In the United States, the FDA can grant orphan designation to a drug or biologic intended for a disease or condition that affects fewer than 200,000 people in the US, or more than that if there is no reasonable expectation of recovering the cost of development from US sales.
Designation brings several incentives: tax credits for qualified clinical testing, exemption from the user fee normally charged for a marketing application, and, if the product is approved for the designated use, seven years of market exclusivity for that indication.
In the European Union, orphan designation is available for medicines for life-threatening or chronically debilitating conditions affecting no more than five in 10,000 people. Incentives include protocol assistance, fee reductions and, on approval, ten years of market exclusivity for the orphan indication.
Designation is not approval. It is granted during development and says nothing about whether the medicine works. Many designated products never reach the market. But for competitive intelligence teams, a new orphan designation is an early signal that a company intends to pursue a rare disease, often years before any approval.