Health - Orphan Drugs

Orphan Drugs

Background | The Orphan Drug Act | 1990s | Recent Developments | The Orphan Drug Act Today

I. Background

Prior to 1983, people afflicted with rare diseases had little hope that pharmaceutical treatments and cures would be developed. Although many potential treatments were waiting in laboratories, drug companies were not developing them because the small population in need of the treatments failed to provide an adequate market.

Rep. Waxman was the principal author of the original Orphan Drug Act, which drastically improved this situation. Originally enacted in 1983, the Orphan Drug Act provides novel market and tax incentives to companies willing to develop drugs for small patient populations. Since 1983, Rep. Waxman has written and helped enact a series of laws that have made significant improvements to the original legislation.
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II. The Orphan Drug Act – Enactment and Legislative Efforts in the 1980s

During the late 1970s, there were very few pharmaceutical treatments and cures for rare diseases on the market. Scientists had discovered some promising new treatments, but pharmaceutical companies were not interested in seeking their approval by the FDA because these products were not aimed at large and lucrative markets. The high cost of drug research and development was driving pharmaceutical companies away from investing in products with small potential sales, such as treatments for rare diseases. These products became known as “orphan drugs” because no drug companies were willing to develop and market them.

A 1980 call from a constituent first exposed Rep. Waxman to the grave problem posed by the lack of promising medicines for those with rare diseases. Adam Seligman was a young boy with a rare disease called Tourette’s syndrome, a neurological disorder characterized by irregular motor tics and vocalizations. In 1980, Adam’s doctor prescribed a drug that was approved in Canada—but not in the United States—and arranged to bring the drug into the country for Adam. His doctor felt that this was necessary because there were no viable alternative treatments in the United States at the time.

After having successfully received several shipments of these medications from Canada, Adam’s drugs were suddenly seized at the Canadian border. Fearful for her son’s health, Adam’s mother made a desperate call to Rep. Waxman’s office, begging him to do something to make sure that Adam could get his medications.

Deeply disturbed by the Seligmans’ story, Rep. Waxman set out to determine why there were no safe and effective treatments for rare conditions like Adam’s available in the United States. First, in June 1980, as Chairman of the House Energy and Commerce Committee’s Subcommittee on Health and the Environment, Rep. Waxman held a preliminary hearing to learn more about the problems faced by victims of orphan diseases. Adam Seligman himself testified and provided emotional testimony about his experiences. The hearing itself did not attract wide attention, but an L.A. Times reporter attended and wrote a story on the problem. Jack Klugman, the actor who starred in the hit TV medical drama, “Quincy,” read the article. Moved by what he learned in the L.A. Times article, Mr. Klugman decided to highlight the issue in two separate episodes of "Quincy". Viewers from all over the country wrote to Mr. Klugman asking how they could help.

Soon after this hearing, Rep. Waxman conducted an extensive survey of pharmaceutical companies, Federal research agencies, the FDA, and several independent university scientists to identify and gather information on the then-existing drugs for rare diseases. The survey identified 134 drugs for rare diseases, and found that only 47 of those drugs were approved for use in the United States. Only 10 of those drugs had been developed and marketed solely by pharmaceutical companies i.e., without the support of a government agency or a university. That survey also provided other important information about orphan drugs. For example, it showed that many orphan drugs were not profitable for the pharmaceutical companies and that many were not patentable. It further revealed the clinical trials necessary to prove the effectiveness of these drugs were extremely difficult to conduct because there were so few people with any given orphan disease.

Armed with this knowledge, in 1981, Rep. Waxman introduced the original Orphan Drug Act (H.R. 5238). Soon after its introduction, Rep. Waxman promptly held another hearing to get input from stakeholders on the bill. Jack Klugman himself testified along with victims of rare diseases and representatives from the pharmaceutical industry. The hearing attracted even greater media attention and garnered great popular support for the legislation.

However, in the months following the hearing, the Orphan Drug Act stalled in Congress. When Mr. Klugman learned of this inactivity, he produced a special episode of Quincy in which he asked 500 people living with rare diseases or disorders to serve as “extras” on the show. By the time the show actually aired in 1982, the House had passed the bill, but it was still being held up in the Senate. Soon thereafter, the bill passed the Senate as well.

After its passage in Congress, however, the Orphan Drug Act faced the threat of a veto by President Reagan. The Administration objected to the tax credits provided as incentives to companies that researched and developed orphan drugs under the bill. In response to this threat, rare-disease activists promptly took out full-page ads in major newspapers urging the president to sign the bill. Their efforts were successful, and on January 4, 1983, the Orphan Drug Act became law.

The Orphan Drug Act of 1983 provides financial incentives to drug companies that develop treatments for “rare diseases or conditions.” If a drug is granted orphan status, the Act provides three primary incentives for its development: 1) federal funding of grants and contracts for clinical trials; 2) a tax credit of fifty percent of clinical testing costs; and 3) exclusive marketing rights for seven years from the date of FDA marketing approval.

A critical aspect of the original law is that it did not compromise on the basis of FDA’s approval standard. Rep. Waxman knew that weakening FDA’s approval standard to let more drugs in would have done a grave disservice to patients suffering from rare diseases since they would be getting drugs that had not been shown to be safe and effective under FDA standards. Instead the bill offered a creative solution that provided for exclusivity, grants and tax credits, but retained the approval standard.

Under the original legislation, to qualify for orphan drug status, a manufacturer had to demonstrate that sales of a particular orphan drug would not be adequate to recoup the costs of the research and development on that drug. Manufacturers were required to submit—and FDA was required to review—extensive financial information, regardless of the size of the orphan drug population. To lessen the administrative burden on both the companies and on FDA, in 1984, the law was amended to establish a numeric threshold as alternative means of qualifying for orphan drug status (Senator Hatch introduced S. 771). The 1984 Amendments redefined a “rare disease or condition” as one that (1) affected less than 200,000 people in the U.S. or (2) affected more than 200,000 but for which a company could have no reasonable expectation that it could recover the costs of research and development through sales of the drug.

In 1985, Rep. Waxman worked with Senator Hatch to amend the Orphan Drug Act again. The original law made exclusive marketing rights available only to orphan drugs that were not patentable. Prior to the 1983 enactment of the original legislation, it was assumed that most of the orphan drugs that would be developed under the Act would not be patentable. However, after the law went into effect, it became clear that this assumption was not always correct; many patents had been issued for potential orphan drugs. However, these patents had often expired before or shortly after FDA granted approval. The Orphan Drug Amendments of 1985 (H.R. 2290; S. 1147) made all orphan drugs, regardless of whether they are patentable, eligible for the 7-year period of exclusive marketing. In an effort to streamline the FDA approval process, the 1985 amendments also authorized the FDA to provide written recommendations for the investigations which must be conducted before such drug could be considered for approval. The law also established a National Commission on Orphan Diseases in order to assess the research activities of the National Institutes of Health, the Alcohol, Drug Abuse, and Mental Health Administration, the Food and Drug Administration, other public agencies, and private entities in connection with orphan drug development.

Enacted in 1988, Rep. Waxman’s Orphan Drug Amendments of 1988 (H.R. 3459) further streamlined the orphan drug approval system at FDA by requiring that the designation as an orphan drug be made prior to the submission of an application. These amendments also included a provision that required manufacturers of approved orphan drugs to notify FDA at least one year before discontinuing production of any orphan drug. Additionally, manufacturers or sponsors of orphan drugs in the testing process, but not yet approved, were similarly required to notify the Secretary of any decision to discontinue pursuit of approval. This legislation also made financial assistance available for the development of medical devices and medical foods for rare diseases or conditions.
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III. Legislative Efforts in the 1990s

In the late 1980’s, although it was clear that the Orphan Drug Act was successfully spurring the development of many important treatments for rare diseases, Rep. Waxman was concerned that Act was also being used by some manufacturers of highly profitable drugs to increase their own profits and block competition. Specifically, the seven year term of market exclusivity was rewarding many companies with windfall profits that far exceeded the cost of developing the drugs—and these profits were being paid for by consumers and the federal government, through programs like Medicare and Medicaid. Rep. Waxman knew that orphan drugs were meaningless to patients if they could not afford to pay for these drugs.

Three drugs in particular illustrated this problem. In 1990, erythropoietin—an orphan drug used to treat anemia—cost $8000 per patient and had estimated annual sales of more than $200 million, most of which were paid for by Medicare. Another drug, human growth hormone (HGH) cost between $10,000 and $30,000 per patient and had estimated annual sales of more than $175 million. Yet development costs for HGH were reported to be between only $17 and $35 million. In 1989, Pentamidine—a drug used to fend off pneumonia associated with AIDS—had sales that were $128 million and were projected to be $480 million in 1990; yet the drug cost only $23 million to develop with an additional $15 to $20 million more going toward post-marketing studies. Clearly, for drugs with such small development costs and extremely high sales, the reward of seven years of exclusive marketing was far out of proportion to the amount the companies invested in developing the drugs. Rep. Waxman was very concerned that the situation would become even more drastic in the future as prices for these drugs continued to increase.

Rep. Waxman was also concerned about the mounting evidence that many drugs originally approved as orphans were being widely used beyond the orphan population. For example, some drugs that originally qualified as orphan drugs—because the target population was less than 200,000—often subsequently outgrew the orphan drug population criteria because of a change in the disease.

Rep. Waxman proposed a solution to these problems in the Orphan Drug Amendments of 1990 (H.R. 4638). This legislation would have made two changes to the exclusivity provisions then in effect. First, the bill would have provided for “shared exclusivity” so firms that could show they developed a drug simultaneously would be able to share the market for that drug, thereby increasing price competition during the term of exclusivity. Second, the bill would have required FDA to reassess the number of patients accessing the drug three years after it received orphan drug exclusivity to determine whether continued exclusivity was necessary. This change would have ensured that exclusive marketing was available only to the extent that it served the goals of the original act: to ensure that companies were able to recoup the costs of research and development of drugs for the small populations of individuals with rare diseases. Under the bill, if the population needing the drug exceeded the 200,000 threshold, then the term of exclusivity would end. The legislation also would have provided notice to those persons with rare diseases of FDA’s designations of an orphan drug by requiring that FDA publish a notice in the Federal Register or otherwise made available to the public in a manner.

The House and the Senate unanimously passed H.R. 4638 in October 1990. Unfortunately, in November 1990, President George H.W. Bush vetoed this legislation citing a concern for weakening the incentives available for innovator companies.

Though Congress never acted upon Rep. Waxman’s Orphan Drug Amendments of 1994 (H.R. 4865), this legislation would have made further improvements to the original legislation. Rep. Waxman’s legislation would have lowered the term of exclusivity from seven to four years, but permitted products with limited commercial potential to continue to qualify for the full seven years. Rep. Waxman was concerned that the rewards available under the Orphan Drug Act had often far exceeded the investment the drug companies made in these products and, in many cases, resulted in undeserved windfalls—windfalls financed by consumers who are forced to pay higher costs for these products. Additionally, in this legislation, Rep. Waxman again attempted to pursue the concept of shared exclusivity that was rejected as a result of President Bush’s veto of the 1990 amendments. The bill also would have clarified that in order to maintain orphan drug status the population threshold of 200,000 must be met both at the time the drug is designated an orphan drug, and at any time it is marketed under the seven years of market exclusivity conferred by the Act. If the patient population grew to exceed 200,000, the product would lose the protections and benefits of the Act.
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IV. Recent Developments

Rep. Waxman introduced the Rare Diseases Orphan Product Development Act of 2002 (H.R. 4014), and it was enacted in November 2002. This legislation increased the available funding for FDA’s Orphan Products Research Grant Program to $25 million. These grants embody successful partnerships of government and industry and have led to the development of at least 23 drugs and four medical devices for rare diseases and disorders.
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V. The Orphan Drug Act Today

By all accounts, the Orphan Drug Act has been responsible for significant strides in speeding treatments and cures for small patient populations with rare diseases to the market. Since 1983, more than 200 FDA-approved orphan drugs have been brought to the American market, and more than 1,000 designated orphan drugs are currently in the research pipeline. The Act has encouraged the development of many critically important drugs for rare diseases—drugs like Fabrazyme, for a chronic disease called Fabry’s disease (a lipid storage disorder), and Gleevec, for rare cancers like chronic myelogenous leukemia and gastrointestinal stromal tumors, might never have come to market without the incentives provided by the Orphan Drug Act.

Just as he has over the past two decades, Rep. Waxman will continue to work to ensure that safe and effective orphan drugs are available and affordable.
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