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Orphan Drug Exclusivity: How Rare-Disease Medicines Get Market Protection

Before 1983, fewer than 10 treatments existed for rare diseases in the U.S. Today, more than 1,000 are approved. The shift didn’t happen because drug companies suddenly cared more about small patient groups. It happened because of a law that changed the math: the Orphan Drug Act.

What Is Orphan Drug Exclusivity?

Orphan drug exclusivity is a seven-year period of market protection granted by the U.S. Food and Drug Administration (FDA) to a drug approved for a rare disease. It doesn’t mean the drug is patented. It means no other company can get approval for the same drug, for the same condition, unless they prove their version is clinically superior.

The FDA defines a rare disease as one affecting fewer than 200,000 people in the U.S. That’s not a lot of patients. For a drug company, spending $150 million to develop a treatment for 8,000 people doesn’t make financial sense-unless there’s a guarantee they won’t face competition right after launch. That’s what orphan exclusivity does. It turns a risky, unprofitable project into a viable business.

The clock starts ticking on the day the FDA approves the drug for marketing. Once that happens, other companies can’t submit applications for the same drug and same indication. Even if they develop their own version from scratch, the FDA will reject it unless they can show their drug is better-like significantly improving survival, reducing side effects, or working in patients who didn’t respond to the original.

How It Works: The ‘Winner Takes All’ Race

Here’s the twist: multiple companies can apply for orphan designation for the same disease and the same drug. But only the first one to get FDA approval gets the exclusivity. It’s not about who started first. It’s about who finished first.

Think of it like a race with a big prize at the finish line. Ten runners might line up with the same goal. But only the first one to cross gets the seven-year monopoly. The rest go home empty-handed-even if they spent just as much time and money.

This system creates pressure. Companies rush to complete clinical trials, file applications, and get approvals. It’s why you see so many orphan drugs hitting the market in clusters-multiple drugs for the same rare disease approved within a few years of each other.

The FDA has approved over 1,000 orphan drugs since 1983. But only 60 of those 503 drugs approved between 1983 and 2018 relied on orphan exclusivity as their main protection. For most, patents still did the heavy lifting. That’s because orphan exclusivity doesn’t protect the drug’s chemical structure. It only protects the drug for one specific use. If a drug treats two conditions-one rare, one common-the exclusivity only blocks competitors for the rare one. The common use? Open for generics.

How It Compares to Other Countries

The U.S. gives seven years. The European Union gives ten. And in Europe, if a company studies the drug in children, they can get two extra years. The EU also has a loophole: if a drug ends up selling way more than expected, the exclusivity can be cut from ten years down to six.

The U.S. doesn’t have that flexibility. Once you get the seven years, it’s locked in. That’s why some companies target the U.S. market first. It’s more predictable. No risk of the clock being shortened.

But there’s a trade-off. The EU’s longer period means more time to recoup costs. The U.S. system is faster and more competitive. Companies know they have to move quickly. If they’re not first, they get nothing.

Why Companies Fight for It

In 2022, orphan drugs made up 24.3% of the global prescription drug market-$217 billion in sales. That’s up from 16.1% in 2018. Oncology drugs dominate this space, making up nearly half of all orphan approvals. But you’ll also see them in neurology, blood disorders, and metabolic diseases.

For a small biotech firm, orphan exclusivity isn’t just helpful-it’s essential. One regulatory affairs manager told a professional forum that without it, they couldn’t justify spending $150 million on a drug for 8,000 patients. That’s not an exaggeration. The cost to develop a drug is high. The patient pool is tiny. Without exclusivity, no investor would touch it.

But it’s not perfect. Some big pharmaceutical companies have used the system to extend protection for drugs that already made billions. Humira, for example, got orphan designations for several rare conditions-even though its main use was for common autoimmune diseases. Critics say that’s gaming the system. The FDA hasn’t stopped it.

Limitations and Controversies

Orphan exclusivity doesn’t protect against every kind of competition. It doesn’t block generics for other uses of the same drug. It doesn’t stop doctors from prescribing the drug off-label. And it doesn’t stop companies from making slightly different versions-like new formulations or delivery methods.

The biggest legal hurdle for competitors? Proving clinical superiority. The FDA requires a “substantial therapeutic improvement.” That’s a high bar. Since 1983, only three companies have successfully done it. Most try, but fail. So the original drug stays alone on the market for seven years.

There’s also the issue of pricing. A 2022 survey by the National Organization for Rare Disorders found that 78% of patient groups believe orphan exclusivity is essential. But 42% worry about the high prices that result. Some orphan drugs cost over $500,000 per year. That’s because the company has no competition. They set the price.

The FDA is now reviewing how to prevent abuse. In May 2023, they released draft guidance to clarify what counts as the “same drug.” This came after a case where a company got approval for a drug already approved for a similar condition-raising questions about whether the exclusivity was being stretched too far.

How to Get It: The Process

To get orphan exclusivity, a company must first apply for orphan designation. That happens early-usually during Phase 1 or early Phase 2 clinical trials. The application needs to show:

• The disease affects fewer than 200,000 people in the U.S.
• There’s no existing treatment, or the new drug would be significantly better
• The drug has a plausible biological mechanism for treating the disease

The FDA reviews these applications in about 90 days. Approval rates are over 95% if the paperwork is solid. Once designated, the company can then pursue full approval. If they win approval, the seven-year clock starts.

Companies that do this well spend 12 to 18 months preparing. They hire epidemiologists to prove the disease is rare. They work with the FDA in pre-submission meetings. Over 90% of companies say those meetings are helpful.

What’s Next for Orphan Drug Exclusivity?

By 2027, nearly three out of every four new drugs approved by the FDA are expected to have orphan status. That’s up from just over half in 2018. The trend is clear: rare diseases are becoming the next big frontier in drug development.

The EU is considering cutting its exclusivity period from ten to eight years for drugs that sell too well. The U.S. isn’t there yet. But pressure is growing. Some lawmakers want to add a requirement: companies must prove the drug addresses an unmet medical need-not just a small patient count.

Still, 94% of biopharma companies say orphan exclusivity is critical to their strategy. Without it, many rare disease treatments would never exist. The system isn’t perfect. It’s expensive. It’s sometimes misused. But it works. It’s the reason why a child born with a disease that once meant a short life now has a treatment. That’s the real value.