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

Before 1983, fewer than 40 treatments existed for rare diseases in the U.S. Today, more than 1,000 have been approved. What changed? The orphan drug exclusivity system.

Why orphan drug exclusivity exists

Developing a drug for a disease that affects only 5,000 people isn’t profitable. The costs of clinical trials, manufacturing, and regulatory review can hit $150 million or more. For most companies, that’s a losing bet. But for patients with rare diseases-conditions affecting fewer than 200,000 people in the U.S.-there were almost no treatment options. That’s why Congress passed the Orphan Drug Act in 1983. It didn’t just offer tax breaks or fee waivers. It gave something no other law offered: a guaranteed seven-year window where no competitor could sell the same drug for the same rare disease.

This wasn’t charity. It was economics. The law created a clear, predictable path for companies to recover their investment. If you’re the first to get FDA approval for a drug to treat a rare condition, you get seven years of exclusive rights. No generics. No copies. Not even if another company develops the exact same molecule. That’s the core of orphan drug exclusivity.

How it actually works

Orphan drug exclusivity doesn’t start when a company applies. It doesn’t start when trials begin. It starts the day the FDA approves the drug for marketing. That’s when the seven-year clock ticks over.

Here’s the catch: exclusivity is tied to the drug AND the disease. If a company gets approval for using Drug X to treat Disease Y, no one else can get approval for Drug X to treat Disease Y during those seven years. But if Drug X is later approved for a different disease-say, Disease Z-that’s fair game. Generics can come in for Disease Z, even while the original company still holds exclusivity for Disease Y.

That’s why companies sometimes chase multiple orphan designations for the same drug. A single molecule might get approved for three different rare conditions. Each one gets its own seven-year clock. This strategy, sometimes called “salami slicing,” has become common in the industry.

And here’s another twist: multiple companies can apply for orphan designation on the same drug-disease pair. But only the first to get FDA approval wins the exclusivity. It’s a race. The FDA doesn’t pick favorites. It doesn’t judge who’s better funded or who has the nicer lab. The first one to cross the finish line gets the prize.

Orphan exclusivity vs. patents

Most people assume patents are the main way drugs stay protected. They’re not, at least not for orphan drugs. In fact, IQVIA found that in 88% of cases, patent protection-not orphan exclusivity-was the primary barrier to generic entry.

Why? Because patents protect the chemical structure or how the drug works. They can last 20 years from the date of filing. But patents can be challenged, invalidated, or expire early. Orphan exclusivity doesn’t care about patents. Even if a patent runs out, the FDA still can’t approve a copy of the drug for the same rare disease until the seven-year exclusivity period ends.

That’s a big deal. It means a company can file for orphan exclusivity even if their patent is weak or expired. The exclusivity stands on its own. It’s a safety net. For many small biotech firms, it’s the only reason they can get investors to fund a project.

What makes a drug qualify?

To get orphan designation, a drug must meet one of two criteria:

• The disease affects fewer than 200,000 people in the U.S.
• Even if more than 200,000 people have it, the company can’t reasonably expect to make back its R&D costs from sales.

That second point is important. It means a drug for a disease affecting 150,000 people might not qualify if it’s likely to sell well. But a drug for a disease affecting 180,000 people could qualify if the treatment is too expensive to produce at scale.

Companies must submit data showing the disease prevalence-usually from medical literature, government health surveys, or hospital records. The FDA approves about 95% of properly filed applications. The real challenge isn’t getting the designation. It’s getting approval.

Limitations and controversies

Orphan exclusivity isn’t perfect. One major issue: some drugs get orphan status even when they’re already blockbuster products. Humira, for example, received multiple orphan designations for rare conditions even though it was already making billions treating common autoimmune diseases. Critics say this exploits the system.

Another problem: the “clinical superiority” rule. If another company wants to get approval for the same drug for the same disease after exclusivity starts, they must prove their version is clinically superior. That means better effectiveness, fewer side effects, or easier dosing. The FDA has only accepted this argument in three cases since 1983. It’s nearly impossible to meet.

Then there’s pricing. Because there’s no competition for seven years, companies can set very high prices. A 2022 survey by the National Organization for Rare Disorders found that 42% of patient advocacy groups were concerned about how expensive orphan drugs had become. One drug for a rare muscle disorder costs over $300,000 a year. That’s not because of R&D-it’s because there’s no other option.

How it compares to Europe

The U.S. gives seven years. Europe gives ten. And Europe lets companies extend that to 12 years if they test the drug in children. The EU also has a way to shorten exclusivity from ten to six years if the drug is making too much money-something the U.S. doesn’t do.

The EU is currently reviewing whether to lower the standard period to eight years for drugs that end up selling better than expected. The U.S. has no such plan. In fact, orphan designations in the U.S. have more than tripled since 2010-from 127 to 434 in 2022.

Who benefits the most?

The biggest winners? Small biotech firms. Without orphan exclusivity, most wouldn’t exist. The average cost to develop an orphan drug is $150 million. Only a handful of big pharma companies can afford that risk on their own. But small companies with one or two rare disease candidates? They rely on this system to attract funding, partner with larger firms, or get acquired.

Patients benefit too. In 2022, orphan drugs accounted for 24.3% of all prescription drug sales in the U.S.-up from 16.1% in 2018. Oncology leads the way, with nearly half of all orphan drugs treating cancer. But there are also breakthroughs for rare neurological, metabolic, and blood disorders that barely existed 20 years ago.

What’s next?

By 2027, Deloitte predicts that 72% of all new drugs approved by the FDA will have orphan designation. That’s up from 51% in 2018. The trend isn’t slowing. Advances in genetic testing and personalized medicine mean we’re identifying more rare diseases every year-and more opportunities to treat them.

But pressure is building. Lawmakers and insurers are asking: Is seven years too long? Should companies have to prove there’s still an unmet medical need? Should pricing be tied to the size of the patient population?

For now, the system stays. It’s not flawless. But it’s working. More than 6,500 orphan designations have been granted since 1983. Over 1,000 drugs have been approved. Millions of patients now have options where there were none before.

Orphan drug exclusivity isn’t about giving companies a free pass. It’s about making the impossible possible. Without it, most rare disease drugs would never be developed. With it, they’re becoming a standard part of modern medicine.