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Threatening Orphans


In an overhaul of the tax system, the orphan drug tax credit could get thrown out. According to advocates, this is the biggest issue facing the rare disease community.

This article published with permission from The Burrill Report.

Members of Congress can expect to hear a lot in the next few months about job creation, innovation and American competitiveness. If that’s not enough to move the heartless bastards in Washington, consider that the person delivering the message may well be an impassioned mother holding a child in her arms with a disease for which there is no cure.

Congress, in an effort to overhaul the tax system, has communicated it’s prepared to throw out all existing tax breaks and then add back those that people seem to really care about. To preserve the orphan drug tax credit, The Biotechnology Industry Organization spearheaded an effort to get patient groups to sign on to a letter to leaders of the House Committee on Ways and Means and the Senate Finance Committee.

“It’s the biggest issue facing the rare disease community right now,” says Jennifer Bernstein, a health care consultant who advises rare disease patient groups.

Bernstein says rare disease patient advocates find themselves vying for lawmakers’ attention without the resources of more powerful groups, such as the real estate industry trying to preserve the home mortgage deduction or the energy industry seeking to preserve certain tax breaks.

“The way it was best explained to me by a staff person on the Hill is that everyone is busy trying to throw everyone overboard to save themselves,” she says.

The credit, created through the 1983 Orphan Drug Act, provides an incentive to drug developers to pursue new therapies for diseases for which there are small markets. The tax credit allows drugmakers to claim a 50% tax credit for the qualified costs of clinical research and drug testing of orphan drugs, which are defined as drugs for diseases affecting up to 200,000 people in the United States. Proponents of the credit say it, along with other provision of the Orphan Drug Act, helped expand the number of therapies available to people with rare diseases.

Though some might expect it’s a fight for Big Pharma rather than the parents of sick kids, Bernstein says rare disease advocates aren’t expecting to have Big Pharma throw its weight behind the fight. Though large pharmaceutical companies in recent years have demonstrated a growing interest in rare diseases, they are not expected to spend a lot of political or other capital in an effort to preserve the tax credit. It’s not that these companies oppose the tax credit, but the credit doesn’t have great import to their businesses and they have bigger battles to wage at a time when goodwill toward the industry may be limited.

The companies with much more at stake are the smaller biotechs that focus their efforts on rare disease drug development. They say that incentives such as the orphan drug tax credit are critical to making their efforts economically viable.

“In the overall scheme of tax credits, it’s far less than the value that we get out of it in terms of jobs, societal benefits, in terms of saving patient lives and giving them better quality of life,” says Kathryn Lowell, executive director of government affairs for BioMarin Pharmaceutical, whose products and pipeline consists exclusively of orphan drugs.

In the letter rare disease advocates sent to leaders of the House Committee on Ways and Means and the Senate Finance Committee, they noted that prior to the passage of the Orphan Drug Act, 10 drugs had been developed for rare disease. Since then, more than 2,700 experimental therapies entered companies’ pipelines as orphan products and 300 have been approved by the U.S. Food and Drug Administration.

“The orphan drug tax credit provides necessary incentives for companies to embark on research and development projects to develop treatments to help patients suffering from these diseases,” they wrote. “In so doing, the orphan tax credit literally saves lives.”

Though rare disease advocates will be making the rounds on the Hill this fall, calling on members of the House and Senate to educate them on the importance of the credit, it’s expected that the real fight over tax reform will take place in 2014. The Office of Management and Budget forecasts that the orphan drug tax credit will cost the government $1.1 billion in 2013, not an insignificant amount, but in the context of a $3.8 trillion budget, advocates say it’s a blip on the radar.

There soon may be a bigger threat rare disease drugmakers face than loss of the tax credit. Already in Europe there is growing pressure on the pricing of these drugs, which can cost well in excess of $100,000 a year. Many now expect pricing pressure on these drugs to grow in the United States as well. At that point, it may be big drugmakers that lead the march to Congress rather than let patient advocates and smaller companies do the heavy lifting.

Copyright 2012 Burrill & Company. For more life sciences news and information, visit www.burrillreport.com.

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