FDA 101: What Does 'Orphan Drug Designation' Mean?

It has been more than three decades since the U.S. Congress passed a bill encouraging pharmaceutical companies to develop new drugs to treat rare diseases.

According to NPR, President Ronald Reagan's Orphan Drug Act of 1983 resulted in more than 200 companies introducing 450 orphan drugs to the market.

Many novice and expert investors alike are unfamiliar with many of the U.S. Food and Drug Administration's terminology, so here is an overview of what exactly an Orphan Drug Designation implies.

Orphan Drug Designation Explained

The FDA's Office of Orphan Products Development is tasked with advancing the evaluation and development of drugs, biologics, devices or medical foods that could be used to treat rare diseases or conditions.

The office will evaluate scientific and clinical data from companies to identify which therapies can improve the lives of people suffering from rare diseases.

Orphan status is given to drugs and biologics defined as "those intended for the safe and effective treatment, diagnosis or prevention of rare diseases/disorders that affect fewer than 200,000 people in the U.S., or that affect more than 200,000 persons but are not expected to recover the costs of developing and marketing a treatment drug."

Example: Exondys 51

The FDA granted orphan designation for Sarepta Therapeutics Inc SRPT's therapy Exondys 51 for the treatment of Duchenne muscular dystrophy.

DMD is a rare genetic disorder that affects approximately one out of every 3,600 male infants. Patients typically require the use of a wheelchair by their early teens and often succumb to the disease in their 20s or 30s.

On September 19, 2016, the FDA announced that it granted Sarepta's therapy orphan drug designation, among other designations such as accelerated approval.

The FDA noted in its press release: "Orphan drug designation provides incentives such as clinical trial tax credits, user fee waiver and eligibility for orphan drug exclusivity to assist and encourage the development of drugs for rare diseases."

"Patients with a particular type of Duchenne muscular dystrophy will now have access to an approved treatment for this rare and devastating disease," said Janet Woodcock, M.D., director of the FDA's Center for Drug Evaluation and Research. "In rare diseases, new drug development is especially challenging due to the small numbers of people affected by each disease and the lack of medical understanding of many disorders. Accelerated approval makes this drug available to patients based on initial data, but we eagerly await learning more about the efficacy of this drug through a confirmatory clinical trial that the company must conduct after approval."