[Ip-health] Some evidence from the IRS on the risk adjusted costs of trials for orphan drugs

Jamie Love james.love at keionline.org
Tue Nov 18 06:39:52 PST 2014

The IRS reports aggregate data on the amount of money claimed under the US
Orphan Drug Tax Credit.  The credit is equal to 50 percent of the
qualifying trials, for new drugs.

The data from the Orphan Drug tax credit is useful in looking at various
issues regarding the costs of drug development.

Because the credit is available for both successful and unsuccessful
projects, you can calculate both the amount of the credit per designation,
which is a product for which a company wants to test, and per FDA approval
for a designation.

>From 2005 to 2010 (2010 is the most recent year IRS published data, last I
checked), the amount of the credit, per new orphan indication to be tested,
was from $1.9 to $3.3 million.

>From 2005 to 2010, the amount of the credit, per approved indication (the
risk adjusted number), was $12.7  to $46.3 million.

If every orphan drug claimed the full credit for all of its trials, this
would also be equal to the company net costs per new FDA approved
indication (the credit pays for 50 percent of the qualifying trial costs).
Since not all trials receive the full credit, and the credit does not cover
company overheads, the company costs are somewhat higher.  But in any
event, the fact that the amount of the claimed credit was well less than $1
billion as recent as 2010, provides strong evidence that the costs of
registering new orphan products are not very high, on average.   Jamie

Year, Designations, Designations approved for marketing, amount of credit

Millions of dollars

2005  124  17  $232.185
2006  142  24  $303.951
2007  119  16  $381.349
2008  165  14  $450.163
2009  165  20  $533.157
2010  195  14  $647.799

amount of credit, per designation
Millions of dollars
2005 1.872
2006 2.141
2007 3.205
2008 2.728
2009 3.231
2010 3.322
amount of credit, per approved designation
Millions of dollars
2005 13.658
2006 12.665
2007 23.834
2008 32.155
2009 26.658
2010 46.271

James Love.  Knowledge Ecology International
KEI DC tel: +1.202.332.2670, US Mobile: +1.202.361.3040, Geneva Mobile:
+41.76.413.6584, twitter.com/jamie_love

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