The One Big Beautiful Bill Act takes a big step in the rare disease space by expanding the contours of the orphan drug exclusion, a once narrow exception that permitted manufacturers of rare disease drugs and biologics to be insulated from consideration in Medicare drug price negotiations. By redefining the qualifications for negotiation eligibility, the bill hopes to create opportunity for renewed innovation for orphan drug products.
Expanded Orphan Drug Exemption under Medicare Price Negotiation
As originally enacted, the Inflation Reduction Act (IRA) exempted drugs with a single rare-disease (orphan) indication from Medicare’s Drug Price Negotiation Program if the only approved indication of the drug was for that single rare disease—a carve-out known as the “orphan drug exclusion.” However, if a drug held an orphan designation for more than one rare disease or condition, it would not qualify for the orphan drug exclusion, even if the drug had not been approved for any non-orphan indications.
With the passage of the bill, the US Congress has expanded the orphan drug exclusion to apply to orphan drugs with one or more orphan designations. Moving forward, this means orphan drugs that treat multiple rare conditions will now receive a complete exemption from price negotiations, so long as the drug has not been approved for any non-orphan uses.
Delay in Triggering Negotiation Countdown
In addition to expanding the types of qualifying drugs protected by the orphan drug exclusion, the bill also delayed the timelines for which an otherwise eligible orphan drug may be considered for price negotiations.
Previously, eligibility for price negotiations would begin seven years after the date of first approval for drug products or 11 years after initial licensure for biological products—regardless of whether the drug was first approved or licensed for an orphan indication. The bill now shifts the negotiation timeline to only start once the drug is approved for a non-orphan indication. As a result, drugs with indications that expand from one rare disease to multiple rare diseases will not have their negotiation countdown triggered until the drug reaches into broader markets.
Implications: A New Pro-Innovation Incentive
For pharmaceutical manufacturers, the bill’s amendments to the negotiation program are a welcome narrowing of the IRA’s scope, which previously disincentivized the development of additional rare disease designations after an initial orphan approval and created a chilling effect in the orphan drug market. The pro-innovation incentives created by the expansion of the orphan drug exclusion are likely to spur greater spending on clinical trials for additional orphan designations and generate greater valuations for pharmaceutical manufacturers in the orphan drug market.
Summary
In essence, the bill significantly broadens and extends the orphan drug exclusion by expanding negotiation protections for drugs with multiple rare disease indications and delaying price negotiations until the drug gains a non-orphan approval. This new framework offers a strategic incentive to the biotechnology industry to continue rare‑disease research and development.
Further, the broader exclusion may encourage greater private investment in the rare disease space and increase the value of assets with multiple possible rare disease indications. At the same time, these changes are likely to spark renewed debate over the balance of innovation incentives against the government’s cost containment goals.