Only a pawn in their game: Orphan drug tax credit on the chopping block again under Dem spending bill

2021-10-29

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Buried about 1,600 pages into the version of the Build Back Better Act released yesterday afternoon is a pronounced tweak to the orphan drug tax credit that would sharply curtail which clinical testing expenses qualify for the credit. The change comes amid a growing furor over blockbuster drugs racking up orphan indication approvals, and reaping the benefits of the tax credit while also pulling in tens of billions per year from other indications, like with AbbVie’s mega-blockbuster Humira, which has won 7 orphan indications and still has no competition in the US, or Roche’s blockbuster cancer drug Avastin, which has 11 orphan indications. Specifically, House Speaker Nancy Pelosi’s bill would tweak the wording around the section of the law, moving from, “Testing must be related to use for rare disease or condition,” to the newer version of, “Testing must be related to first use or indication for rare disease condition.” The section-by-section breakdown of the bill also explains the alterations as: The industry-backed Rare Disease Company Coalition immediately criticized the proposed changes, explaining how Republicans in 2017 already cut the tax credit from 50% to 25% of the applicable R&D expenses. The credit, which in 2015 was saving biopharma companies more than $100 million from development expenses, has been used as a pawn for years now by both sides of the aisle (Republicans once sought to eliminate it entirely), even if it has generally been helpful in the approval of 351 orphan drugs from 2008 to 2017 in 27 different therapeutic areas, according to the GAO. But the extent to which the orphan drug incentives, which also include 7 years of exclusive marketing rights for the compounds and a waiver of certain FDA fees, actually drive new investments in rare disease research remains unknown. And in some cases, like with Humira, the orphan exclusivity doesn’t expire until Oct. 2025, but biosimilars are coming to market in 2023. The GAO released a report on orphan drugs in 2018, finding that several drug manufacturers interviewed “told us that their company’s drug development decisions are based on the disease areas it wants to target and not due to ODA incentives. In addition, several stakeholders noted non-ODA drivers of orphan drug growth, including the ability to command high prices and advances in scientific discovery for some rare diseases.” Several studies also noted the limitations of the ODA incentives, including the structure of the orphan drug tax credit, and the ability of the incentives to target “truly” rare conditions that would not otherwise have obtained sufficient investment. But the extent to which the curtailing of these incentives will hamper future rare disease drug R&D also remains an open question too. Taylor Mason, executive director of the Rare Disease Company Coalition, said in a statement, “The proposed changes to the Orphan Drug Tax Credit would directly limit the ability for innovator companies to invest in research and development for the nearly 30 million people battling debilitating and potentially fatal rare diseases, of which 93 percent do not have available treatments.”

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