An orphan drug is a therapeutic developed to treat a rare disease or condition. While these programs often involve high development costs and limited patient populations, the U.S. government provides meaningful incentives to improve their economic viability.

Historically, life sciences companies had little incentive to invest in these therapies due to small patient populations and high development costs, resulting in constrained commercial potential. To address these challenges, Congress enacted the Orphan Drug Act of 1983, introducing targeted incentives to improve the return on investment for rare disease programs.

One of the most valuable of these incentives is Sec. 45C Orphan Drug Credit (ODC), a federal tax credit that can significantly reduce cash taxes and improve after-tax return on clinical development activities. In addition to tax benefits, companies may also receive non-tax advantages such as periods of market exclusivity and potential relief from certain Affordable Care Act–related industry fees.

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