The FDA’s orphan drug designation provides incentives for the development of drugs intended to treat rare diseases. Drug development is, in general a high-risk, high-reward enterprise. It is expensive to develop experimental drugs, more expensive to test them in clinical trials, and only a small percentage of experimental drugs end up receiving FDA approval. As a result, drug developers tend to focus on disease areas with high profit potential. Diseases that affect large numbers of patients are likely to be targeted by many drug developers. Rare diseases, on the other hand, are often unlikely to provide drug developers with any return on their investments. As a result, many rare diseases have historically been ignored or “orphaned” by drug developers.

In order to encourage the development of drugs for rare diseases, Congress passed the Orphan Drug Act in 1983. The law provides incentives for industry investment into treatments for rare conditions, including tax credits for clinical trials and extended market exclusivity. The use of expedited review programs by the FDA has also aided the development of orphan drugs, applying extra FDA resources to the development and review of drugs targeting unmet medical need.