Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

MAY 2001 

OEI-09-00-00380 

THE ORPHAN DRUG ACT 

IMPLEMENTATION AND IMPACT 
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 

Cindy Lemesh, Project Leader 

Camille I. Harper, Program Analyst 

Thomas Purvis, Program Analyst 

Christopher Tarbell, Program Analyst 

Steven P. Zerebecki, Lead Analyst 

HEADQUARTERS 

Elise Stein, Director, Public Health and 

Human Services

Genevieve Nowolinski, Program Specialist

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 
EXECUTIVE SUMM ARY 

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 FDA’s 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 Act’s incentives and the Office of Orphan Products Development’s 

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. 

The Orphan Drug Act - Implementation and Impact 1 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 Development’s decisions, they generally praised the Orphan Drug Act and its 

implementation. 

The Orphan Drug Act - Implementation and Impact 2 OEI-09-00-00380 
TABLE OF CONTENTS 

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

The Orphan Drug Act - Implementation and Impact 3 OEI-09-00-00380 
INTRODUCTION 

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 

1

The 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. 

2

Since most sponsors of orphan products are pharmaceutical and biotechnology companies, we use the 

terms “sponsor” and “company” interchangeably in this report. 

The Orphan Drug Act - Implementation and Impact 4 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 Office’s 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 Agency’s 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 

3

Orphan Drug Regulations (57 FR 62076), December 29, 1992 and 21 CFR Part 316 et seq. 

4

The 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. 

The Orphan Drug Act - Implementation and Impact 5 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 President’s Council on Integrity and Efficiency. 

The Orphan Drug Act - Implementation and Impact 6 OEI-09-00-00380 
FINDINGS 

The Orphan Drug Act’s incentives and the Office of Orphan 

Products Development’s 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

0 

10 

20 

30 

40 

50 

60 

70 

80 

90 

100 

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 

1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 

Designations=1063 

Approvals = 218 

“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. 

The Orphan Drug Act - Implementation and Impact 7 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 

5

The biotechnology industry’s annual growth was measured using the Fidelity Select Biotechnology Fund 

data for 1986 to 2000. 

The Orphan Drug Act - Implementation and Impact 8 OEI-09-00-00380 
orphan designations but pursued or plan to pursue marketing approval; one sponsor’s 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 

FDA’s decisions regarding clinical superiority are rare. In 2000, one company challenged the 

Agency’s 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 patient’s 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 Depocyt’s 

orphan designation is for the treatment of lymphomatous 

6

Source: www.fda.gov/cder/drug/shortages. 

The Orphan Drug Act - Implementation and Impact 9 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 patient’s 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 Gaucher’s 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 

The Orphan Drug Act - Implementation and Impact 10 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 Development’s limited role 

during the review process, and some applaud its efforts to provide assistance even after their 

products receive designation. Sponsors complained that FDA’s 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).

7

Long 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. 

The Orphan Drug Act - Implementation and Impact 11 OEI-09-00-00380 
90000 

Chart 3

Mean Patient Population* 

for Designated Orphan Products

80000 

70000 

60000 

50000 

40000 

30000 

20000 

10000 

0 

(*at the time of designation) 

19831984 19851986198719881989 1990199119921993 19941995199619971998 19992000 

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 Office’s decision, but no 

company that we contacted had exercised this option. 

The Orphan Drug Act - Implementation and Impact 12 OEI-09-00-00380 
CONCLUSION 

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 Development’s decisions, they generally praised the Orphan Drug Act and its 

implementation. 

The Orphan Drug Act - Implementation and Impact 13 OEI-09-00-00380