Rare Diseases and the Platform Biotech Renaissance

For decades, developing treatments for rare diseases, which are medical conditions that affect fewer than 200K people at any given time, were viewed as one of the least attractive markets for pharmaceutical development. Patient populations were too small, development costs too high, and commercial upside too limited to justify investment. The Orphan Drug Act of 1983 changed that by restructuring the economics of drug development through tax credits, market exclusivity, and accelerated regulatory pathways, turning rare disease from a neglected corner of medicine into a viable commercial category.

Since then, however, the rare disease market has evolved into a commercial and scientific priority for pharmaceutical developers beyond that which policymakers originally envisioned. Rare disease is no longer just a niche area of biotech supported only by government incentives; it has become the primary testing ground for new therapeutic platforms such as gene editing, RNA interference, antisense oligonucleotides, and gene therapies. Small, genetically defined patient populations allow companies to validate entirely new treatment modalities faster and with greater biological precision before expanding those technologies into the larger markets of more common diseases.

As a result, the central priorities in developing rare disease treatment are shifting. The principal challenge is no longer simply determining whether a company can build a successful “orphan drug”, which is a pharmaceutical agent developed specifically to treat a rare medical condition. Instead, the question is whether a company can use rare disease to validate a scalable platform technology, extend that platform into broader indications, and navigate the reimbursement dynamics created by multimillion-dollar curative therapies.

Orphan drugs are a critical contributor to this shift towards platform strategies more broadly, and research on orphan drugs has already benefited drug development in general. The companies best positioned for the next decade will not be those treating orphan drugs as isolated products, but those using rare disease as the commercial and regulatory proving ground for the next generation of biotech platforms.

The term “orphan disease” is an economic designation rather than a clinical one. These conditions were orphaned not necessarily by providers or researchers, but by pharmaceutical companies hesitant to invest hundreds of millions of dollars over a decade in drugs that would serve small populations consisting of thousands of patients. Orphan drug development requires $1–2 billion or more to bring a single treatment to market, and recouping that investment requires either a large patient population or higher prices than insurers and government programs want to pay.

Somewhere between 7-10K rare diseases collectively affect 30 million Americans, more than cancer and heart disease combined. In the early 1980s, when the Orphan Drug Act was passed, 95% of these diseases had no FDA-approved treatment. In lieu of a commercial incentive to create drugs for these diseases, policies have been proposed and passed to nationally fund and develop such drugs.

Government agencies, however, have historically been ill-equipped for this role. The FDA regulates medicines, but doesn’t directly or indirectly incentivize their creation. The NIH funds basic research, but it isn’t designed to run large-scale clinical trials or manage commercial-scale manufacturing. Direct government development of drugs would also eliminate the competitive pressure that drives innovation, replacing market efficiency with bureaucratic process.

The 1983 Orphan Drug Act (ODA) took a different approach. Rather than developing orphan drugs itself, the government introduced new incentives for the development and manufacturing of drugs for rare diseases. It created a formal designation process to recognize drugs targeting rare diseases, which they defined as those affecting fewer than 200K people in the United States (or any condition for which there is no reasonable expectation of commercial profitability for other reasons). It also attached concrete financial incentives to that designation, including tax credits for clinical testing, waivers of multi-million-dollar FDA user fees, and seven years of market exclusivity upon approval.

Tax credits for the costs of qualified clinical trials for orphan-designated drugs were originally set at 50%, and later reduced to 25% by the 2017 Tax Cuts and Jobs Act. Unlike a deduction, which reduces taxable income, a tax credit directly reduces the taxes a company owes, making it especially valuable for smaller biotech firms with limited capital. Since clinical trials are the most expensive phase of drug development, this credit effectively transfers a portion of the downside risk of a trial’s failure to the government.

Orphan-designated drugs are also exempt from FDA user fees. The FDA charges several million dollars in application fees when companies submit a drug for approval. Removing these fees meaningfully reduces upfront costs that could otherwise deter smaller companies or those pursuing multiple rare disease indications simultaneously.

Once an orphan drug is approved, a seven-year window begins during which the FDA will not approve a competing drug for the same disease. This creates a temporary, legally protected monopoly, giving the sponsor the pricing power necessary to recover its R&D investment without immediate competitive pressure. This window is designed to be long enough to attract private investment but short enough to eventually allow competition and market correction.

Beyond financial incentives, the ODA also introduced expedited review pathways that shorten the time from development to patients. Fast Track allows more frequent FDA interaction during development. Breakthrough Therapy provides intensive FDA guidance for drugs showing early clinical promise. Priority Review cuts the standard 12-month review clock to six months. None of these programs changes the evidentiary standard for approval.

The next few decades showed that the ODA was successful in incentivizing orphan drug development. By August 2018, 503 unique medicines targeting 731 orphan indications had been approved, and 78% of them were approved solely for orphan diseases. By 2023, more than 370 orphan drugs were actively marketed (some approved drugs were later discontinued, withdrawn for safety reasons, or never commercially launched).

Not only that, but the pace accelerated over time: between 1983 and 2019, over 5K drugs and biologics received orphan drug designation, with the number of designations more than doubling in the 1980s and 1990s, nearly doubling between the 1990s and 2000s, and nearly tripling between the 2000s and 2010s.

The effects of orphan drug development went beyond orphan diseases. Research into some rare diseases led to new, often more efficient drug development processes. About 80% of rare diseases are monogenic (caused by a single genetic mutation), making the underlying biology easier to characterize and target. Genetically defined patient populations can also be easier to diagnose via genetic testing, allowing companies to run smaller, more efficient trials with cleaner endpoints and faster paths to regulatory validation.

The diseases that attracted the most development efforts in the decades since the passage of the ODA share a common profile: a well-characterized genetic mechanism, clear biomarkers or measurable clinical endpoints, a patient population large enough to support trials, and an engaged patient community advocating with regulators. Together, these conditions made rare disease not just more commercially viable under the ODA’s incentive structure, but more scientifically productive per dollar invested.

The reimbursement system for drugs is built around the basic assumption that drugs are taken repeatedly, so costs are recurring and can be spread over time. Despite the incentives introduced by ODA, this reimbursement model makes it economically challenging to break even for some rare disease treatments.

Small molecules and RNA interference (RNAi) both fit that description because they modify existing biology, correcting the impact of a faulty protein or silencing a problematic gene, but the underlying genetic defect remains, and treatment continues indefinitely. Genetic treatments, however, work differently, correcting or replacing the gene itself in a single intervention.

For this reason, many orphan drugs carry high list prices: 39% cost more than $100K annually, and gene and cell therapies in particular routinely run into the hundreds of thousands of dollars or more. In 2019, the average annual cost of an orphan treatment per treated patient was $32K, though individual treatments ranged anywhere from $6K to $500K per year.

The trajectory of these costs has been steep rather than incremental. The US saw a 26-fold increase in total orphan drug costs between 1998 and 2017, with annual cost growth running at roughly 12% since.

The economic structure of insurers, annual premiums collected against annual costs, makes these costs difficult to absorb. A drug that costs $3 million once but saves $500K a year in avoided ongoing care can be cost-effective over a patient’s lifetime, but the insurer paying that $3 million today may not be the same insurer collecting the savings five years later, once the patient has changed jobs or insurance plans. This mismatch means no individual payer has a strong incentive to pay full price for a cure, even when the cure is, in aggregate, a good deal for the healthcare system. This is a problem for any expensive one-time therapy, not just those specific to rare diseases.

This mismatch has pushed the drug development industry towards a platform strategy for getting new technologies to market in the first place. The biotech industry is undergoing a structural shift from single-asset companies, which develop one drug for one disease, to platform companies, which build a reusable technology that can be applied to many diseases in succession. A platform, in this context, is not a drug, but the underlying engine that discovers and produces drugs. Platform companies recycle the same core technology, applied repeatedly, to produce a stream of new drugs rather than just one.

Platform companies benefit from compounding returns: each successful drug makes the next one cheaper and faster to develop, because the core technology, manufacturing process, and regulatory relationship with the FDA are already established. This lowers drug development costs, leading to lower drug costs for patients and insurers. Examples of drug development platforms include a chemistry and screening process that can be re-run against new disease targets, a delivery mechanism that can carry different genetic payloads to the same tissue, or a manufacturing and vector system that can package different genes for gene therapy.

Rare disease has become the preferred arena to prove that these platforms work, for a specific scientific reason: roughly 80% of rare diseases are caused by a single-gene mutation, so the drug target is known from the outset. Many of these diseases have well-established biomarker endpoints, such as protein levels, enzyme activity, and lung function, that can demonstrate a platform is working biologically long before a company has the years of follow-up needed to show clinical outcomes.

Biotechnology companies such as Vertex and Alnylam each demonstrate this model, but in two different layers of drug development: one validates a drug discovery platform, the other a drug delivery platform.

The above is an excerpt from our new deep dive on orphan drugs. See the full report here.