Washington, DC — Zachary Brennan reported for Endpoints News that House Republicans on November 2 rolled out their new tax reform bill, which among other provisions to lower taxes for Americans and businesses, proposes to repeal a provision that might cause the biopharma industry some concern.
Under the House bill’s Subtitle E, section 3401 would repeal what amounts to half of the qualified clinical research costs for designated orphan drug products.
Orphan Drug Act Background
Brennan reports that under the Orphan Drug Act of 1983, Congress sought to incentivize the development of drugs to treat rare diseases by offering drugmakers tax credits, fee waivers and a seven-year period of marketing exclusivity for an approved orphan indication.
Under the House bill’s Subtitle E, section 3401 would repeal what amounts to half of the qualified clinical research costs for designated orphan drug products.
Orphan Drug Act Background
Brennan reports that under the Orphan Drug Act of 1983, Congress sought to incentivize the development of drugs to treat rare diseases by offering drugmakers tax credits, fee waivers and a seven-year period of marketing exclusivity for an approved orphan indication.
To qualify for the designation, a product must be intended to treat a disease that affects fewer than 200,000 people in the US, or more than 200,000 if the drugmaker can show that it is not expected to recoup its costs to develop and market the drug.
In terms of the tax credit, a sponsor may claim half of the qualified clinical research costs for a designated orphan product.
The orphan drug credit is available for qualifying costs incurred between the date the Food and Drug Administration (FDA) designates a drug as an orphan drug and the date the FDA approves the drug, though the research credit can be claimed for the development costs that are qualified research expenses regardless of FDA designation or approval of the drug.
Critics of the law claim it has allowed drugmakers to charge exorbitant prices for many orphan drugs and argue that drugmakers take advantage of the incentives of the law.
Between 1983 and 2016, FDA approved 451 orphan drugs for 590 rare disease indications, though some estimate that there are about 7,000 rare diseases, most of which have no approved treatments.
In 2016, FDA’s Office of Orphan Products Development (OOPD) received 568 new requests for designation – more than double the number of requests received in 2012. And last June, FDA pledged to eliminate the orphan drug designation backlog.
House Republican’s Tax Reform Bill
The bill’s attempt to repeal the orphan drug research credit follows the recent release of an analysis conducted by the US Department of the Treasury finding that total tax expenditures from the orphan drug research credit are ballooning.
The expenditures are expected to increase from about $2.3 billion in 2017 to almost $6 billion in 2022 to more than $15 billion in 2027.
Although the expenditures and number of orphan drug approvals have risen in recent years, industry groups have been adamant about the importance of the tax credit in encouraging orphan drug research.
According to an Ernst & Young report from 2015, 67 orphan drugs, or 33%, would likely not have been developed over the past 30 years if there had never been an orphan drug tax credit.
The report said that “If the ODTC [Orphan Drug Tax Credit] were repealed, the resulting reduction in the number of approved new orphan drugs could have a significant impact on Americans with rare diseases.”
National Organization for Rare Disorders (NORD): Strongly Opposes the Proposal
On the day the bill was released, the National Organization for Rare Disorders (NORD), the leading independent nonprofit organization representing the 30 million Americans with rare diseases, issued the following statement in response to the release of the Tax Cuts and Jobs Act, and the proposed repeal of the Orphan Drug Tax Credit (ODTC):
“Today, the House Ways and Means Committee released a draft of the Tax Cuts and Jobs Act, a comprehensive proposal to reform the U.S. tax code. Within this proposal, the Committee proposes to repeal the Orphan Drug Tax Credit.
“The Orphan Drug Tax Credit is one of the most important incentives for developing therapies for individuals with rare diseases, and its repeal is wholly unacceptable. A repeal of the Orphan Drug Tax Credit would directly result in 33 percent fewer orphan drugs coming to market, an unprecedented decrease in the development of these life-improving therapies.
“The rare disease patient community, comprised of 30 million Americans, emphatically supports this live-saving tax credit, as evidenced by a letter sent to Congressional leaders signed by over 140 rare disease patient organizations in support of the ODTC.
“Within the last week, rare disease advocates have sent over 500 letters to Congress in support of the ODTC, and many others have called their elected representatives to show their support.
“Over 95% percent of individuals with a rare disease are still waiting for a treatment. Now is not the time to move backwards. We strongly oppose the proposed repeal of the Orphan Drug Tax Credit within the Tax Cuts and Jobs Act, and we implore the House of Representatives to reconsider.”
Biotechnology Innovation Organization (BIO): Supports Maintaining Tax Credit
On November 2, Biotechnology Innovation Organization (BIO) Jim Greenwood released the following statement today regarding the Tax Cuts and Jobs Act:
“BIO applauds Chairman Brady and the House Ways & Means Committee for their dedication to pro-growth tax reform. Tax reform presents a unique, historic opportunity to stimulate American investment, support job creation, and promote life-saving innovation.
“The Tax Cuts and Jobs Act would lower America’s corporate tax rate, maintain the R&D Tax Credit, and move the U.S. to a territorial tax system, which will make the U.S. more competitive on the world stage and support domestic manufacturing and job creation. This reform is vital to maintaining American leadership in biotechnology innovation.
“As Congress debates and refines this important legislation, we look forward to working with lawmakers to ensure that our nation’s tax code most effectively encourages innovation, investment and American entrepreneurship.
“This would include maintaining the Orphan Drug Tax Credit, and the inclusion of incentives for pre-revenue innovation and for the development of advanced biofuels, renewable chemicals, and biobased products.”
In terms of the tax credit, a sponsor may claim half of the qualified clinical research costs for a designated orphan product.
The orphan drug credit is available for qualifying costs incurred between the date the Food and Drug Administration (FDA) designates a drug as an orphan drug and the date the FDA approves the drug, though the research credit can be claimed for the development costs that are qualified research expenses regardless of FDA designation or approval of the drug.
Critics of the law claim it has allowed drugmakers to charge exorbitant prices for many orphan drugs and argue that drugmakers take advantage of the incentives of the law.
Between 1983 and 2016, FDA approved 451 orphan drugs for 590 rare disease indications, though some estimate that there are about 7,000 rare diseases, most of which have no approved treatments.
In 2016, FDA’s Office of Orphan Products Development (OOPD) received 568 new requests for designation – more than double the number of requests received in 2012. And last June, FDA pledged to eliminate the orphan drug designation backlog.
House Republican’s Tax Reform Bill
The bill’s attempt to repeal the orphan drug research credit follows the recent release of an analysis conducted by the US Department of the Treasury finding that total tax expenditures from the orphan drug research credit are ballooning.
The expenditures are expected to increase from about $2.3 billion in 2017 to almost $6 billion in 2022 to more than $15 billion in 2027.
Although the expenditures and number of orphan drug approvals have risen in recent years, industry groups have been adamant about the importance of the tax credit in encouraging orphan drug research.
According to an Ernst & Young report from 2015, 67 orphan drugs, or 33%, would likely not have been developed over the past 30 years if there had never been an orphan drug tax credit.
The report said that “If the ODTC [Orphan Drug Tax Credit] were repealed, the resulting reduction in the number of approved new orphan drugs could have a significant impact on Americans with rare diseases.”
National Organization for Rare Disorders (NORD): Strongly Opposes the Proposal
On the day the bill was released, the National Organization for Rare Disorders (NORD), the leading independent nonprofit organization representing the 30 million Americans with rare diseases, issued the following statement in response to the release of the Tax Cuts and Jobs Act, and the proposed repeal of the Orphan Drug Tax Credit (ODTC):
“Today, the House Ways and Means Committee released a draft of the Tax Cuts and Jobs Act, a comprehensive proposal to reform the U.S. tax code. Within this proposal, the Committee proposes to repeal the Orphan Drug Tax Credit.
“The Orphan Drug Tax Credit is one of the most important incentives for developing therapies for individuals with rare diseases, and its repeal is wholly unacceptable. A repeal of the Orphan Drug Tax Credit would directly result in 33 percent fewer orphan drugs coming to market, an unprecedented decrease in the development of these life-improving therapies.
“The rare disease patient community, comprised of 30 million Americans, emphatically supports this live-saving tax credit, as evidenced by a letter sent to Congressional leaders signed by over 140 rare disease patient organizations in support of the ODTC.
“Within the last week, rare disease advocates have sent over 500 letters to Congress in support of the ODTC, and many others have called their elected representatives to show their support.
“Over 95% percent of individuals with a rare disease are still waiting for a treatment. Now is not the time to move backwards. We strongly oppose the proposed repeal of the Orphan Drug Tax Credit within the Tax Cuts and Jobs Act, and we implore the House of Representatives to reconsider.”
Biotechnology Innovation Organization (BIO): Supports Maintaining Tax Credit
On November 2, Biotechnology Innovation Organization (BIO) Jim Greenwood released the following statement today regarding the Tax Cuts and Jobs Act:
“BIO applauds Chairman Brady and the House Ways & Means Committee for their dedication to pro-growth tax reform. Tax reform presents a unique, historic opportunity to stimulate American investment, support job creation, and promote life-saving innovation.
“The Tax Cuts and Jobs Act would lower America’s corporate tax rate, maintain the R&D Tax Credit, and move the U.S. to a territorial tax system, which will make the U.S. more competitive on the world stage and support domestic manufacturing and job creation. This reform is vital to maintaining American leadership in biotechnology innovation.
“As Congress debates and refines this important legislation, we look forward to working with lawmakers to ensure that our nation’s tax code most effectively encourages innovation, investment and American entrepreneurship.
“This would include maintaining the Orphan Drug Tax Credit, and the inclusion of incentives for pre-revenue innovation and for the development of advanced biofuels, renewable chemicals, and biobased products.”
