Cancer drug giant Celgene (Nasdaq: CELG) announced yesterday that the FDA had granted its small cell lung cancer and breast cancer drug, Amrubicin, orphan designation for the treatment of small cell lung cancer.

The drug is a chemotherapeutic compound and is being tested in a phase 3 second-line, small cell lung cancer study (for a smaller patient population than the more common non-small cell lung cancer). If approved, Amrubicin will compete directly against other oral and injectable chemotherapeutic agents such as GlaxoSmithKline's (NYSE: GSK) Hycamtin, which had $238 million in sales last year.

The FDA grants orphan designation to drugs that are either in development to treat ailments that affect fewer than 200,000 people in the United States or that are very expensive to develop. With the designation come certain benefits: the elimination of some of the FDA's regulatory costs (PDUFA fees) and, more importantly, a guaranteed seven years of marketing exclusivity for the drug.

Investors shouldn't think that orphan designation means Celgene's drug will have an easier time getting through FDA rigmarole. As a 2006 Booz Allen Hamilton analysis has shown, "Orphan drug and Fee-Waiver designations provide for financial incentives to small companies and those developing drugs for rare indications but do not impact the review process per se."

Amrubicin has an interesting history. Celgene acquired the rights to sell Amrubicin in North America and Europe with its acquisition of Pharmion. Pharmion had acquired the rights through its acquisition of Cabrellis Pharmaceuticals after Cabrellis acquired the North American and European rights to the drug from Sumitomo (yes, a subsidiary of the Japanese tire and chemicals manufacturer).

Final data from Celgene's ongoing phase 3 study for Amrubicin isn't expected until December 2010. The drug has a good chance at getting through the FDA and the European Medicines Agency (EMEA) goalposts because it is already approved for use in Japan and has been used by more than 6,500 patients since 2002.