Shares of DUSA Pharmaceuticals (NASDAQ:DUSA) were up 72% last Thursday after the company announced that its lead drug candidate, Levulan, received "orphan drug" designation from the FDA. Levulan is in development for the treatment of esophageal dysplasia, a disease that occurs in some patients with Barrett's esophagus, a leading cause of esophageal cancer.
There's nothing wrong with applying for orphan drug designation with the FDA, but achieving this status for an early-stage compound is not a major accomplishment. In just 2007 alone, 41 drug candidates have received this status. This simply means that these compounds are being tested in rare disorders, and that they will potentially be eligible for extended marketing exclusivity, along with some tax credits on R&D and reductions in regulatory fees.
But orphan drug designation doesn't lower the efficacy and safety burden that a compound must show to make it through the FDA regulatory approval process, whatever many investors may think. Since Congress has passed the Orphan Drug Act in 1983, more than 1,700 compounds have received this designation, yet barely more than 300 orphan drugs have made it to market.
Any drug company with drugs in development for obscure diseases, like many cancers or rare genetic disorders, will be able to get this status. The nearly $40 million in additional market capitalization that DUSA received for this status on its lead compound is excessive.
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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has a disclosure policy.
