Rare Disease Month Developments, Part 2 –The Bad: Proposed Closing of an Orphan User Fee “Loophole” & Renewed Concerns Regarding FDA Consistency

February is Rare Disease Month, an important time to celebrate successes in addressing the needs of our fellow 25 to 30 million Americans living with a rare disease, but also to renew our resolve in addressing the much larger remaining challenges – both new and old.  We recently discussed several positive developments that have come in the first half of Rare Disease Month.  This post will cover two major challenges that have come to surface that warrant the attention of rare disease developers, advocates, and regulators: (1) FDA is considering removing a User Fee incentive for orphan approvals and (2) recent inconstancy in approval decisions for rare disease therapies that contrast with the Agency’s own 2026 priorities.

FDA Proposing to Remove an Orphan Drug User Fee Exemption as Part of PDUFA VIII

One of the major incentives of an Orphan Drug Designation is the exemption from user fees under the Prescription Drug User Fee Act.  In addition to an exemption from the $4.7 million application fee, a product designated as an orphan drug is exempt from the annual $400,000 program fee if the sponsor has less than $50 million in gross worldwide revenue during the previous year.  And this exemption is not granted lightly: sponsors must submit a certification, along with financial documentation in support, attesting that their gross worldwide revenues, including affiliates, did not exceed $50 million for the previous 12 months.  Currently, this exemption applies as long as the application is orphan-designated, even if that orphan-designated product is also later approved for a non-orphan indication.  Calling that a “loophole,” FDA leadership is using the ongoing PDUFA negotiations to limit that exemption to products approved exclusively for orphan indications.

This proposal raises some alarm bells.  Though it applies to only a limited number of products, eliminating the program fee exemption once a non-orphan indication is approved undermines a key incentive to develop orphan drug indications first.  Indeed, if a product could have an orphan indication, this exemption encourages sponsors to develop that orphan indication first, with the potential follow-on blockbuster indication benefiting from the exemption at a later point.

While it may seem like a windfall to allow an application with a prevalent indication to benefit from the exemption, the existence of that exemption and its application to future follow-on indications incentivizes the development of an orphan indication before seeking the larger indication.  That’s important because there is little incentive to expand into an orphan indication after approval of a blockbuster indication.  Though that second indication may be eligible for a period of seven years of exclusivity, that exclusivity is limited because a generic for the non-rare indication is available.  That is, because, notwithstanding exclusivity, the generic can be prescribed for the orphan indication even if that orphan indication is carved out, the orphan drug exclusivity provides little benefit.  Indeed, health care professionals can prescribe off-label, and, in some cases, the orphan product may be automatically substituted with a generic even if the prescribed-for indication is carved-out.  An orphan indication becomes a lot less enticing for sponsors if it is not the first approved indication.

Further compounding the concerns about subsequent orphan development for a blockbuster product is that a follow-on orphan indication would not be eligible for a Priority Review Voucher (“PRV”).   Once the blockbuster indication is approved, the orphan indication would not be the first approved use of the active ingredient and therefore the drug would not be eligible for a PRV.  No longer being eligible for a PRV may dissuade further development into the orphan space.  Admittedly, however, eligibility for the Rare Pediatric Disease PRV could serve as an alternative incentive to develop an orphan indication, but this PRV program only applies to a subset of rare diseases.

Finally, it’s important to note that this change hits small sponsors only.  As noted, only companies with less than $50 million in gross worldwide revenue during the previous year are eligible for the program fee exemption.

Having just navigated a long period of uncertainty where the Rare Pediatric Disease PRV program was in limbo, seeing yet another rare disease incentive—this one mainly helping small businesses—on the chopping block is concerning.   Closing this “loophole” in which orphan products approved with non-orphan indications remain exempt from program fees would remove an important and effective incentive to research orphan diseases.  FDA should reconsider whether an additional $400,000 from small businesses per year from an admittedly small number of sponsors is really worth it.

Renewed Concerns Regarding FDA Consistency in Seeming Contrast with FDA’s 2026 Goals

In our previous blog post (Part 1), we continued our applause for the launch and growth of the FDA Rare Disease Innovation Hub.  We shared our enthusiasm for the Hub’s efforts to “enhance and strengthen coordination and alignment between medical product centers” as part of the 2026 Strategic Agenda.  At the same time, we have seen the limitations of these efforts described in the Agenda to date.  Each application is unique, but addressing the challenges of rare diseases requires a different paradigm than for non-rare diseases where randomized, concurrently-controlled trials present fewer issues.  In rare diseases, the numbers are necessarily smaller, meaning that demonstrating effectiveness will be more challenging, and accrual and retention are persistent challenges.  There are also likely to be fewer, or no, products approved for most rare diseases, so the unmet medical needs are serious and urgent.  In that context, keeping patients on placebo in a concurrent control arm for a prolonged period of time, which could be as long as one or more years, adds a significant challenge.  We have heard from investigators and patients that they’d rather not try unproven treatments, so they don’t enroll or they drop out of the study early searching for hope.

While we have highlighted some recent examples of approvals based on single-arm studies for rare diseases where FDA has been willing to extend this measure of flexibility (here and here), we have also seen recent examples where FDA has been unwilling to extend this flexibility.  We have also seen a variety of other recent CRLs in the rare disease space in recent months.  The deficiencies highlighted in these announcements range from manufacturing issues, issues with data from externally-controlled studies, as well as other clinical trial challenges inherent in rare disease drug development.  While it is not clear whether consistent flexibility could have resulted in more positive outcomes for these and other recent programs, it is clear that some of these challenges have been able to be overcome in other rare disease contexts.

We wish to see a future where regulatory flexibility is consistently applied where appropriate.  With its current authorities, it is not clear to us how the Hub can “ensure that drug review within the Centers have common approaches when evaluating similar populations or issues,” and this appears to be reflected in the recent news.  While we are glad to see some actual dedicated funding directed toward the Hub as well as a small team of staff (as opposed to 2025’s no dedicated budget and 1 staff), the quantity of both will not be sufficient to reach the level of consistency and predictability required for understanding FDA’s flexibility as applied to rare disease drug development.  Without consistency in the applicability of this flexibility, it will remain as challenging as ever to undertake development of such therapies.

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With all of this, these authors, James, Sara, and Mark, draw inspiration from the tremendous dedication and perseverance of the rare disease advocates, industry leaders, and our partners at FDA who remain determined to address these challenges. As we continue this Rare Disease Month, we are ready and eager to lend our own lessons learned and best practices to help navigate these issues, both for individual patient communities but also advancing policy and practices for the field.

We hope to see you at Rare Disease Week in our nation’s capital. Onward together!