Department of Health and Human Services 
OFFICE OF 
INSPECTOR GENERAL 
THE ORPHAN DRUG ACT 
IMPLEMENTATION AND IMPACT 
MAY 2001 
OEI-09-00-00380  OFFICE OF INSPECTOR GENERAL 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, is to 
protect the integrity of the Department of Health and Human Services programs as well as the health 
and welfare of beneficiaries served by them. This statutory mission is carried out through a nationwide 
program of audits, investigations, inspections, sanctions, and fraud alerts. The Inspector General 
informs the Secretary of program and management problems and recommends legislative, regulatory, 
and operational approaches to correct them. 
Office of Evaluation and Inspections 
The Office of Evaluation and Inspections (OEI) is one of several components of the Office of Inspector 
General. It conducts short-term management and program evaluations (called inspections) that focus 
on issues of concern to the Department, the Congress, and the public.  The inspection reports provide 
findings and recommendations on the efficiency, vulnerability, and effectiveness of departmental 
programs. 
OEI's San Francisco regional office prepared this report under the direction of Paul A. Gottlober, 
Regional Inspector General. Principal OEI staff included: 
REGION  HEADQUARTERS 
Cindy Lemesh, Project Leader  Elise Stein, Director, Public Health and 

Camille I. Harper, Program Analyst  Human Services

Thomas Purvis, Program Analyst  Genevieve Nowolinski, Program Specialist

Christopher Tarbell, Program Analyst 
Steven P. Zerebecki, Lead Analyst 
To obtain copies of this report, please call the San Francisco Regional Office at 415-437-7900. 
Reports are also available on the World Wide Web at our home page address: 
http://www.dhhs.gov/progorg/oei  E X E C U T I V E   S U M M A  R Y  
PURPOSE 
The purpose of this inspection was to assess the implementation of the Orphan Drug Act of 
1983 and its impact on industry and patients. 
BACKGROUND 
Congress passed the Orphan Drug Act of 1983 to stimulate the development of drugs for rare

diseases. A rare disease is defined as a disease that affects fewer than 

200,000 people in the United States. Prior to passage of this historic legislation, private

industry had little incentive to invest money in the development of treatments for small patient

populations, because the drugs were expected to be unprofitable. The law provides 7-year

marketing exclusivity to sponsors of approved orphan products, a tax credit of 50 percent of

the cost of conducting human clinical testing, and research grants for clinical testing of new

therapies to treat orphan diseases.  Exclusive marketing rights limit competition by preventing

other companies from marketing the same version of the drug, unless they can prove clinical

superiority.

The Food and Drug Administration administers the Orphan Drug Act and reviews applications

for orphan designations. The Office of Orphan Products Development awards designations

and administers the small grants program. The Center for Drug Evaluation and Research and

the Center for Biologics Evaluation and Research review applications for marketing approval.

We reviewed FDAs database that contains information on all designations and approvals from

1983 to 2000. We interviewed regulatory affairs staff and other representatives from a

purposeful sample of 36 biotechnology and pharmaceutical companies. We also interviewed

representatives from 37 patient advocacy groups.  We conducted a focus group with Food and

Drug Administration staff and consulted with drug policy experts and representatives from trade

groups.  We also reviewed relevant literature.

FINDINGS 
The Orphan Drug Acts incentives and the Office of Orphan Products Developments 
clinical superiority criteria motivate drug companies to develop orphan products. Since 
Congress passed the Orphan Drug Act of 1983, the Food and Drug Administration has 
awarded more than 1,000 designations and approved more than 200 products. 
1 
The Orphan Drug Act - Implementation and Impact  OEI-09-00-00380  Advocates report that orphan products are usually accessible to patients. Orphan 
products are usually accessible, although they can be costly and in limited supply. Insurance 
typically pays for the treatments, and companies offer patient assistance programs to help 
patients obtain their products. 
The Office of Orphan Products Development provides a valuable service to both 
companies and patients. Companies report an excellent relationship with this office, which 
awards orphan product designations and disseminates public information about orphan 
products. 
Orphan products meet the legal prevalence limit, and most fall well below the threshold 
of 200,000 patients.  Average patient population has climbed since 1983 but remains well 
below the legal limit. 
CONCLUSION 
Based on our survey of patient groups and sponsors and our review of the FDA database on 
designations and approvals, we conclude that no regulatory or legislative changes are needed at 
this time. Although, in some instances, companies have questioned the Office of Orphan 
Products Developments decisions, they generally praised the Orphan Drug Act and its 
implementation. 
2 
The Orphan Drug Act - Implementation and Impact  OEI-09-00-00380  T A B L E   O F   C O N T E N T S  
EXECUTIVE SUMMARY ......................................................1

INTRODUCTION .............................................................4

Purpose ................................................................ 4

Background  ............................................................4

Methodology  ...........................................................5

FINDINGS  ..................................................................7

Incentives and clinical superiority ...........................................7

Access to orphan products .................................................9

Office of Orphan Products Development ..................................... 10

Legal prevalence limit  ...................................................11

CONCLUSION .............................................................. 13

3 
The Orphan Drug Act - Implementation and Impact  OEI-09-00-00380  I N T R O D U C T I O N  
PURPOSE 
The purpose of this inspection was to assess the implementation of the Orphan Drug Act of 
1983 and its impact on industry and patients. 
BACKGROUND 
Provisions of the Orphan Drug Act 
Congress passed the Orphan Drug Act of 1983 to stimulate the development of drugs for rare 
diseases.1  Prior to passage of this historic legislation, private industry had little incentive to 
invest money in the development of treatments for small patient populations, because the drugs 
were expected to be unprofitable. The law provides three incentives: (1) 7-year market 
exclusivity to sponsors2 of approved orphan products, (2) a tax credit of 50 percent of the cost 
of conducting human clinical trials, and (3) Federal research grants for clinical testing of new 
therapies to treat and/or diagnose rare diseases.  In 1997, Congress created an additional 
incentive when it granted companies developing orphan products an exemption from the usual 
drug application or user fees charged by the Food and Drug Administration (FDA).  In fiscal 
year 2001, these fees will total almost $500,000. Companies also may be eligible for faster 
review of their applications for marketing approval if their products treat a life-threatening 
illness.  Many orphan drugs treat a serious or life-threatening disease. 
Congress amended the Act in 1984, 1985, and 1988.  The 1984 amendment defined a rare 
disease as a condition affecting fewer than 200,000 people in the United States.  The threshold 
was an arbitrary ceiling based on the estimated prevalence of narcolepsy and multiple sclerosis. 
The 1985 amendment extended marketing exclusivity to patentable as well as unpatentable 
drugs, and the 1988 amendment required sponsors to apply for orphan designation before 
submitting an application for marketing approval. 
The FDA administers the Orphan Drug Act and reviews applications for orphan designations. 
Within FDA, the Office of Orphan Products Development awards designations and administers 
the small grants program, which is expected to total 
1The term drug refers to chemical entities and biological products used for the purpose of medical 
therapy or diagnosis. We use the terms drug and product interchangeably in this report. 
2Since most sponsors of orphan products are pharmaceutical and biotechnology companies, we use the 
terms sponsor and company interchangeably in this report. 
4 
The Orphan Drug Act - Implementation and Impact  OEI-09-00-00380  $12.5 million in fiscal year 2001. The grants support clinical trials on the safety and 
effectiveness of products for rare diseases. The Center for Drug Evaluation and Research 
(CDER) and the Center for Biologics Evaluation and Research (CBER) review applications for 
marketing approval. 
To obtain an orphan designation, sponsors must submit an application to the Office of Orphan 
Products Development that contains details on the rare disease for which the drug will be 
investigated, the specific indication for the drug, a description of the drug, documentation of 
disease prevalence, and the regulatory and marketing status and history of the product. 
Although the Offices policy is that it will try to respond within 60 days of receiving an 
application for orphan designation, the process may take longer if the office needs more 
information from the sponsor.  After receiving the orphan designation and conducting more 
research, a sponsor may seek marketing approval if the drug proves safe and effective in 
clinical trials. The office plays no formal role in the decision to approve a drug; CDER and 
CBER have this responsibility. 
In 1992 FDA issued its final regulations establishing standards and procedures for granting 
orphan status and articulating the Agencys commitment to protect the incentives of the 
Orphan Drug Act without allowing their abuse.3  The final rule recognizes exclusive marketing 
rights as the major incentive in the Orphan Drug Act and explains the criteria a sponsor must 
meet to prove clinical superiority and enter the market when another product that is the same 
already has marketing exclusivity.4 
Approximately 20 million Americans suffer from rare diseases, which number about 6,000 and 
include many genetic disorders as well as cancers.  The prevalence of these diseases in the 
United States varies greatly, from as few as 300 for a rare enzyme deficiency to just under 
200,000 for cancer of the thyroid gland. 
METHODOLOGY 
We reviewed a database from FDA that contains information on all designations and approvals 
from 1983 to 2000. We interviewed regulatory affairs staff and other representatives from a 
purposeful sample of 36 biotechnology and pharmaceutical companies. We focused on 
companies that received multiple orphan designations.  We also interviewed representatives 
from 37 patient advocacy groups, stratified into two groups--those for which orphan products 
were in development or on the market and those for which no orphan products were in 
development or on the market. We conducted a 
3Orphan Drug Regulations (57 FR 62076), December 29, 1992 and 21 CFR Part 316 et seq. 
4The FDA defined three criteria for establishing clinical superiority. The new drug must be (1) more 
effective than an approved orphan drug, (2) safer than an approved orphan drug, or (3) in the absence of greater 
effectiveness or safety, the new drug must make a major contribution to patient care. 
5 
The Orphan Drug Act - Implementation and Impact  OEI-09-00-00380  focus group with FDA staff and consulted with drug policy experts and representatives from 
trade groups. We also reviewed relevant literature. 
We conducted this inspection in accordance with the Quality Standards for Inspections 
issued by the Presidents Council on Integrity and Efficiency. 
6 
The Orphan Drug Act - Implementation and Impact  OEI-09-00-00380  F I N D I N G S  
The Orphan Drug Acts incentives and the Office of Orphan 
Products Developments clinical superiority criteria motivate 
companies to develop orphan products 
According to FDA, the Orphan Drug Act has unquestionably stimulated the development of 
drugs for rare diseases. A handful of such drugs were available before 1983, but since 
enactment of the law the Office of Orphan Products Development has designated 
approximately 1,000 orphan products; over 200 of these subsequently received marketing 
approval (see Chart 1).  Many orphan drugs, including those approved for multiple sclerosis, 
cystic fibrosis, and hemophilia, are considered breakthroughs. 
Chart 1

Total Orphan Designations and Approvals

100 
90 
80 
Designations=1063 
70 
60 
50 
40 
30 
Approvals = 218 
20 
10 
0 
1983  1984  1985  1986  1987  1988  1989  1990  1991  1992  1993  1994  1995  1996  1997  1998  1999  2000 
Approvals  2  3  7  6  9  11  12  12  12  13  13  11  11  23  19  20  20  14 
Designations  1  41  48  33  59  73  75  89  80  56  65  58  56  60  55  67  79  68 
Orphan designations are for products that FDA has determined could be used to treat a rare 
disease (i.e., a condition affecting fewer than 200,000 individuals in the United States). 
Orphan approvals are for products that FDA has determined are ready for marketing in the 
United States. 
7 
The Orphan Drug Act - Implementation and Impact  OEI-09-00-00380  The Orphan Drug Act has proven particularly helpful to the biotechnology industry that 
emerged in the years following passage (see Chart 2).5  Biotechnology involves the use of 
proteins, enzymes, antibodies, and other substances to treat diseases.  This young, volatile 
industry is heavily dependent on private capital to fund research and development. The 
prospect of marketing exclusivity under the Orphan Drug Act helps biotechnology companies 
attract venture capital to support the lengthy and expensive drug development process that is 
Chart 2

Growth in Biologic Orphan Products 

Mirrors Biotechnology Industry Growth

50% 
40% 
30% 
20% 
10% 
0% 
1983  1984 1985  1986  1987  1988  1989  1990  1991  1992 1993  1994  1995  1996  1997  1998  1999  2000 
Proportion of Designations  Proportion of Market Approvals  Industry Growth Trendline 
estimated to take 14 years at a cost of $300 to $500 million. 
Marketing exclusivity remains the most important incentive 
Marketing exclusivity, effective on the date of marketing approval, remains the most powerful 
incentive in the Orphan Drug Act, because it limits competition by prohibiting FDA from 
approving another version of the same orphan drug for the same indication unless the new drug 
is clinically superior.  Other incentives, including tax credits and the waiver of user fees, are not 
nearly as critical as the prospect of marketing exclusivity, which is especially important to small 
companies trying to raise public and private capital. The lack of exclusivity, however, does not 
prevent companies from entering the market through conventional means.  For example, we 
interviewed one sponsor that failed to obtain orphan designation but subsequently obtained 
marketing approval for its product, which is under patent.  Two other sponsors failed to obtain 
5The biotechnology industrys annual growth was measured using the Fidelity Select Biotechnology Fund 
data for 1986 to 2000. 
8 
The Orphan Drug Act - Implementation and Impact  OEI-09-00-00380  orphan designations but pursued or plan to pursue marketing approval; one sponsors product 
is currently on the market, and the other sponsor has begun the clinical testing process. 
The Office of Orphan Products Development uses clinical superiority criteria to 
preserve marketing exclusivity 
The Office of Orphan Products Development uses the clinical superiority criteria articulated in 
1992 to preserve marketing exclusivity while allowing improved products to go to market.  The 
market for most orphan products is not highly competitive, and, consequently, challenges to 
FDAs decisions regarding clinical superiority are rare. In 2000, one company challenged the 
Agencys decision to block its product for the treatment of multiple sclerosis from the U.S. 
market.  The FDA allowed another company to market its treatment for the same disease 
because it had decided that it was clinically superior to an existing product already on the 
market. After congressional hearings on an amendment that would change the terms of market 
exclusivity, FDA submitted written testimony stating that the proposal would weaken the 
incentive to develop orphan products. The FDA reiterated its commitment to preserving the 
value of the key incentive in the orphan drug legislation. 
Advocates report that orphan products are usually 
accessible to patients 
Most patient groups reported no problems with access to orphan products.  Although the drugs 
can be very costly, price alone has not prevented patients from obtaining them.  Supplies may 
be limited and, on occasion, a patients regimen must be altered in response to the shortage. 
Shortages rarely occur 
While the Office of Orphan Products Development has the authority to revoke marketing 
exclusivity if sponsors fail to produce sufficient quantities of their products, this has never 
happened. The office would be reluctant to revoke exclusivity, because alternative suppliers 
are not usually available.  Orphan sponsors with exclusive marketing rights can give FDA the 
authority to approve competing products during the exclusivity period in the event of shortages. 
In fact, we interviewed one company that notified FDA of its willingness to forfeit exclusivity 
when its product was in short supply. 
We found isolated instances of shortages.  In February 2001, FDA reported that one orphan 
product, Depocyt, was in limited distribution due to manufacturing difficulties.6  Depocyts 
orphan designation is for the treatment of lymphomatous 
6Source: www.fda.gov/cder/drug/shortages. 
9 
The Orphan Drug Act - Implementation and Impact  OEI-09-00-00380 meningitis. Two patient groups that we interviewed reported a total of four orphan products 
currently in short supply. The products are used to treat emphysema in alpha1-antitrypsin 
deficient patients and hemophilia.  Blood-derived and recombinant products, in particular, can 
be especially vulnerable to supply problems.  Shortages of these drugs could result in the need 
to adjust a patients regimen or postpone a surgical procedure until the shortage is remedied. 
Patients have access to even the costliest orphan products 
In passing the orphan drug legislation, Congress concluded that the benefits of access to new 
treatments outweighed the costs of granting a monopoly in the form of marketing exclusivity to 
the sponsor of an approved orphan drug. Over the years, some orphan drugs have aroused 
concern and sparked debate because of their prices. These drugs include some versions of 
human growth hormone, which can cost up to $100,000 per year, and Alglucerase, the 
treatment for Gauchers disease (an enzyme deficiency), which can cost more than $300,000 
per year.  Although Congress has considered changes in the legislation because of the windfall 
profits of a few companies, none has passed. In many respects, the prices of orphan drugs are 
similar to those for comparable non-orphan drugs and, without insurance, no one could afford 
the costliest ones.  Patients usually rely on private insurance, Medicare, and/or Medicaid to pay 
for their treatments. 
Both companies and advocates told us that some companies offer patient assistance programs 
to improve access to their products. Companies may discount their products or offer them at 
no cost. In general, companies target the neediest populations and determine patients eligibility 
for their programs based on annual income. Approximately three out of four companies that we 
contacted reported that they offer the programs or plan to offer them if FDA approves their 
orphan products.  Patients may contact the companies or the National Organization for Rare 
Disorders (NORD), which administers some of the programs and refers patients to a variety of 
services.  Additionally, the Pharmaceutical and Research Manufacturers of America sponsors 
RxHope.com, a Web-based program that helps patients obtain a variety of orphan and 
common drugs. 
The Office of Orphan Products Development provides a 
valuable service to both companies and patients 
Orphan product sponsors report an excellent relationship with the Office of Orphan Products 
Development. Most of the sponsors we interviewed had positive comments and few reported 
difficulties. However, several sponsors reported that the Office took a long time to review their 
applications for designation. Timely designations are critical to sponsors seeking to use tax 
credits, since the credit takes effect from the date the product is designated.  Throughout the 
years, the Office of Orphan Products Development has made efforts to address companies 
concerns, and it has significantly decreased the time it 
10 
The Orphan Drug Act - Implementation and Impact  OEI-09-00-00380  takes to designate orphan products. The average time the Office of Orphan Products 
Development takes to designate a product decreased to 160 days in 2000, down from a high 
of 267 days in 1996.7 
Sponsors understand and accept the Office of Orphan Products Developments limited role 
during the review process, and some applaud its efforts to provide assistance even after their 
products receive designation. Sponsors complained that FDAs reviewing divisions (CDER 
and CBER) took too long to complete the safety and efficacy reviews. Sponsors also noted 
that for very rare conditions, they cannot conduct the clinical trials that FDA requires. Most 
acknowledged, however, that applying a different standard for the safety and efficacy of orphan 
products could compromise public health and safety. 
The Office of Orphan Products Development compiles and disseminates important public 
information about orphan product development.  Patients and sponsors benefit from  disclosure 
of designation and approval information about orphan products.  The Office maintains a 
database of product information on the Internet that patients use to identify new treatments 
under development and products that have been approved for their disease. The NORD uses 
the information to refer patients to drug companies researching treatments for rare conditions. 
One company told us that by publicizing the efforts of orphan sponsors, the Office of Orphan 
Products Development has created yet another incentive--the potential for positive relations 
with patients and investors. 
Orphan products meet the legal prevalence limit, and most 
fall well below the threshold of 200,000 patients 
Although the average patient population for designated orphan products has climbed since

1983, it remains well below the legal limit of 200,000 people in the United States.  For

products designated in 2000, the average prevalence was approximately

73,000 patients at the time of designation (see Chart 3, next page).

7Long time frames do not necessarily indicate delays on the part of the Office of Orphan Products 
Development; in some cases, the Office finds the application deficient and requests additional information from the 
sponsor. 
11 
The Orphan Drug Act - Implementation and Impact  OEI-09-00-00380  Chart 3

Mean Patient Population* 

for Designated Orphan Products

90000 
(*at the time of designation) 
80000 
70000 
60000 
50000 
40000 
30000 
20000 
10000 
0 
3 4  5 6 7 8 9  0 1 2 3  4 5 6 7 8  9 0 
8 8 8 8 8 8 8 9 9 9 9 9 9 9 9 9 9 0
9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 0
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2
Designations  Trendline 
Sponsors applying for an orphan designation must document that the condition for which their 
product is intended affects fewer than 200,000 patients in the United States.  Documenting 
patient prevalence for some very rare conditions may be a challenge.  The Office of Orphan 
Products faces similar challenges when it attempts to verify the prevalence data that sponsors 
provide.  Sponsors are sometimes unable to satisfy the Office of Orphan Products 
Development that the prevalence does not exceed the legal limit, and the Office denies the 
request for orphan designation.  Companies can challenge the Offices decision, but no 
company that we contacted had exercised this option. 
12 
The Orphan Drug Act - Implementation and Impact  OEI-09-00-00380  C O N C L U S I O N  
Based on our surveys of patient groups and sponsors and our review of the FDA database on 
designations and approvals, we conclude that no regulatory or legislative changes are needed at 
this time. Although, in some instances, companies have questioned the Office of Orphan 
Products Developments decisions, they generally praised the Orphan Drug Act and its 
implementation. 
13 
The Orphan Drug Act - Implementation and Impact  OEI-09-00-00380