Practical Law Guide to Orphan Drug Act (June 2016)

Legislative History

The Orphan Drug Act, 21 U.S.C. § 360cc(a), was enacted in 1983 to foster the development of drugs—called orphan drugs—to treat rare diseases or conditions that affect fewer than 200,000 people.  These drugs were “orphaned,” because the comparatively small demand for treatment for any rare disease left pharmaceutical firms with little incentive to invest in research and development for these drugs.  In passing the Orphan Drug Act, Congress found that “because so few individuals are affected by any one rare disease or condition, a pharmaceutical company (that) develops an orphan drug may reasonably expect the drug to generate relatively small sales in comparison to the cost of developing the drug and consequently to incur a financial loss.” Act of Jan. 4, 1983, Pub. L. No. 97-414, § 1(b)(4), 96 Stat. 2049, 2040.

For that reason, the Orphan Drug Act provides several financial incentives to pharmaceutical firms that develop orphan drugs, including:

  • a seven-year exclusive marketing period during which no drugs, other than the designated orphan drug, can be licensed or approved “for such disease or condition,” 21 U.S.C. § 360cc(a);
  • a tax credit for the clinical testing expenses incurred during the orphan drug’s development, see 26 U.S.C. § 45C;
  • research grants for that clinical testing, see 21 U.S.C. § 360ee; and
  • an exemption from the fees otherwise applicable to new drug applications, see 21 U.S.C. § 379h(a)(1)(F).

The Orphan Drug Act permits the Secretary of Health and Human Services (the “Secretary”) to designate a drug as an orphan drug. According to statute, “[t]he manufacturer or the sponsor of a drug may request the Secretary to designate the drug as a drug for a rare disease or condition.” 21 U.S.C. § 360bb(a)(1). The statute further instructs that, if the Secretary finds that the drug “is being or will be investigated for a rare disease or condition” and the approval, certification or licensure of that drug “would be for use for such a disease or condition,” the Secretary “shall designate the drug as a drug for such disease or condition.” Id. The Food and Drug Administration (FDA), an agency under the control of the Secretary, oversees the designation and approval of orphan drugs.

Distinction between orphan drug designation and approval to market the drug

The designation of a drug as an orphan drug is separate from approval to market the drug in the United States. Even though a drug has been awarded an orphan designation, it must still comply with “the standard regulatory requirements and process for obtaining marketing approval.” Exclusion of Orphan Drugs for Certain Covered Entities Under 340B Program, 78 Fed. Reg. 44,016, 44,017 (July 23, 2013). Indeed, according to the Department of Health and Human Services, “a large majority of drugs with orphan designations do not have approval to be marketed in the United States” at all. Id.

Impact on drug pricing

While exclusive marketing promotes the development of new pioneering drugs, it also prevents competition and leads to high prices for pioneer drugs.  In an effort to rein in the high cost of prescription drugs, Congress created in 1984 a streamlined approval process for generic drugs.  See Drug Price Competition and Patent Term Restoration Act (Hatch-Waxman Amendments), 21 U.S.C. § 355(j).  Under that process, a pharmaceutical firm can file an abbreviated new drug application (ANDA) that relies on clinical research data for the pioneer drug rather new data for the generic substitute.  To secure FDA approval, an ANDA must establish that the generic drug is equivalent in all material respects to the pioneer drug.  21 U.S.C. § 355(j)(2)(A).  The FDA will not approve the generic drug for the same indication until the exclusive marketing period for the pioneer drug has expired.

Congress was concerned with more than innovation when it created the drug approval process; Congress also sought to promote affordable drugs.  The FDA accommodates both interests by allowing generic producers to enter the market for certain purposes while, at the same time, protecting a company’s right to market its pioneer drugs for exclusive uses. See Orphan Drug Regulations, Final Rule, 57 Fed. Reg. 62,076, 62,077 (Dec. 29, 1992) (“FDA believes the final rule achieves the best balance possible between protecting exclusive marketing rights and fostering competition.”).  The courts have shown broad deference to the FDA’s decisions that seek to strike a balance between the competing congressional policy goals of drug affordability and innovation.

Complication:  multiple purposes for a pioneer drug

A complication arises when a pioneer drug can be used for multiple purposes, and the exclusive marketing period for one use of the drug expires, while it continues for another. In this situation, FDA permits what is called a labeling “carve-out” that allows producers to sell a generic if they exclude from its label any indication that is still protected by exclusive marketing rights. 21 C.F.R. § 314.94(a)(8(iv).  Labeling carve-outs are so named because any exclusive use is carved out, i.e., omitted, from the list of approved uses on the generic’s label. FDA allows labeling carve-outs under the Orphan Drug Act just as it does for generics generally under the Food, Drug, and Cosmetic Act. No matter what use for the drug is described on the label, however, the FDA does not prevent a doctor from prescribing a drug for some other use, called an “off-label” use.

Disesase-specific vs. drug-specific
The words “for such disease or condition” suggest Congress intended to make the Orphan Drug Act disease-specific, rather than drug-specific.  The Act protects approved indications to treat a specific disease or condition, rather than drug-specific off-label uses or generic competitor intended uses.  A drug approval application will necessarily include only stated indications, not intended off-label uses. 21 U.S.C. § 355(b).  Courts have rejected arguments that allowing labeling carve-outs undermines the exclusivity rights of producers of pioneer drugs.  See, e.g., Sigma-Tau Pharms., Inc. v. Schwetz, 288 F.3d 141 (4th Cir. 2002); Bristol Myers Squibb v. Shalala, 91 F.3d 1493, 1500, (D.C. Cir. 1996) (recognizing that the Orphan Drug Act “expresses the legislature’s concern that the new generic be safe and effective for each indication that will appear on its label; whether the label for the new generic lists every indication approved for use of the pioneer is a matter of indifference”).

Example 1:  Spectrum Pharmaceutical marketed the drug Fusilev (levoleucovorin) for purpose of counteracting liver damage with methotrexate chemotherapy.   Fusilev received orphan drug designation in 2008 for the methotrexate indication.  In 2011, Spectrum Pharmaceutical received a separate orphan drug designation for Fusilev to help patients with advanced colorectal cancer manage their pain.  Spectrum had exclusive rights for the methotrexate indication through 2015 and for the colorectal indication through 2018.  Two days after Spectrum’s market exclusivity passed for the methotrexate indication, the FDA approved Sandoz’s ANDA to market generic levoleucovorin for the methotrexate indication.  Despite the fact that doctors might prescribe Sandoz’s levoleucovorin for the colorectal indication off-label, the FDA had the right to approve Sandoz’s generic equivalent drug with a label indication for methotrexate chemotherapy, without infringing on Spectrum’s market exclusivity for the colorectal indication.  Thus, the Orphan Drug Act is disease-specific (colorectal indication) rather than drug-specific (levoleucovorin).  Spectrum Pharms., Inc. v. Burwell, No. 15-5166, (D.C. Cir. June 3, 2016).

Example 2:  A drug’s designation as an orphan drug may not comprise all of its possible indications.  Drugs that carry an orphan designation can also be used to treat non-rare diseases or conditions.  For example, Prozac is commonly prescribed for treatment of depression, but it is also designated as an orphan drug to treat autism and body dysmorphic disorder.  A drug may be designated as an orphan drug even if that drug is also approved to treat a different disease or condition that does not qualify for orphan-drug designation. See 21 C.F.R. § 316.23(b).

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