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Orphan Drug

A medication developed to treat a rare disease affecting fewer than 200,000 people in the United States, eligible for special incentives including 7 years of market exclusivity.

How It Works

The Orphan Drug Act of 1983 (Public Law 97-414) created a package of incentives to encourage development of drugs for rare diseases that otherwise would not be commercially viable. Orphan designation, granted by FDA's Office of Orphan Products Development before or during drug development, provides: (1) 7 years of market exclusivity from approval for the designated indication, independent of patents and longer than the 5-year NCE exclusivity for non-orphan new chemical entities; (2) tax credits under IRC Section 45C for 25% of qualified clinical trial expenses (reduced from 50% by the 2017 Tax Cuts and Jobs Act); (3) FDA PDUFA fee waivers (saving $3.2M+ per NDA/BLA in 2024); (4) grants through the FDA Orphan Products Development program. As of 2024, more than 6,300 drugs have received orphan designation and over 1,100 have been approved for orphan indications. High-profile orphan drugs include Zolgensma (onasemnogene abeparvovec for spinal muscular atrophy, $2.1M one-time dose), Casgevy (gene therapy for sickle cell disease, $2.2M), and Soliris/Ultomiris (eculizumab/ravulizumab for paroxysmal nocturnal hemoglobinuria and atypical HUS, $500K+/year). Orphan designation has faced criticism for "orphan drug stacking" (sequential orphan approvals for sub-indications of common conditions, e.g., oncology sub-types), and for orphan drugs that become blockbusters, Humira accumulated orphan designations for rare indications while serving millions of patients. The IRA does not exempt orphan drugs from Medicare negotiation if they have only one orphan indication, but drugs with two or more orphan approvals are exempted, a provision under active debate in Congress.

Related Terms

  • Exclusivity Period, A period of market protection granted by the FDA (separate from patents) during which generic competitors cannot be approved, even if no patent exists.
  • Specialty Drug, A high-cost medication, typically above $1,000 per month, that treats complex or chronic conditions and often requires special handling, storage, or administration.
  • FDA Approval, The process by which the U.S. Food and Drug Administration evaluates a drug's safety and efficacy through clinical trial data before allowing it to be marketed.

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About This Definition

This definition is part of the DrugPrice Drug Pricing Glossary, 49 terms explaining how prescription drug pricing works in the United States. All definitions are written in plain language for patients, caregivers, journalists, and healthcare professionals.

this entity is one of the U.S. Medicare prescription-drug pricing concepts that recurs across this site. The definition above is the technical answer; the paragraphs below add the practical context for how the concept connects to the CMS Medicare Part D Drug Spending data data behind every per-entity page on the site.

In the CMS Medicare Part D Drug Spending data data, this concept shapes one or more of the fields that drive the per-entity grades and rankings on this site. The methodology page describes which fields feed into which output; this glossary entry documents the underlying term.

Source: CMS Medicare Part D Spending, 2026.