As part of a sweeping tax reform bill, House Republicans on Thursday proposed eliminating billions of dollars in corporate tax credits that have played a key role in the booming 鈥渙rphan drug鈥� industry.
For more than three decades, pharmaceutical and biomedical companies have claimed a 50 percent tax credit for the cost of clinical trials on orphan drugs, or those that treat rare diseases affecting fewer than 200,000 people.
The credits were approved as part of the 1983 Orphan Drug Act, which has been under scrutiny in the past year as the country grapples with skyrocketing drug prices. Drugs that win special orphan status get a package of financial incentives, including the credits and seven years of market exclusivity. The drugs routinely have five-digit price tags and have become a sought-after market for drugmakers.
The National Organization for Rare Disorders (NORD) predicted, drawing from a , there would be 33 percent fewer orphan drugs coming to market if the credit vanishes 鈥� 鈥渁n unprecedented decrease in the development of these life-improving therapies,鈥� NORD鈥檚 read. The group said advocates had sent over 500 letters to Congress in support of the credit.
The powerful Biotechnology Innovation Organization, along with 20 drug companies such as Novo Nordisk, Horizon and Sanofi, wrote to Congress late last month urging them to keep the credit in the tax overhaul bill. BIO vowed Thursday to work with lawmakers to save the credit. If they fail, the repeal would be effective in January.
Yet, James Love of the think tank Knowledge Ecology International welcomed the potential repeal as a way to begin a conversation about 鈥渄eeper reform鈥� in the financial incentives for rare diseases.
Love noted that cancer drugs and 鈥渉uge blockbuster drugs [have] qualified for orphan tax credit[s] 鈥� and certainly provided no relief from high prices.鈥�
Earlier this year, the high prices caused one of the bill鈥檚 creators and champions, former U.S. congressman Henry Waxman (D-Calif.), to co-author a听听that suggested restricting or replacing the tax credit in some manner.听The authors of the report do not take a position on the Republican tax reform bill.
听A KHN investigation in January this year, which was , found that many drugs that now have orphan status aren鈥檛 entirely new. Of about 450 drugs that have won orphan approval since 1983, more than 70 were drugs first approved by the Food and Drug Administration for mass-market use. Those include cholesterol blockbuster Crestor, Abilify for psychiatric disorders and rheumatoid arthritis drug Humira, one of the world鈥檚 best-selling drugs.
In March, the Government Accountability Office confirmed it would investigate potential abuses to the law after Sens. Orrin Hatch (R-Utah), Chuck Grassley (R-Iowa) and Tom Cotton (R-Ark.) sent a letter to the agency, asking if the law needed to be changed.
This summer, the FDA announced an orphan drug modernization plan and promised to eliminate a backlog in drugs applying for the rare disease status. In a September update, FDA Commissioner Scott Gottlieb he wants to ensure financial incentives are granted 鈥渋n a way that鈥檚 consistent with the manner Congress intended鈥� when it passed the law decades ago.
Orphan drugs hit $36.1 billion in sales last year, according to released last month by QuintilesIMS and NORD. And, according to EvaluatePharma鈥檚 , orphan drugs will account for nearly 22 percent of global prescription sales, excluding generics, by 2022.
With that growth, the cost of the orphan drug tax credits to the U.S. government also grows.
鈥淎 billion here and a billion there and eventually it鈥檚 real money,鈥� said Nicholas Bagley, a law professor at the University of Michigan who .
In 2018, the U.S. is expected to grant nearly $2.8 billion in orphan drug tax credits to companies, according to estimates from. And, the reduced tax revenue for the U.S. government increases every year, to total $75 billion from 2018 to 2027.
鈥淩epealing this credit will effectively increase the cost of doing research on orphan drugs,鈥� said Kathy Michael, an analyst with PricewaterhouseCoopers鈥� US Pharmaceutical & Life Sciences Tax Sector.
鈥淚t鈥檚 significant,鈥� she said, adding that a number of companies have used the credit and that many have drugs in the pipeline that could qualify for the credit down the road.
KHN鈥檚 coverage of prescription drug development, costs and pricing is supported in part by the .