[Ip-health] Congress Weighs Repeal of Tax Credit for Rare Disease Drugs

Kim Treanor kim.treanor at keionline.org
Thu Nov 9 06:53:50 PST 2017


Congress Weighs Repeal of Tax Credit for Rare Disease Drugs
Katie Thomas and Sheila Kaplan in the New York Times on 8 November 2017

A decades-old tax credit designed to spur cures for rare diseases has been
so successful that it’s now become a target in the House Republican tax

The proposal under consideration would end the tax breaks for development
of what are called orphan drugs. Ending the credit used by big and small
drug companies could save the government an estimated $54 billion over the
next decade, an effort to help offset some of the anticipated losses in
revenue if other Republican tax cut provisions become law.

With the Senate poised to offer its own broad tax plan soon, many details
are still in flux. But if the orphan drug tax credit is eliminated, the
move would represent a rare defeat for the powerful pharmaceutical industry.

The tax credit is part of the popular 1983 Orphan Drug Act, and is one of a
host of incentives that supporters say have led to the approval of more
than 500 new and much-needed drugs for those rare diseases that each affect
fewer than 200,000 people. But the program has also come under scrutiny
because critics say that some major drugmakers have exploited it by
obtaining the orphan designation for billion-dollar blockbuster drugs like
Humira for treating rheumatoid arthritis and Crestor, the cholesterol drug,
that were already on the market.

Even if the proposal passes the House, it will likely face opposition in
the Senate, particularly from Senator Orrin Hatch, Republican of Utah, who
is overseeing tax reform in the Senate and was a leading sponsor of the
Orphan Drug Act.

No matter what happens, some experts welcomed a discussion about a
political issue that was once considered untouchable because opponents
risked being labeled coldhearted toward people with serious medical

“I think it opens up the debate on the orphan drug tax credit, which we
think is a flawed incentive,” said James Love, director of the consumers
group Knowledge Ecology International. “And I think that’s a positive

Under current law, companies that develop drugs for rare diseases can
receive a tax credit for half of the cost of their clinical trials and they
are also granted seven years of exclusivity, when the drug is protected
from competition. Companies are not required to disclose the amounts of the
tax credits they receive.

Mr. Love said he favored replacing the tax credit with direct government
subsidies of clinical trials for rare-disease treatments.

In public, the pharmaceutical industry’s largest lobbying groups have not
said much about the credit. The Biotechnology Innovation Organization,
whose members include smaller companies, praised the overall tax plan in a
statement last week, but disagreed with the elimination of the tax credit.
The other major trade group, the Pharmaceutical Research and Manufacturers
of America, whose members are generally large public companies, said in a
statement that it was pleased that Congress has taken up a tax overhaul
and, without mentioning the tax credit, encouraged policymakers “to
maintain incentives” for research into rare-disease treatments.

Big drugmakers in particular stand to benefit more from the proposed lower
corporate tax rate than from the loss of a tax credit that some companies
do not use. And like other major corporations, the industry’s opposition
may be coalescing far more against a proposed excise tax that could
penalize companies for manufacturing their products overseas. These days,
many drugs are made outside the United States.

Companies that make drugs to treat rare diseases and their lobbyists are
already marshaling forces to retain the tax credit. Tactics include
enlisting patient-advocacy groups — many financed by drug companies — and
members, whose life-threatening and debilitating diseases often have more
of a compelling effect than pharmaceutical executives on lawmakers and the

“We didn’t have any prior warning,” said Paul Melmeyer, federal policy
director for the National Organization for Rare Disorders, or NORD. “We
look at that just utter lack of therapies for our patient populations.
There could be even 33 percent fewer than what we have, going forward, and
that is really what our concern is.”

Over the last decade, the number of new drugs to treat rare diseases has
proliferated, in part because of advancements in scientific research and in
part because drug companies have found new ways to profit from diseases
that were once seen as unworthy of corporate investment. In 2016, nine of
the 22 new drugs approved by the Food and Drug Administration were for rare
diseases; in 2015, 21 of the 45 drugs approved fell into that category.

Despite the investment, advocates note that of the 7,000 rare diseases that
have been identified, only about 5 percent have an approved therapy. About
30 million Americans have a rare disease, or about a tenth of the

While many rare-disease approvals bring advances for patients, companies
have also been seen to be taking advantage of the program by seeking the
designation for drugs that would be profitable anyway. The drugmaker AbbVie
has won multiple approvals for rare-disease uses for Humira, the world’s
best-selling drug, ranging from a form of juvenile arthritis to an eye
disease, uveitis. Many new cancer approvals also receive orphan-drug
designation because they are targeted at a narrow slice of the population.

With the coveted exclusivity granted by their orphan-drug status, companies
can charge virtually anything they want for these products, and some
manufacturers have set astronomical prices for drugs that have gone on to
bring in billions in sales. Soliris, made by Alexion, racked up more than
$2.8 billion in sales in 2016 even though it is only approved to treat
three rare diseases.

In May, three Republican senators, including Senator Hatch, asked the
Government Accountability Office to look into possible abuses of the Orphan
Drug Act, prompted by an investigation by Kaiser Health News. Mr. Melmeyer
said he did not think the request showed a change of heart by Senator
Hatch, who is chairman of the Finance Committee that may release its tax
plan as early as Thursday.

“We’re very much counting on him to step up and be the champion on this,”
Mr. Melmeyer said.

In 2015, a report commissioned by the biotechnology trade group and NORD
estimated that if the tax credit were removed, the number of drugs approved
over the next decade would decline by 33 percent.

Eric Davis, the executive vice president and general counsel of BioMarin
Pharmaceutical, which develops what it describes as “ultrarare” drugs, said
the tax credit “is really critical to helping us get over the hump with our
investment decisions, and I think that’s true for a lot of companies in our

Philip English, a former Republican Congressman who now lobbies for drug
firms and NORD, said he believed that his clients were picking up support
from Republicans and said he was confident that the tax credit would
survive any Senate plan.

“I think there is a consensus within the industry and within the advocacy
community that the orphan drug credit has been immensely successful in
generating innovative investment that has produced a string of successes,”
Mr. English said.

Rachel Klein, the senior director of advocacy and strategy for the
EveryLife Foundation for Rare Diseases, which was founded by a drug
industry executive, said policymakers need to be careful about tinkering
with a program that has been around for decades.

“What seem like small changes can really have a large impact,” she said.
“Ultimately this could end up doing more harm than good, and that really
would be a problem for the millions of people who are relying on these
companies to develop new therapies.”


Kim Treanor
Knowledge Ecology International
kim.treanor at keionline.org
tel.: +1.202.332.2670

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