The process by which sponsors of drugs and biologics for rare diseases qualify for the tax credits, exclusive marketing rights for seven years following FDA approval, and research grants to fund the clinical trials to support the approval of these products. These incentives are intended to foster the development of products which may offer little or no profit to the manufacturer but may be beneficial to patients suffering from rare diseases. A manufacturer may apply for "orphan" designation any time prior to filing an NDA for the product. Source: Office of Orphan Products Development; Orphan Drug Act (1983).

The intent of orphan drug designation is to stimulate the research, development and approval of products that treat rare diseases. If a product with an orphan drug designation subsequently receives the first FDA or EMEA approval for the indication for which is has such designation, the product is entitled to orphan drug marketing exclusivity. This means that the regulatory agency may not approve any other applications to market the same drug for the same indication, except in very limited circumstances, for a period of seven (U.S.) or 10 (EU) years. Sponsors also are granted tax incentives for clinical research they have undertaken in the U.S.

Designation by the EMEA, that is designed to promote the development of drugs to treat rare life-threatening or very serious conditions that affect no more than five in every 10,000 people in the European Union (EU). The designation provides EU market exclusivity for up to ten years in the given indication. A similar program exists in the U.S. through the FDA.