Federal Orphan Drug Tax Credit

Q: How are contractor expenses treated under each credit?

The ODTC may allow 100% of qualified contracted clinical research expenses to qualify, while the R&D Tax Credit generally limits qualified contract research expenses to 65% of eligible costs.

Unlock rare disease innovation! Recoup 25% of money spent on clinical trials with the Orphan Drug Tax Credit

Background

What is the Orphan Drug Tax Credit?

Enacted in 1983 under the Orphan Drug Act, the Orphan Drug Tax Credit was designed to incentivize investment in new treatments for rare diseases. Multiple incentives were created to make development more financially possible. This tax credit was made permanent in 1997 and modified in 2017 under the Tax Cuts and Jobs Act.

Eligibility

Benefits of Orphan Drug Designation

25% Federal Tax Credit

Receive a federal tax credit covering up to 25% of qualified clinical trial expenses, helping reduce development costs and improve cash flow during research and testing.

7-Year Market Exclusivity

Gain seven years of exclusive marketing rights after FDA approval, preventing competitors from marketing the same drug for the same indication during this period.

FDA User Fee Waiver

Save approximately $2.9 million by receiving a waiver of Prescription Drug User Fee Act (PDUFA) application fees required for FDA review and approval.

Research Grant Opportunities

Access funding programs offered by the FDA's Office of Orphan Products Development (OOPD) to support clinical research and accelerate development.

Regulatory Support

Receive direct FDA guidance on clinical trial design, regulatory strategy, and development planning to improve the likelihood of successful approval.

Why Leyton

Global Leading Innovation Incentives Firm

1,000+

Tax & Industry Technical Experts

29+

Years of Experience

Countries

65+

Industries Served

$11B+

In Incentives
& Funding

Eligibility

Eligibility Criteria

If you answered “yes” to these questions, you could be an ideal candidate for the ODTC!

Have You Secured Orphan Drug Designation?

This is a critical first step as the ODTC is specifically for drugs that have received this designation.

Have You Begun Clinical Studies within Last 3-5 Years?

The ODTC is most beneficial for companies that are currently in the clinical testing phase. Further, the amendment period to include the credit in your tax returns is 3 years from your original filing date.

Is Your Company Profitable and Paying Taxes?

The ODTC is most valuable for companies that have a tax liability, although it can be carried forward, and considered a deferred tax asset.

Qualified Clinical Testing Expenses?

Have you incurred expenses for clinical testing conducted after the date the drug was designated but before the drug was approved by the FDA for marketing? These are the expenses that qualify for the ODTC.

Our Process

Leyton’s Steps for Success

A streamlined six-step process designed to maximize your Orphan Drug Tax Credit from assessment through filing.

01.

Eligibility Assessment

We determine whether your therapy qualifies for FDA orphan drug designation based on disease prevalence and regulatory requirements.

02.

Strategy Development

We create a regulatory strategy that strengthens your application and supports a successful designation request.

03.

Application Preparation

We prepare and compile all required documentation for the FDA Orphan Drug Designation submission.

04.

FDA Submission Support

We manage the submission process and help address FDA questions throughout the review period.

05.

Cost Tracking Guidance

We help establish processes for documenting eligible clinical trial expenses and maintaining supporting records.

06.

Incentive Optimization

We assist in maximizing available benefits, including tax credits, fee waivers, grants, and exclusivity opportunities.

Get in Touch

Schedule a Free Consultation

Our Innovation team is there to ensure your projects are seen from all perspectives and to answer all your questions and help you make the most out of your Innovation efforts

FAQs

Frequently Asked Questions

Can’t find the answer you’re after? Please contact our team

What is the difference between the R&D Tax Credit (RDTC) and the Orphan Drug Tax Credit (ODTC)?

The R&D Tax Credit supports a broad range of qualified research activities, while the Orphan Drug Tax Credit specifically rewards qualified clinical testing expenses for orphan drug development.

Is the Orphan Drug Tax Credit more valuable than the R&D Tax Credit?

For eligible orphan drug clinical trials, the ODTC may provide a larger benefit by offering a 25% tax credit on qualified clinical testing expenses, compared to the RDTC, which typically provides a benefit of approximately 7–10% of qualified research expenses.

Does the Orphan Drug Tax Credit cover foreign clinical research?

Yes. Unlike the R&D Tax Credit, which generally excludes foreign research expenditures, the ODTC may allow qualified foreign clinical testing expenses to be included.

How are contractor expenses treated under each credit?

The ODTC may allow 100% of qualified contracted clinical research expenses to qualify, while the R&D Tax Credit generally limits qualified contract research expenses to 65% of eligible costs.