphan Drug Act was designed to encourage the development of treatments for rare diseases, ensuring that even small patient communities are not left without hope.
What is the Orphan Drug Act?
The Orphan Drug Act (ODA) is a U.S. federal law enacted in 1983 to encourage the development of treatments for rare diseases, which are often referred to as orphan diseases because they affect small patient populations and historically received little attention from the pharmaceutical industry.
Under the Orphan Drug Act, a rare disease is defined as a condition affecting fewer than 200,000 people in the United States, or one that affects more than 200,000 people but is unlikely to generate sufficient sales to cover the costs of developing and marketing the treatment.
Developing a new medication is a lengthy and expensive process, often costing hundreds of millions to over a billion dollars and taking 10–15 years to bring a single therapy from early research to patient use. For rare diseases, the limited number of patients makes it financially challenging for companies to recover these costs, leaving many rare disease communities without effective treatments. To address this, the Orphan Drug Act offers several financial and regulatory incentives to companies developing treatments for rare diseases.
Since its passage, the Orphan Drug Act has transformed the landscape of rare disease treatments. Before 1983, fewer than 10 therapies for rare diseases were approved in the U.S. Today, the ODA has supported the development and approval of over 800 orphan drugs, providing hope and treatment options for millions of individuals living with rare diseases.
Key Benefits Provided by the Orphan Drug Act
The Orphan Drug Act provides targeted incentives to reduce the financial risks companies face when developing treatments for rare diseases. These benefits have been critical in encouraging pharmaceutical companies and researchers to invest in therapies that otherwise might not have been developed due to the small patient populations they serve.
Here are the key benefits provided by the ODA:
Seven Years of Market Exclusivity: Once a drug with orphan designation is approved by the FDA, the manufacturer is granted seven years of exclusive marketing rights for that specific indication, meaning no other company can market the same drug for that rare disease during this period. This protection helps companies recover their research and development costs without immediate competition.
Tax Credits for Clinical Trials: Developing drugs for rare diseases often requires extensive and costly clinical testing. The ODA allows companies to claim tax credits of up to 25% of qualified clinical testing expenses, making it more financially feasible to conduct the necessary research for rare disease therapies.
Waiver of FDA User Fees: Submitting a New Drug Application (NDA) or Biologics License Application (BLA) to the FDA typically requires substantial fees, which can exceed $4 million per application in 2025. Under the ODA, these fees can be waived for orphan drug applications, lowering the barrier for companies to bring rare disease treatments to market.
Access to Federal Research Grants: The ODA provides companies with opportunities to apply for federal grants that can help cover the costs of clinical trials and other research activities related to orphan drugs. These grants are managed through the FDA’s Orphan Products Grants Program, which has funded over 700 clinical studies since its inception.
Early FDA Guidance and Support: Sponsors of orphan drugs can receive early and ongoing support from the FDA during the development process, including guidance on study design and regulatory requirements. This support can help streamline the pathway to approval for therapies targeting rare conditions.
Together, these incentives have made it possible for rare disease treatments to advance from research to reality, directly benefiting patients and caregivers by increasing the number of available therapies for rare conditions that previously had none. The law gives companies some pretty awesome perks to encourage them.
Why Is the Orphan Drug Act Important for the Rare Disease Community?
For decades, individuals living with rare diseases faced a lack of treatment options, often leaving patients and families with few or no effective therapies to manage their conditions. The Orphan Drug Act has changed this reality for many within the rare disease community.
Increased Availability of Treatments: Before the ODA was passed in 1983, fewer than 10 therapies were approved in the U.S. specifically for rare diseases. Today, thanks to the ODA’s incentives, over 800 orphan drugs have been approved, providing treatment options and hope to millions of people living with rare conditions.
Encourages Research and Innovation: Rare diseases often require innovative approaches to treatment due to their complex and diverse nature. The ODA’s financial and regulatory incentives have encouraged pharmaceutical companies, research institutions, and biotech startups to invest in developing therapies for conditions previously deemed too rare to pursue.
Raises Awareness of Rare Diseases: The focus on orphan drug development has brought increased awareness and visibility to rare diseases, leading to earlier diagnoses, better understanding of disease progression, and the establishment of patient registries and research networks that further advance care.
Supports Patient Advocacy Efforts: The ODA has also strengthened the rare disease community’s voice. Patient advocacy groups have been able to collaborate with researchers and companies to identify unmet needs, share lived experiences, and guide clinical trial design, ensuring that treatments align with what patients need most.
Offers Hope to Patients and Families: Perhaps most importantly, the Orphan Drug Act represents hope. For patients living with rare diseases that once had no treatment options, the ODA has opened pathways to therapies that can improve quality of life, slow disease progression, and, in some cases, offer life-saving benefits.
Limitations and Ongoing Challenges
While the Orphan Drug Act has significantly advanced rare disease treatment development, it is not without limitations. Many challenges remain for patients, caregivers, and the broader rare disease community.
Many Rare Diseases Still Lack Treatments: There are over 8,000 rare diseases, but only around 5–10% currently have an FDA-approved treatment. Many conditions remain under-researched due to scientific complexity, limited awareness, and insufficient funding, leaving many patients without effective care options.
High Treatment Costs: Some orphan drugs, despite the incentives provided by the ODA, come to market with extremely high price tags, sometimes exceeding hundreds of thousands of dollars annually. These high costs can create significant financial burdens for patients and families, even when treatments are available.
Insurance and Access Barriers: Patients often face challenges in obtaining insurance coverage for orphan drugs, including prior authorization requirements, high co-pays, and appeals processes that delay treatment initiation and disrupt ongoing care.
Potential for Market Exclusivity Misuse: There are concerns that some companies may use orphan drug exclusivity strategically, making minor modifications to extend exclusivity periods or focusing on rare subsets of more common conditions, which can limit competition and contribute to high drug prices.
Geographic and Systemic Disparities: Access to orphan drugs may vary based on geographic location, socioeconomic status, and healthcare system infrastructure, leaving some patients with fewer treatment options despite approvals.
The Path Forward
To fully realize the promise of the Orphan Drug Act, ongoing efforts are needed to:
Encourage research in ultra-rare diseases and conditions with complex biology.
Address drug pricing and affordability to ensure treatments are accessible to all patients.
Advocate for insurance reforms to reduce delays in treatment access.
Support global collaborations to expand rare disease research and equitable treatment availability worldwide.
The Orphan Drug Act remains a vital foundation for rare disease treatment development, but collective advocacy, policy improvements, and continued investment in research are essential to ensure no rare disease patient is left behind.
Conclusion
The Orphan Drug Act has transformed the landscape of rare disease care, turning what was once a field with few treatment options into an area of hope and progress for millions of patients and families. By providing critical incentives, the ODA has encouraged the development of therapies for rare diseases that would otherwise have remained overlooked, improving the quality of life for many individuals living with these conditions.
Yet, the work is far from over. Many rare diseases still lack approved treatments, and challenges related to affordability, equitable access, and ongoing research remain pressing concerns. Continued collaboration among policymakers, researchers, patient advocacy groups, and the pharmaceutical industry is essential to build on the progress made under the ODA.
For patients and caregivers, understanding the Orphan Drug Act is not just about knowing how treatments come to be; it is about recognizing the power of advocacy, research participation, and community engagement in shaping a future where every person with a rare disease has the chance to access effective care.
As we look ahead, it is clear that the Orphan Drug Act remains a cornerstone of rare disease policy, offering a pathway for hope, innovation, and progress—so that no patient is left behind, no matter how rare their condition may be.
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